The Bank of England's approach to statutory notice decisions for use of its requirements powers

1: Overview

1.1 The Bank of England (the Bank) has been given a number of new powers, matched by new obligations and accountabilities, in its role as the UK’s regulator for central counterparties (CCPs)^{footnote [1]} and central securities depositories (CSDs) by the Financial Services and Markets Act 2000 (the Act) as amended by the Financial Services and Markets Act 2023 (FSMA 2023). At a high level, these include a power to make rules in respect of CCPs and CSDs in pursuit of its statutory objectives. Accompanying this are new obligations in respect of oversight and accountability. These include a new secondary objective to, when advancing its primary financial stability objective, facilitate innovation, a requirement to carry out cost benefit analysis (CBA), and the introduction of new accountability mechanisms that are more aligned with those that already exist for the Financial Conduct Authority and Prudential Regulation Authority (PRA).

1.2 Further to the above, the Act gives the Bank the power to issue requirements to recognised UK CSDs, recognised UK CCPs and systemic third-country CCPs,^{footnote [2]} collectively referred to as ‘financial market infrastructure (FMI) entities’. This power will allow the Bank to require such entities to take, or refrain from taking, a specified action. Consistent with the new regulatory principles introduced under the Act, any burden or restriction imposed by the Bank’s use of the power should be proportionate to the benefits expected to result.

1.3 The introduction of the new power is not unfettered and is matched by more stringent requirements in respect of transparency of the decision-making and publication processes, including important safeguards for how the Bank will engage with entities in respect of the decision and the ability for a decision to be referred to the Upper Tribunal. In order to be as transparent as possible in these processes, the Bank is consulting on a statement of policy (SoP) with respect to allocation of decision-making regarding statutory notices, its approach to supervisory statutory notice decision-making, and its approach to publication of supervisory statutory notice decisions. The draft SoP clarifies the Bank’s proposed policy on these issues. This CP does not consult on the likely conditions where the Bank may choose to use the power itself.

1.4 The proposals in this CP seek views on how the Bank will provide transparency on how decisions to use the requirements powers are made and disclosed, how the Bank will engage with entities in respect of the decision and how the process for reference to the Upper Tribunal will work. It seeks to avoid circumstances where the Bank’s issuance of statutory notices when exercising its requirements powers may give rise to an undue burden. The Bank considers that its proposed approach is aligned with the Bank’s financial stability objective and would not place an undue burden on FMI entities, as it makes the process through which the powers would be used more predictable. In developing the proposals in this CP, the Bank has considered its objective to protect and enhance the financial stability of the UK, its upcoming secondary objective to facilitate innovation,^{footnote [3]} statutory obligations, and other relevant considerations, including the Bank’s considerations on the costs and benefits of the proposals.

Background

1.5 Section 55L(3) and (5) of the Act^{footnote [4]} will provide the Bank with the power to exercise requirements on a relevant FMI entity. The Bank may use this power to impose a new requirement, vary a requirement or cancel an existing requirement on its own initiative or upon application by a relevant FMI entity. This CP relates to the issuance of supervisory statutory notices (outlined in Section 2 of this CP) when the Bank uses its requirements powers. The CP also presents the Bank’s approach to supervisory statutory notice decision-making and covers the Bank’s approach to the publication of related supervisory statutory notice decisions. The amendments to the Act that bring the Bank’s requirements powers into force (by virtue of the FSMA 2023) will be commenced on 1 January 2024.

1.6 This CP is set out as follows:

• Section 2 sets out the Bank’s proposals for its approach for issuing supervisory statutory notices when it exercises its requirements powers, its approach to supervisory statutory notice decision-making framework and its approach to the publication of information contained in or relating to these notices.
• Section 3 sets out how the Bank has taken into account its financial stability objective, secondary innovation objective, statutory obligations and other relevant considerations, including a non-statutory analysis of the costs and benefits of the proposals.

Implementation

1.7 The Bank proposes that the final SoP will be published (and take effect) following consideration of feedback received as a result of this consultation.

Responses and next steps

1.8 This consultation closes on Thursday 21 March 2024. The Bank invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to requirementspowersCP1223@bankofengland.co.uk. Please indicate in your response if you believe any of the proposals in this CP are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

2: The Bank’s proposals

2.1 The Bank views the power to exercise requirements on recognised FMI entities including recognised UK CSDs, recognised UK CCPs and systemic third-country CCPs (collectively referred to as FMI entities in this CP) as an important addition to its supervisory toolkit, that supports its objective to protect and enhance UK financial stability.

2.2 The requirements powers, set out in section 55L(3) and (5) of the Act (as applied to the Bank as FMI regulator in paragraph 9B of Schedule 17A of the Act), enable the Bank to require a relevant FMI entity to take an action or stop taking an action and can be used to support the entity’s financial and/or operational resilience when needed to help ensure the continuity of its services. This power is distinct to the existing powers of direction under sections 296 and 296A of the Act, which may only be used in specified cases.

2.3 When exercising the requirements powers, the Bank is required to issue statutory notices and accordingly, is required to make public details of its decision-making procedure for issuing such notices. This consultation therefore seeks to provide transparency by setting out the Bank’s proposals for the decision-making procedure in issuing notices to exercise the requirements power, how the Bank will engage with entities in respect of supervisory decisions and its approach to the publication of regulatory action in relation to these supervisory decisions.

The Bank’s policy on statutory notices relevant to the requirements powers and the allocation of decision-making when exercising its requirements powers

2.4 The Act^{footnote [5]} allows the Bank to exercise the requirements powers in two ways. First, the Bank may exercise this power to impose new requirements, vary a requirement or cancel an existing requirement on its own initiative (OIREQ), if it appears to the Bank that either (or both) of the following conditions is met:

• it is desirable to exercise the power in order to advance the financial stability objective; and/or
• the relevant FMI entity (a) has failed, or is likely to fail, to satisfy the recognition requirements;^{footnote [6]} or (b) has failed to comply with any other obligation imposed on it by or under the Act.

