The Bank of England’s supervisory approach to onboarding new financial market infrastructure firms

Introduction

This publication sets out the Bank of England’s (the Bank) supervisory approach as it applies to new financial market infrastructures (FMIs) that fall within its regulatory remit. This publication is intended to enhance transparency and provide prospective FMIs with a clear understanding of the Bank’s proportionate supervisory approach and the process for becoming a Bank-regulated FMI. By articulating this approach, the Bank aims to support market entry and foster innovation in the sector, thereby supporting broader UK economic growth. This publication complements the Bank’s overall approach to supervising FMIs and acts as a standing reference which the Bank intends to update as necessary to ensure it remains current. It may be revised and reissued in response to significant legislative and other developments that result in changes to our approach.

1: Purpose and scope

The Bank supervises a range of financial market infrastructures as part of its statutory objective to protect and enhance the stability of the financial system of the United Kingdom (UK) (the ‘financial stability objective’).^{footnote [1]} The services that FMIs provide are used every day to enable financial institutions and their customers to make the payments that are critical to supporting economic activity, and to manage their risks more efficiently and effectively. As such, the Bank’s supervision of FMIs is aimed at ensuring that FMIs are prepared for, and resilient to, the wide range of risks that they could face, so that they are able to absorb rather than amplify shocks and able to continue to serve UK households and businesses.

The Bank supervises three broad categories of FMIs: central counterparties (CCPs),^{footnote [2]} central securities depositories (CSDs) and recognised payment system operators (RPSOs). In addition, the Bank supervises specified service providers (SSPs) to RPSOs. The Financial Services and Markets Act 2023 (FSMA 2023) amended the Banking Act 2009 (BA09) to give the Bank powers to also regulate systemically important payment systems that use digital settlement assets (DSA), such as stablecoins, and DSA service providers.^{footnote [3]} These firms are collectively referred to as FMIs or firms in this publication.

New FMIs are emerging in response to innovation

The FMI landscape in the UK is changing. New firms are emerging in response to innovation in the financial sector, and these could fall within the Bank’s supervisory remit. In particular, new firms are exploring the use of new technologies and the provision of services to new markets.

The Bank anticipates that FMIs will continue to innovate and encourages such innovation. Innovation in the FMI landscape offers many benefits, which can allow for more effective and efficient services to households and businesses, supporting economic growth in the UK. For example, innovation can allow FMIs to efficiently offer their critical services at a lower cost, enable the provision of new services, enable better risk management in firms, increase the available pool of eligible collateral and support further competition in the payments landscape.

This publication explains the Bank’s supervisory approach to onboarding^{footnote [4]} new FMIs that fall within its regulatory remit, complementing our overall approach to supervising FMIs. The approach in this publication outlines the Bank’s practices for onboarding FMIs to date. Recognising the innovation that is happening in the FMI landscape and the potential for new FMIs to emerge, the Bank sees value in publishing its approach to provide greater transparency to prospective FMIs that might be preparing to enter the market. This approach outlines different paths firms might take to become an authorised or recognised firm. It sets out the Bank’s approach so that firms are supported as they transition into being a regulated FMI and can grow their business safely, while managing risks to financial stability as they become more established.

In particular, this publication explains two discretionary stages available to FMIs, which could support new or start-up firms to complete aspects of their operational set-up (such as those which depend on securing further investment) which may have otherwise been difficult to achieve before authorisation or recognition. This will support market entry of new and innovative FMIs, further supporting UK growth.