2.5 Second, upon application by the relevant FMI entity the Bank may impose new requirements, vary or cancel an existing requirement. This is known as a voluntary requirement (VREQ). The Bank may accept or refuse a VREQ application if it appears to it that it is desirable to do so in order to advance the financial stability objective.

2.6 This consultation relates to the issuance of statutory notices when the Bank uses its OIREQ and VREQ powers.

2.7 Statutory notices relevant to the requirements powers are divided into categories in the table below.

2.8 When exercising its requirements powers, the Bank will issue the following notices:

• Warning Notice – the Bank is obliged to issue a Warning Notice when the Bank intends to refuse an application by a relevant FMI entity to impose, cancel, or vary a VREQ.
• Decision Notice – the Bank is obliged to issue a Decision Notice when the Bank has decided to refuse an application by a relevant FMI entity to impose, cancel or vary a VREQ.
• Supervisory Notice – the Bank is obliged to issue a Supervisory Notice when making decisions regarding imposing, varying or cancelling an OIREQ.

2.9 In addition to the above, the Bank may issue a Notice of Discontinuance and a Final Notice at its discretion identifying the proceedings set out in a Warning or Decision Notice which being discontinued or are not being taken. A Notice of Discontinuance identifies the proceedings set out in a Warning or Decision Notice and which are not being taken or being discontinued, and a Final Notice sets out the terms of the action that the Bank is taking. The procedures related to these notices are not required to be consulted on but are envisaged to be similar to the procedures for other notices covered in this consultation.

2.10 The proposed SoP sets out the Bank’s proposals for its approach for issuing supervisory statutory notices when it exercises its requirements powers, its approach to supervisory statutory notice decision-making framework and its approach to the publication of information contained in or relating to these notices.

2.11 We propose that decisions as to whether to give a statutory notice will be taken by one of two decision-making committees (DMCs) in accordance with the decision-making framework contained in the SoP.

2.12 We propose that the choice of which DMC will take a decision will be determined by the category of the relevant FMI entity in conjunction with the anticipated impact of the decision on an entity’s ability to carry out its business effectively and/or the impact on the Bank’s objectives. In summary, the more significant the relevant FMI entity and the greater the decision’s impact, the more senior the composition of the DMC. In all cases, the DMCs will make decisions by having regard to the relevant facts, the law, and the Bank’s priorities and policies.

2.13 The requirements powers apply to systemic third-country CCPs. Although there are currently no CCPs defined as systemic third-country CCPs, we would not anticipate using the power in respect of these CCPs should they be so designated. If the Bank were to use the power, however, we would anticipate engaging the firms’ regulators prior to doing so in line with the Bank’s deferential approach to incoming CCP supervision and oversight within our tiering policy framework.^{footnote [7]}

2.14 Additionally, the DMC will take decisions associated with a statutory notice including decisions to:

• set or extend time for making representations; and
• publish the notice.^{footnote [8]}

Approach to the publication of supervisory decisions

2.15 The SoP outlines the Bank’s approach to the publication of all or part of statutory notices, which includes occasions where the Bank may consider whether it is appropriate to exercise its discretion in favour of not publishing such details. The approach takes into account consideration of whether to reinforce the Bank’s statutory objectives and its policies, inform the financial services industry of behaviour which it considers to be unacceptable, deter future and/or widespread breaches of its regulatory requirements and inform the wider society of the action it is taking and the reasons for it. The Bank will not publish such information if, in its opinion, the publication is unfair to the entities concerned or detrimental to the stability of the UK financial system.

3: Consideration of the Bank’s financial stability objective, secondary innovation objective, statutory obligations and cost benefit analysis

3.1 This section sets out the relevant considerations that the Bank has considered in developing the proposals, including with respect to its financial stability objective, its secondary innovation objective and statutory obligations. The Bank has, as a matter of best practice, considered in this CP the new obligations required by the Act which have not yet come into force but are expected to be commenced and will apply to the Bank by the time the final SoP is published in 2024. In addition, the Bank has undertaken a non-statutory cost benefit analysis, as a matter of best practice.

Bank financial stability objective analysis

3.2 The Bank has an objective to protect and enhance the stability of the financial system in the UK.^{footnote [9]} The proposals in this CP are aligned with this objective and are intended to safeguard UK financial stability through ensuring the continuity of FMI services through the Bank’s use of its requirements powers.

3.3 The Bank is required by the Act to set out its approach to issuing statutory notices in respect of the requirements powers. The Bank considers the draft SoP setting out the approach to the issuance of these supervisory statutory notices to be supportive of its financial stability objective. The proposals in this CP aids the Bank in the supervision of relevant FMI entities and allows the Bank to take supervisory action to reduce risks that may arise when seeking to safeguard UK financial stability.

Bank secondary innovation objective analysis

3.4 FSMA 2023 introduces a new secondary innovation objective. At the point that those measures come into force, this new secondary objective is expected to require the Bank in discharging its general functions in a way that advances its primary objectives and so far as reasonably possible to act in a way which facilitates innovation in the provision of FMI services.

3.5 In light of this and the proposed implementation date for the proposals set out in this CP, the Bank has considered whether these proposals will facilitate innovation in the provision of FMI services. The Bank considers the changes proposed in this CP are unlikely to have a material impact on innovation in the provision of FMI services in and of themselves. However, the Bank considers that upholding a transparent supervisory regime through a published approach to Supervisory Notices will reinforce a robust regulatory framework. This is key to instilling trust and confidence among investors, firms and other regulators, which is part of a broader landscape that facilitates innovation.

‘Have regards’ analysis

3.6 Ahead of the accountability changes introduced by FSMA 2023 taking effect as of 1 January 2024, as a matter of best practice in developing these proposals, the Bank has had regard to the relevant regulatory principles^{footnote [10]} it will soon be required to consider when exercising an ‘FMI function’.^{footnote [11]}

3.7 The following factors, to which the Bank is required to have regard, were significant in the Bank’s analysis of the proposal:

The principle that a burden or restriction which is imposed on an FMI entity should be proportionate to the benefits which are expected to result from the imposition of that burden

3.8 The Bank considers that the benefit of safeguarding financial stability and supporting the continuity of FMI services through the Bank’s use of its requirements powers, which the statutory notices that the proposals contained within this CP relate, is greater than the costs imposed on relevant FMI entities. The proposals in this CP set out the Bank’s approach to deciding on and issuing statutory notices whenever the Bank exercises its requirements powers. By setting out its procedures for issuing statutory notices in the CP, which allows FMI entities to familiarise themselves with, the Bank ensures that FMI entities are better placed to respond to the Bank’s use of the requirements powers in future. The Bank considers the benefit of this action safeguarding financial stability is greater than the costs imposed on FMI entities from the Bank’s use of the requirements powers.

Efficient and economic use of regulator resources

3.9 The Bank considers that publishing its approach on the use of its upcoming requirements powers as set out in this CP will ensure transparent, well understood and established use of the powers in future. The Bank considers this an efficient and economic use of the Bank’s resources as it would assist in preventing the occurrence of certain situations that would require a larger use of the Bank’s resources to correct. Additionally, the decision-making framework for issuing statutory notices contained in the CP is set up to ensure that the degree of Bank resource used is proportionate to the potential impact of the decision on the relevant FMI entities and, in turn, on the financial system.

Regulatory transparency

3.10 The Bank consider that the proposals in this CP are consistent with these principles of regulatory transparency. The proposals include processes relating to the publication of regulatory action which promotes transparency. This is further supported by publishing the present consultation to share the Bank’s policy proposals with stakeholders and seek views.

3.11 Publishing information relating to entities on which requirements are imposed as a result of the exercise of the Bank’s FMI functions, or requiring such entities to publish information, as a means of contributing to the advancement by the Bank of its financial stability objective and its secondary innovation objective.

3.12 The Bank considers that the proposals included in this CP, particularly the procedures setting out the Bank’s approach to deciding whether to publish information about regulatory action in relation to supervisory decisions aligns with the above principle. This approach is based on section 391 of the Act which ensures that, when considering whether to publish such information, the Bank must consider whether the action will advance its statutory objectives and that the publication must not be unfair to the entities concerned.

The financial stability of third countries

3.13 The Bank considers that the use of its requirements powers, with which the approach to issuing supervisory statutory notices in this CP relate, supports its financial stability objective and the financial stability of other countries by ensuring the resilience of FMIs and the continuity of their services, which in turn contributes positively to financial stability in the other countries that they operate in. This includes the Bank’s approach for engaging a third-country’s regulators early in line with the Bank’s deferential approach to incoming CCP supervision and oversight within its tiering policy framework.^{footnote [12]}

The desirability of exercising FMI functions in a manner that is not determined by whether the persons to whom FMI services are provided are located in the United Kingdom or elsewhere

3.14 The Bank considers that the proposals set out in this CP do not discriminate on the grounds of the location of persons to whom FMI services related to this CP are provided. The proposals in this CP are relevant to all recognised CCPs, recognised CSDs and systemic third-country CCPs, regardless of the location of persons using their services.

Equality and diversity

3.15 The Bank is required by the Equality Act 2010^{footnote [13]} to have due regard to the need to eliminate discrimination and to promote equality of opportunity in carrying out its policies, services, and functions. The Bank considers that the proposals in this CP would not give rise to adverse equality and diversity implications.

Non-statutory cost benefit analysis

3.16 We have considered, as a matter of good practice, what the costs and benefits of the proposed changes are likely to be.

3.17 The Bank considers that these proposals help to clarify the Bank’s powers and processes. As the proposals do not involve rule changes or the creation of new powers, we therefore consider that the associated costs for relevant FMI entities are likely to be minimal or none. All the changes are designed to increase regulatory transparency.

3.18 The proposals on the Bank's approach to statutory notice decisions relevant to the exercise of its requirements powers policy are intended to promote efficient decision-making in line with the Bank’s obligations set out in legislation.

Appendix: draft statement of policy

• The Bank of England’s approach to statutory notice decisions for use of its requirements powers

  This appendix contains the Bank of England’s proposed policy on its approach to making statutory notice decisions for the use of its requirements powers under section 55L(3) and (5) of the Financial Services and Markets Act 2000 (the Act) as amended by the Financial Services and Markets Act 2023 (FSMA 2023).^{footnote [14]}

  1: Introduction

  1.1 The Bank of England (‘Bank’) uses regulatory, supervisory, and enforcement powers to pursue its mission of financial stability and to advance its statutory objectives.^{footnote [15]} Through regulation, the Bank develops standards and policies that set out what it requires and expects of entities. Through supervision, the Bank monitors and assesses whether entities are meeting its requirements and expectations. Where they do not, the Bank can take action – supervisory or enforcement – to reduce the risks that might arise. The Bank’s approach to regulation and supervision is forward looking, judgement based, and focused on the issues and entities that pose the greatest risk to the stability of the UK financial system.

  1.2 This statement of policy sets out the procedures the Bank follows in respect of one of its supervisory powers, the requirements power, conferred on the Bank by section 55L(3) and (5) of the Act. The Bank’s approach to enforcement supports and supplements its regulatory and supervisory tools by ensuring that the Bank has credible mechanisms for holding its regulated entities to account where they do not meet the Bank’s requirements and expectations.

  1.3 This power sits within a broader framework of new powers, matched by new obligations in respect of oversight and accountability, given to the Bank by the Act. For this reason, the Bank is required to meet high expectations of transparency in respect of how decisions to use the power are made, and how they will be publicised. This statement of policy seeks to provide transparency by setting out the Bank’s approach to statutory notice decision-making and publication in the exercise of its requirements powers and includes important safeguards for how the Bank will engage with entities in respect of the decision and the ability for a decision to be referred to the Upper Tribunal.