This publication acts as a standing reference which the Bank intends to update as necessary to ensure it remains current. It may be revised and reissued in response to significant legislative and other developments that result in changes to our approach. All CCPs, CSDs, RPSOs, DSA service providers and SSPs are in scope of this supervisory approach, but there are some instances where it might not be appropriate:

• this approach is largely targeted at new firms at the early stages of setting up business and may be less relevant to other firms, such as payment systems that have already been operating prior to recognition but have grown to be systemically important.
• this approach is not applicable to firms that are looking to undertake, or are undertaking, activities that are in scope of the Digital Securities Sandbox (DSS). This is because the legal framework underpinning the DSS is different, with authorisation forming the final stage of the Sandbox process. We consider that this approach may be appropriate for new CSDs operating outside the DSS, that is, CSDs not undertaking activities in scope of the DSS.
• this approach also does not apply to the Bank’s approach to recognising non-UK CCPs or non-UK CSDs seeking to provide clearing and settlement services in the UK, as those firms, having already established their operations in other jurisdictions, would therefore be subject to the Bank’s non-UK CCP and CSD recognition regimes. Further information on the process for non-UK CCPs and non-UK CSDs can be found on the Bank’s website. For the purposes of this publication, ‘CCP’ and ‘CSD’ refers to a UK CCP and UK CSD respectively.
• this approach is separate to that applicable to firms applying to access RTGS settlement accounts and services at the Bank. Where firms are seeking RTGS access in parallel to authorisation or recognition as an FMI, the Bank will coordinate across teams to ensure complementary and efficient processes.

The Bank’s regulatory remit varies across FMI types

All CCPs and CSDs established in the UK are authorised and supervised by the Bank. CCPs and CSDs are not permitted to undertake clearing or settlement activities until the point they are authorised and under the direct supervision of the Bank.

While all CCPs and CSDs established in the UK are authorised and supervised by the Bank, only systemically important payment systems recognised by HMT, and SSPs to those payment systems, fall under the Bank’s remit. This includes systemic payment systems using digital settlement assets (such as stablecoins) and DSA service providers, which were added to the Bank’s remit under FSMA 2023. HMT, after consultation with the Bank and other relevant authorities, may recognise a payment system based on various criteria set out in legislation. 

Further explanation of the Bank’s remit across FMI types is set out in Section 2.

Applying the Bank’s risk-based, proportionate and judgement-based supervision of FMIs to new FMIs

The Bank published its Approach to Supervision in 2024. The Bank’s approach to supervision of FMIs continues to be underpinned by four core principles: our supervisors rely on judgement in taking decisions; we assess firms not just against current risks, but also against those that could plausibly arise further ahead; we focus on those issues and firms that are likely to pose the greatest risk to our objectives (key risks); and we apply proportionality to ensure that our interventions do not go beyond what is necessary in order to achieve our objectives. This means the Bank focuses its supervisory efforts based on a forward-looking assessment of where risks to financial stability are greatest within the framework of our risk model.

These four core principles underpinning our approach to supervision also apply to our approach to onboarding new FMIs that come into the Bank’s regulatory remit. The intention of this publication is to provide greater transparency for firms on how the Bank applies those principles when onboarding new FMIs.

The various types of FMIs under the Bank’s regulatory remit are subject to different legislative and regulatory regimes – with their own criteria and processes for coming into the Bank’s remit, and regulatory requirements once they are within the Bank’s remit. The subsequent sections in this publication set out the Bank’s approach to new FMIs, taking these factors into account.

The Bank’s primary objective

The Bank has statutory responsibilities in relation to FMIs as part of its objective to protect and enhance the stability of the financial system of the United Kingdom.

The Bank seeks to ensure that the CCPs, CSDs, RPSOs and DSA service providers it regulates reduce systemic risk by:

1. avoiding disruption to the vital payment, settlement, and clearing services they provide to the financial system and to the real economy;
2. avoiding actions that have an adverse impact on the safety and soundness of their members, subject to preserving the resilience of the FMI; and
3. contributing to identifying and mitigating risks in the end-to-end process of making payments, clearing and settling securities transactions, and clearing derivatives trades. For the purposes of this publication, the Bank considers this to be the FMI’s ecosystem and expects FMIs to seek to manage their ecosystems in line with the Bank’s financial stability objectives

Where necessary to achieve (1), the Bank additionally regulates certain other firms regarding the critical services they provide to RPSOs.