  1.4 The Bank can exercise its requirements powers over ‘relevant FMI entities’ which means recognised UK central securities depositories (CSDs), recognised UK central counterparties (CCPs)^{footnote [16]} and systemic third-country CCPs.^{footnote [17]} Therefore, this statement of policy is particularly relevant to those FMI entities. These powers are a supervisory tool that, in particular, allow the Bank to require an entity to take an action, or refrain from taking a specified action.^{footnote [18]} The requirements powers can be voluntary in nature – where an entity makes an application to the Bank for a requirement to be imposed, varied or cancelled.^{footnote [19]} The Bank can also, of its own initiative, impose, vary, or cancel a requirement.^{footnote [20]} The powers are separate from the Bank’s existing power of direction and from the Prudential Regulation Authority’s (PRA’s) equivalent power over PRA-regulated entities.

  1.5 In this statement of policy, a statutory notice decision is one which gives rise to certain obligations under the Act including the obligation to determine and publish a statement of policy.^{footnote [21]} Importantly not every exercise of the Bank’s requirements powers will give rise to statutory notice decisions; for our purposes here, in summary, statutory notices are only required where the Bank refuses an FMI entity’s application^{footnote [22]} and/or where the Bank imposes or varies a requirement on its own initiative^{footnote [23]} (see also Table A.1 in paragraph 2.7 below).

  1.6 If the Bank proposes to exercise the requirements powers under the Act,^{footnote [24]} it must give a written notice to the entity on which the power is exercised. Statutory notices include Warning Notices, Decision Notices and Supervisory Notices (defined below). This statement of policy covers the following Bank procedures:

  • allocation of decision-making regarding statutory notices (Warning Notices, Decision Notices and Supervisory Notices);
  • approach to supervisory statutory notice decision-making under the Act; and
  • approach to publication of supervisory statutory notice decisions.

  2: Statement of the Bank's policy on statutory notices and the allocation of decision-making under the Act in relation to the Bank's requirements powers

  2.1 This statement of policy is issued by the Bank in accordance with the requirements of section 395^{footnote [25]} of the Act that requires the Bank to issue a statement of its procedure in relation to the issuance of statutory notice decisions. This statement of policy focuses on the procedures for deciding and issuing statutory notice decision relating to the requirements powers conferred on the Bank by section 55L(3) and (5) of the Act.^{footnote [26]} Statutory notice decisions are those which give rise to an obligation to issue a Supervisory, Warning, or Decision Notice. This statement of policy covers the decision-making committee (DMC) allocation for these types of decisions.

  2.2 Separately, the Bank has published statements of policy and procedures for the issuing of statutory notices in relation to enforcement cases, which are dealt with by the Bank’s Enforcement Decision-making Committee.^{footnote [27]}

  2.3 In publishing this statement of policy, the Bank recognises the desirability of:

  • upholding and encouraging high standards of behaviour that are consistent with relevant FMI entities, who are subject to the Bank’s recognition requirements, meeting and continuing to meet those requirements; and
  • demonstrating the benefits of such behaviour.

  2.4 The Bank will ensure that the decision-making procedure is designed to secure, among other things, that statutory notice decisions are generally taken by two or more persons. This should include a person not directly involved in establishing the evidence on which that decision is based.^{footnote [28]}

  2.5 The Act also allows for the procedure to permit a decision which gives rise to an obligation to give a Supervisory Notice to be taken other than as mentioned above.^{footnote [29]} This applies if the person taking the decision is of a level of seniority laid down by the procedure (as set out in this statement of policy) and the Bank considers that, in the particular case, it is necessary in order to advance its financial stability objective.

  Introduction to statutory notices

  2.6 When the Bank exercises its requirements powers, it must give written notice to the relevant FMI entity in relation to which the power is exercised, as set out in the table below.

  2.7 Statutory notices are divided into the categories shown in the table below:

  Table A.1: Statutory notices

  Notice	Description	Relevant to	Act reference
  Warning Notice	States, in writing, the action which the Bank proposes to take, giving reasons for the proposed action, and the opportunity for representations.	VREQ refusal	Section 387 (a)
  Decision Notice	States, in writing, the reasons for the action that the Bank has decided to take. The Bank may also give a further Decision Notice which relates to a different action in respect of the same matter if the recipient consents. The notice also gives an indication of any right to have the matter referred to the Tribunal and the procedure for such a reference. (b)	VREQ refusal	Section 388 (c)
  First Supervisory Notice	Written notice providing details of an action that the Bank proposes to take, or actions that take immediate effect, including reasons for the action and informing entity of its right to make representations and to refer the matter to a Tribunal.	OIREQ	Section 395(13) (d)
  Second Supervisory Notice	Written notice, following representations by entity, to take, not take, or not to rescind the action set out in the first Supervisory Notice. Also informs entity of right to refer matter to Tribunal.	OIREQ	Section 395(13) (e)

  Footnotes

  • (a) See also section 55X(2) of the Act.
  • (b) ‘Tribunal’ means the Upper Tribunal (Tax and Chancery Chamber) or any successor body.
  • (c) See also section 55X(4) of the Act.
  • (d) See also section 55Y of the Act.
  • (e) See also section 55Y of the Act.

  2.8 In addition to the above, the Bank must issue a Notice of Discontinuance and a Final Notice in certain circumstances.^{footnote [30]} A Notice of Discontinuance must be issued by the Bank where it decides not to take the action proposed in a Warning Notice or a Decision Notice.^{footnote [31]} The Bank must also issue a Final Notice, when it takes the action set out in the Decision Notice.^{footnote [32]} For the avoidance of doubt, the decision to issue a Notice of Discontinuance or a Final Notice is not a statutory notice decision for the purpose of this statement of policy.

  Requirements powers

  2.9 Paragraph 9B of Schedule 17A of the Act provides the Bank with powers to impose requirements on a relevant FMI entity. The Bank may exercise these powers on its own initiative (OIREQ) or upon application by the relevant FMI entity (VREQ).

  2.10 The Bank’s OIREQ power is a power to impose a new requirement or, vary or cancel an existing requirement if it appears to the Bank that either (or both) of the following conditions is met:

  • it is desirable to exercise the power in order to advance the financial stability objective.
  • the relevant FMI entity (a) has failed, or is likely to fail, to satisfy the recognition requirements; or (b) has failed to comply with any other obligation imposed on it by or under the Act.

  2.11 The Bank’s OIREQ power may not be exercised so as to restrict or prohibit discretionary payments to employees or shareholders of a recognised UK CCP.^{footnote [33]}

  2.12 The Bank’s VREQ power is a power to impose a new requirement, vary or cancel an existing requirement on application by a relevant FMI entity.

  2.13 A VREQ application must meet certain requirements, including that it must contain a statement of the desired variation or requirement. Further, it must be made in such manner as the Bank may direct and contain, or be accompanied by, such other information as the Bank may reasonably require.^{footnote [34]} At any time after the application is received and before it is determined, the Bank may require the applicant to provide it with such further information as it reasonably considers necessary to enable it to determine the application. The Bank may require an applicant to provide information which the applicant is required to provide to it in such form, or to verify it in such a way, as the Bank may direct.

  2.14 The Bank may accept or refuse a VREQ application if it appears to it that it is desirable to do so in order to advance the financial stability objective.

  2.15 The Bank may impose an OIREQ or VREQ to require the relevant FMI entity concerned to take specified action, or to refrain from taking specified action, and it may extend beyond activities in respect of which a recognition order is in force.^{footnote [35]} An OIREQ or VREQ may be imposed by reference to the relevant FMI entity’s relationship with its group entity, or other members of the relevant FMI entity’s group, and may refer to the past conduct of the relevant FMI entity concerned (for example, by requiring the relevant FMI entity to review or take remedial action in respect of past conduct).^{footnote [36]}

  2.16 This statement of policy relates to the issuance of statutory notices when the Bank exercises its OIREQ and/or VREQ powers, specifically when issuing a:

  • Warning Notice – the Bank is obliged to issue a Warning Notice when the Bank intends to refuse an application by a relevant FMI entity to impose, cancel, or vary a VREQ.
  • Decision Notice – the Bank is obliged to issue a Decision Notice when the Bank has decided to refuse an application by a relevant FMI entity to impose, cancel or vary a VREQ.
  • Supervisory Notice – the Bank is obliged to issue a Supervisory Notice when making decisions regarding imposing, varying or cancelling an OIREQ.

  Decision-making

  Decision-making committees

  2.17 Decisions as to whether to give a statutory notice will be taken by an appropriate DMC. The Bank will ensure that the level of seniority of the decision maker is appropriate to the importance, complexity, and urgency of the decision.

  2.18 There will be two DMCs responsible for the issue of the statutory notices described above:

  • the Financial Market Infrastructure Committee (the FMIC);
  • the Financial Market Infrastructure Executive Committee (the FMIEC)

  2.19 The DMCs will also take decisions associated with a statutory notice including decisions to:

  • set or extend time for making representations.
  • publish the notice.^{footnote [37]}

  2.20 In all cases, the DMCs will make decisions by having regard to the relevant facts, the law, and the Bank’s priorities and policies.

  2.21 The Bank does not currently anticipate using the requirements powers in respect of systemic third-country CCPs. If the Bank were to use the power, the Bank would engage the firms’ regulators prior to doing so in line with the Bank’s deferential approach to incoming CCP supervision and oversight that is set out in the Bank’s tiering policy framework.^{footnote [38]}

  2.22 The Bank will make appropriate records of those decisions, including records of meetings and the representations (if any) of the recipient(s) of the notice and materials considered by the decision makers.

  Decision-making framework

  Choice of DMC and categorisation of decisions

  2.23 The Bank divides the relevant FMI entities it supervises into three categories of impact.^{footnote [39]}

  2.24 Statutory notice decisions related to the exercise of the requirements powers will be divided into one of three categories listed in Table A.2. Bank staff will determine into which category each proposed decision falls.

  Table A.2: Statutory notice decision categories

  Category	Description
  Type A	Decisions which: (i) the Bank expects to have a significant impact on an entity’s ability to carry out its business effectively; or (ii) the Bank considers could have a significant impact on its financial stability objective.
  Type B	Decisions which: (i) the Bank expects to have a moderate impact on an entity’s ability to carry out its business effectively; (ii) the Bank considers could have a moderate impact on its financial stability objective; or (iii) may set a sensitive precedent but which would otherwise have fallen under Type C.
  Type C	Decisions which: (i) the Bank expects to have a low impact on an entity’s ability to carry out its business effectively; (ii) the Bank considers could have a low impact on its financial stability objective; or (iii) relate to which a precedent has already been set.

  2.25 The choice of which DMC will take a decision will be determined by the category of the relevant FMI entity in conjunction with the anticipated impact of the decision on an entity’s ability to carry out its business effectively and/or the impact on the Bank’s financial stability objective. In summary, generally, the more significant the relevant FMI entity and the greater the decision’s impact, the more senior the composition of the DMC (see Figure A.1).

  Figure A.1: The Bank’s decision-making framework for statutory decisions related to the exercise of the requirements powers

  

  Warning Notices and first Supervisory Notices related to supervisory decisions

  General

  2.26 If Bank staff consider that action requiring a Warning or first Supervisory Notice is appropriate, they will recommend to the relevant DMC that the notice be given.

  2.27 In the case of a Supervisory Notice, the Bank staff will also make associated recommendations, for example, whether the action should take effect immediately, on a specified date, or when the matter is no longer open to review.

  2.28 In relation to a Supervisory Notice which does not take effect immediately, a matter is open to review when:

  • the period during which an entity may refer a matter to the Tribunal is still running; or
  • the matter has been referred to the Tribunal but has not been dealt with; or
  • the matter has been referred to the Tribunal and dealt with but the period during which an appeal may be brought against the Tribunal’s decision is still running; or
  • such an appeal has been brought but has not been determined.^{footnote [40]}

  Approach of the DMC

  2.29 The DMC will:

  • consider recommendations made to it by Bank staff in making any decisions;
  • consider whether the material on which the recommendation is based is adequate to support it; the decision maker may seek additional information about or clarification of the recommendation;
  • consider whether or not to consult other relevant regulators for views on the issue;
  • satisfy itself that the action which the DMC recommends is appropriate in all the circumstances;
  • decide whether to give the notice and settle the terms of any notice including whether and in what form to publish the notice.

  2.30 If the Bank decides to issue a Warning or first Supervisory Notice, the Bank will ensure that the notice meets the requirements set out in the Act.

  2.31 If the Bank decides to take no further action and the Bank had previously informed the entity concerned that it intended to recommend action, the Bank will communicate this promptly to the entity concerned. And, as noted above, in the case of a Warning Notice for a VREQ refusal, the Bank will issue Notices of Discontinuance and Final Notices where required.^{footnote [41]}

  Decision Notices and second Supervisory Notices related to supervisory decisions

  Approach of the DMC

  2.32 If a DMC is asked to decide whether to give a Decision Notice or a second Supervisory Notice it will:

  • consider recommendations made to it by Bank staff in making any decisions;
  • consider whether the material on which the recommendation is based is adequate to support it; the decision maker may seek additional information about or clarification of the recommendation;
  • consider whether or not to consult other relevant regulators for views on the issue;
  • consider any representations made by the FMI entity or any other relevant party (whether written, oral or both) and any comments by Bank staff in respect of those representations;
  • satisfy itself that the action which the DMC recommends is appropriate in all the circumstances; and
  • decide whether to give the notice and settle the terms of any notice including whether, and in what form, to publish the notice.

  2.33 Save where the DMC decides otherwise, the same DMC^{footnote [42]} that issued the Warning Notice or first Supervisory Notice will determine whether to issue a Decision Notice or a second Supervisory Notice and will decide questions concerning publication.

  2.34 If the Bank decides to issue a Decision Notice, it will ensure that the notice meets the requirements set out in the Act.

  Default procedures related to supervisory decisions

  2.35 If the Bank receives no response or representations within the period specified in the Warning Notice, the decision maker may regard the allegations or matters in that notice as undisputed and issue a Decision Notice accordingly.

  2.36 An entity that has not previously made any response or representations to the Bank may nevertheless refer the Bank’s decision to the Tribunal.

  2.37 If the Bank receives no response or representations within the period specified in the first Supervisory Notice, the Bank will not automatically give a second Supervisory Notice. The outcome of the default procedure depends on whether the relevant action takes effect immediately or at a future point in time. If the action:

  • took effect immediately or on a specified date which has already passed, it continues to have effect subject to any decision on a referral to the Tribunal;
  • was to take effect at a specified date which is still in the future, it takes effect on that date subject to any decision on referral to the Tribunal; or
  • was to take effect when the matter was no longer open for review, it takes effect when the period to make representations or refer the matter to the Tribunal expires, unless the matter has been referred to the Tribunal.

  2.38 In exceptional circumstances, an entity that has received a Decision Notice or against which action detailed in the Warning Notice has taken effect may show on reasonable grounds that the entity to which the notice relates did not receive the Warning Notice or that they had reasonable grounds for not responding within the specified period. In these circumstances, if the DMC considers it appropriate, with the consent of the entity to which the notice relates, it may decide to revoke the Decision Notice and the matter may be considered afresh or it may decide to give a further Decision Notice or Supervisory Notice.

  Further Decision Notice related to supervisory decisions

  2.39 Following the giving of a Decision Notice but before the Bank takes action to which the Decision Notice relates, the Bank may give the entity concerned a further Decision Notice relating to a different action concerning the same matter.^{footnote [43]} The Bank may only do this if the entity receiving the further Decision Notice gives their consent.^{footnote [44]} In these circumstances the following procedure will apply:

  • Bank staff will recommend to the appropriate DMC that a further Decision Notice be given;^{footnote [45]}
  • the DMC will consider whether the action proposed in the further Decision Notice is appropriate in the circumstances;
  • if the DMC decides that the proposed action is inappropriate, it will decide not to give the further Decision Notice. In this case, the original Decision Notice will stand and the entity’s rights in relation to that notice will be unaffected. If the entity’s consent has already been obtained, the Bank will notify the entity of the decision not to give the further Decision Notice;
  • if the DMC decides that the action proposed is appropriate then subject to the entity’s consent being (or having been) obtained, the Bank will issue a further Decision Notice; and
  • an entity which had the right to refer the matter to the Tribunal under the original Decision Notice will have that right under the further Decision Notice. The time period in which the reference to the Tribunal may be made will begin from the date on which the further Decision Notice is given.

  The nature and procedure of the DMCs related to supervisory decisions

  Composition of DMCs

  2.40 All DMC members are Bank employees other than the external members of the FMIC. A DMC will usually be composed of at least three members who will include a chair, although the size may vary depending on the nature of the particular matter under consideration.

  2.41 The members of a DMC will usually meet in person or on video conferencing software but may, in appropriate cases, discuss cases in writing or by telephone or by email or other electronic means.

  2.42 A DMC will have a secretariat.

  General procedures

  2.43 The chair of a DMC will determine the manner in which a decision will be taken, ensuring that it is dealt with fairly and swiftly.

  2.44 Decisions made by DMCs often give rise to the need for decisions to be made on a timely basis, for example to ensure the Bank complies with any relevant time period in which it must reach a decision in respect of an application by a relevant FMI entity, or to avoid prolonged periods of uncertainty for entities and supervisors in respect of proposed supervisory action. DMCs will take account of the need for timely decisions when determining the manner in which a decision will be taken and will expect recipients of notices to engage in the process accordingly.

  2.45 A DMC will aim to reach a consensus on the decisions they are asked to consider. Each voting member of a DMC is entitled to vote on the matter under consideration. In the event that a consensus cannot be reached by a DMC, a decision will be taken based on a majority vote and the chair of the DMC will have the casting vote in a tie.

  2.46 In a situation where a DMC member has to recuse themselves from a DMC due to a conflict of interest, the chair will determine whether a new member should be appointed or whether to continue deciding the matter with the remaining DMC members. This determination will be based on, among other issues, the complexity of the case and the stage the case has reached.

  2.47 If a DMC considers it relevant to its consideration, it may ask Bank staff to obtain or provide any or all of the following:

  • further explanation of any aspect of the Bank staff recommendation or accompanying papers;
  • information about the Bank priorities and policies;
  • legal advice;^{footnote [46]} or
  • any other additional information about the matter (which may require the Bank staff to undertake further investigations).

  2.48 A DMC cannot require individuals to attend before it, provide documents or give evidence. It will make decisions based on all the relevant information available to it.

  2.49 For enquiries relating to a statutory notice, the recipient should engage with the secretariat of the DMC. Recipients are encouraged to engage early and fully with the process. The recipient should engage with its supervisory contacts in the usual way in relation to matters not relating to the notice.

  Procedure for Warning Notices and first Supervisory Notices

  2.50 If Bank staff consider that action is appropriate, they will make a recommendation to the appropriate DMC that a Warning Notice or Supervisory Notice should be given.

  2.51 As set out above, the appropriate DMC will be selected to decide the case.

  2.52 As set out above, the DMC will consider whether it is right in all the circumstances to give the statutory notice.

  2.53 If the DMC considers that it would be appropriate for the Bank to consult other regulators, the Bank will take the views of those consulted into consideration.

  2.54 If the DMC decides that the Bank should give a Warning Notice or first Supervisory Notice, the DMC will:

  • settle the wording of the notice;
  • make any relevant statutory notice associated decisions; and
  • consider whether it is desirable to publish the notice as provided in the Bank’s approach to publication of regulatory action.

  2.55 The Bank will make appropriate arrangements for:

  • the notice to be given; and
  • disclosure of the other regulators’ views on the matter.

  Procedure for representations

  2.56 A Warning Notice will specify that the time for making representations will be no less than 14 days.^{footnote [47]} For a first Supervisory Notice, the DMC will agree an appropriate time for making representations. This will normally be no less than 14 days but there may be circumstances where the Bank considers a shorter period is appropriate or justified. The first Supervisory Notice will specify this time.

  2.57 The Bank will also, when giving the Warning or first Supervisory Notice, specify a time within which the recipient is required to indicate whether they wish to make oral representations.

  2.58 The recipient of the Warning Notice or first Supervisory Notice may request an extension of time allowed for making representations. Such a request should normally be made within 14 days of the notice being given, or if in respect of a first Supervisory Notice where the period for making representations is less than 14 days, before such period expires.

  2.59 If a request is made for an extension of time for making representations, the chair of the allocated DMC will decide whether it is fair in all the circumstances to allow an extension, and if so, how much additional time is to be allowed for making representations. In reaching their decision, they may take account of any recommendation by Bank staff responsible for the matter.

  2.60 The Bank will notify the relevant party of the decision in writing.

  2.61 If the recipient of the Warning or first Supervisory Notice indicates that they wish to make oral representations, the Bank will seek to arrange a date suitable to the recipient of the notice and the DMC that will hear the representations.

  2.62 The chair of the relevant meeting will ensure that the meeting is conducted so as to enable:

  • the recipient of the Warning or first Supervisory Notice to make representations;
  • the relevant DMC members to raise with those present any points or questions about the matter; and
  • the recipient to respond to points made by the DMC.

  2.63 The chair may ask the recipient of the notice to limit their representations or response in length or to particular issues.

  2.64 The recipient of the Warning Notice or Supervisory Notice may choose to be legally represented at the meeting, but this is not a requirement.

  2.65 In appropriate cases, the chair of the DMC hearing the oral representations may require the recipient of the Warning or first Supervisory Notice to provide additional information in writing after the meeting. If they do so, they will specify the time within which that information is to be provided.

  2.66 During the hearing the DMC may ask either the recipient of the notice or the Bank staff responsible for the matter to comment on issues raised if it feels it is necessary to help its understanding of the case.

  2.67 The relevant Bank staff will attend the oral hearing for the recipient of the notice but will not respond to any representations at the meeting unless asked to do so by the DMC.

  2.68 The relevant Bank staff may provide the DMC with a written response to the oral representations no later than seven days after the hearing.

  2.69 Generally, the relevant Bank staff will continue to update the DMC in relation to supervisory matters, in particular where these are relevant to the DMC’s decision. The DMC will decide whether such information materially affects or changes the substance of the issues raised in the notice. Where this is the case, the DMC will consider in light of the circumstances of the matter as a whole whether the recipient of the notice should be given the opportunity to respond to such information.

  2.70 While a matter is still ongoing after the Bank has given a Warning or first Supervisory Notice, the DMC will generally not meet with the Bank staff responsible to discuss the substance of the case. The DMC may meet with Bank staff responsible if the recipient of the Warning or first Supervisory Notice (and other relevant parties) is present or has had the opportunity to respond.

  2.71 If such exceptional circumstances arise, the DMC will disclose the occurrence and a summary of such meetings with the recipient of the notice and permit them the opportunity to respond.

  Procedure for Decision Notices and second Supervisory Notices

  2.72 If no representations are made in response to the Warning Notice or first Supervisory Notice, the Bank may regard as undisputed the allegations or matters set out in the notice and the default procedure set out above will apply.

  2.73 However, if the representations are made, the relevant DMC will consider as set out above, whether or not to give the Decision Notice or a second Supervisory Notice.

  2.74 If the relevant DMC decides that the Bank will give a Decision Notice or a second Supervisory Notice it will:

  • include in the notice a brief summary of how it has dealt with the key representations made;
  • make any relevant statutory notice associated decisions; and
  • consider whether it is desirable to publish the notice as provided in the Bank’s approach to publication of regulatory action.

  2.75 The Bank will make the appropriate arrangements for the distribution of the notice to all the relevant parties.

  2.76 If the relevant DMC decides that the Bank should not give a Decision Notice or a second Supervisory Notice, it will notify the relevant parties (including the Bank staff) of the decision in writing.

  Discontinuance of Bank actions related to supervisory decisions

  2.77 The Bank staff responsible for recommending action to the relevant DMC will continue to assess the appropriateness of the proposed action in light of any new information or representations they receive, and any material change in the facts or circumstances relating to a particular matter. It may be therefore, that they decide to give a Notice of Discontinuance to an entity to which a Warning Notice or a Decision Notice has been given. The decision to give a Notice of Discontinuance does not require the agreement of the relevant DMC, but the Bank staff will inform the relevant DMC of the discontinuance of the proceedings.

  Urgent statutory notice cases related to supervisory decisions

  2.78 In certain situations, the Bank may consider that in order to advance its financial stability objective, it is necessary to take a decision before a recommendation can be made to the appropriate DMC. In such cases, a decision can be made by two individuals of at least the same grade as the individuals who would have comprised the appropriate DMC. In that case, the decision will only be taken if the two decision makers are unanimous.

  2.79 At least one of the two individuals will not have been directly involved in establishing the evidence on which that decision is based and where practicable the Bank will seek to ensure that both individuals will not have been so involved.

  3: Statement of the Bank’s approach to publication of statutory notices relevant to the Bank's requirements powers

  Introduction

  3.1 This statement of policy is issued by the Bank. It deals with the question of publication of statutory notice decisions by the Bank in relation to the exercise of the Bank’s requirements powers.

  3.2 In discharging its general functions, the Bank must, so far as is reasonably possible, act in a way which advances its financial stability objective, and so far as reasonably possible, act in way which, as a secondary objective, facilitates innovation in the provision of FMI services (including in the infrastructure used for that purpose) with a view to improving the quality, efficiency and economy of the services. The Bank is also required to have regard to certain regulatory principles, including the desirability in appropriate cases of the Bank publishing information relating to FMI entities on which requirements are imposed under the Act, as a means of contributing to the advancement of its objectives and the principle that the Bank should exercise its functions as transparently as possible. Having regard to those overarching statutory requirements, the Bank recognises the potential scope for, benefits of and public interest in an appropriate degree of transparency concerning statutory notices relevant to the exercise of the Bank's requirements powers, including in terms of:

  • reinforcing publicly the Bank’s statutory objectives and its policies;
  • informing the financial services industry of behaviour on the part of entities or individuals which it considers to be unacceptable;
  • deterring future and/or more widespread breaches of its regulatory requirements; and
  • informing wider society of the action it is taking and the reasons for it.

  Publication of Warning Notices

  3.3 Under section 391 of the Act, neither the Bank nor the entity to which a Warning Notice is given or copied may publish a Warning Notice rejecting a VREQ, or any details concerning it.

  3.4 Subject to the restrictions on disclosure of confidential information set out in section 348 of the Act, the Bank retains a discretion to publish information about a VREQ application that has been accepted by the Bank. In determining whether it is appropriate to exercise its discretion in favour of publishing a VREQ, the Bank will consider the extent to which publication would in its view be likely to advance its financial stability objective, the principle that the Bank should exercise its functions as transparently as possible, and the impact on the entity concerned.

  Publication of Supervisory, Decision and Final Notices

  3.5 Section 391 of the Act also requires the bank to publish – in such manner as it considers appropriate – information about the matters to which a Supervisory Notice (when such notice takes effect), a Decision Notice, and a Final Notice relate.^{footnote [48]}

  3.6 However, section 391 of the Act provides that the Bank may not publish such information including if, in its opinion, publication would be:

  • unfair to the entities concerned;
  • detrimental to the stability of the UK financial system.

  3.7 The Bank will consider the circumstances of each case, but, subject to paragraph 2.1 above, will ordinarily publish action in relation to the refusal of a VREQ application when this has led to the issue of a Decision Notice, as well as where it has led to the issue of a Final Notice.

  Making representations on issues of publication

  3.8 Where the Bank proposes to publish details of a Decision, Final, or Supervisory Notice, it will consider any representations made to it by the subject of the notice and any other regulators consulted by the DMC.

  3.9 Such representations should normally be made in writing,^{footnote [49]} and should contain detailed information – with reference to the test in section 391 of the Act – as to why it would not be appropriate for the Bank to publish details of the relevant notice.

  3.10 The Bank will not normally decide against publication solely because it is claimed that:

  • publication could have negative impact on an entity’s reputation; or
  • an entity will apply (or is likely to apply) for some or all of the matter to be dealt with in private when they refer it to the Tribunal.

  Responsibility for decisions on publication

  3.11 In relation to Decision Notices, Final Notices, and Supervisory Notices, any decision concerning publication will normally be taken by the same DMC as took the decision to issue the notice itself.

  Forms of publication

  3.12 In relation to information concerning a Decision Notice, Final Notice and Supervisory Notice published pursuant to section 391 of the Act, the information placed in the public domain will normally include:

  • sufficient details as to the identity of the relevant FMI entity concerned for it to be clear to which the matter relates. This will include, but may not be limited to, the name of the FMI entity;
  • a brief summary of the facts which the Bank is relying on as giving rise to the decision to take action against the FMI entity concerned; and
  • a statement making clear that where a Decision Notice or second Supervisory Notice has been issued, the subject of the notice has the option to refer the matter to the Tribunal to have the matter considered afresh.

  3.13 In relation to Decision Notices, Final Notices, and Supervisory Notices, publication will generally include placing the relevant notice on the Bank’s website. The notice may be accompanied by a press release.

  Reviewing whether continuing publication remains appropriate

  3.14 Where it has published details of a Decision, Final, or Supervisory Notice, the Bank will, on request, review those notices and any related press releases that are published on its website to determine whether – at the time of the request – continued publication is appropriate, or whether they should be removed or amended.

  3.15 In determining whether continued publication remains appropriate, the Bank will, in particular, take into account:

  • whether it has continuing concerns in respect of the relevant FMI entity and any risk they might pose to its financial stability objective;
  • the seriousness of the entity’s misconduct;
  • the nature of the action taken by it;
  • the extent to which the publication continues adequately to set out its position and/or expectations regarding behaviour in a particular area;
  • public interest in the case (both at the time of publication and subsequently);
  • whether continued publication is necessary for the purposes of deterrence and/or advancing its financial stability objective;
  • how much time has passed since publication; and
  • any representations made by the relevant FMI entity on the continuing impact on them of the publication.