The Bank’s secondary objective

The Bank has a secondary innovation objective.^{footnote [5]} This means that, in exercising its FMI functions in a way that advances the financial stability objective the Bank must, so far as reasonably possible, act in a way which facilitates its secondary innovation objective. This is engaged where the Bank exercises FMI functions so far as they are exercisable in relation to FMI entities^{footnote [6]} (CCPs and CSDs). FMI functions^{footnote [7]} include the Bank’s function of determining the general policy and principles by reference to which it performs particular functions under the Financial Services and Markets Act 2000 (FSMA 2000).

The Bank is supportive of innovation across the FMI landscape. This is because a more innovative FMI landscape provides more effective and efficient services to households and businesses, supporting real economic growth in the UK. Explaining the Bank’s approach will advance our secondary innovation objective by providing a clear understanding of our approach and expectations for new and incoming CCPs and CSDs. Having a clear understanding of the Bank’s expectations may also facilitate new entrants to the market which can increase the economy or quality of existing FMI services, or increase competition within FMI services, by providing services in new and novel ways. 

While the secondary innovation objective only applies to the Bank in exercising FMI functions in relation to CCPs and CSDs, the Bank expects and encourages all FMIs to innovate and believes that innovation can actively support FMIs’ resilience and financial stability more broadly.

Have regards

There are some principles which the Bank must ‘have regard’ to when exercising certain FMI functions in relation to an FMI entity (CCPs and CSDs). Similar to the secondary objective on innovation, have regards do not apply when making supervisory decisions regarding individual FMIs but do apply to the Bank’s supervisory approach. The Bank had regard to these principles when drafting this publication. In particular, the Bank considers that publishing our approach will provide transparency to new firms on the process for becoming a Bank-regulated FMI. The Bank also views this approach as supportive of UK growth as it provides clarity for new firms on the process for becoming regulated by the Bank, which may support market entry and innovation in the sector.

2: Regulatory framework for different types of FMIs

The Bank has legal powers to supervise FMIs, including with respect to their safety and resilience to risks, both financial and operational, which could lead to financial instability.

The Bank regulates FMIs in accordance with a statutory framework which includes the BA09, FSMA 2000, the UK European Market Infrastructure Regulation (UK EMIR) and UK Central Securities Depositories Regulation (UK CSDR). FMIs may also be designated to obtain protection from certain insolvency challenges under the Settlement Finality Regulations 1999.

The Bank’s approach to supervision is also consistent with relevant international standards; for example, the Principles for Financial Market Infrastructure (PFMI) that were developed by the Committee on Payment and Settlement Systems (CPSS) – now called the Committee on Payments and Market Infrastructures (CPMI) – and the International Organization of Securities Commissions (IOSCO).

In 2025, the Bank published Fundamental Rules for FMIs. They set out the outcomes the Bank expects to achieve through its supervision of FMIs. These are especially helpful for new FMIs looking to understand the Bank’s supervisory expectations.

How FMIs enter the Bank’s regulatory remit differs across FMI types.

CCPs and CSDs are subject to an authorisation regime.

CCPs and CSDs must apply to the Bank for authorisation, and the Bank must be satisfied that they meet the relevant legislative and regulatory requirements before authorising them. For CCPs, this includes UK EMIR, UK EMIR Regulatory Technical Standards and requirements in FSMA 2000. For CSDs, conditions and procedures for authorisation are set out in FSMA 2000, UK CSDR and the associated UK Regulatory Technical Standards. Both CCPs and CSDs must also be designated under the Settlement Finality Regulations 1999. Once authorised, all CCPs and CSDs fall under the Bank’s supervisory remit. CCPs and CSDs are not permitted to undertake clearing and settlement activities until they have received authorisation from the Bank.

Payment systems are subject to a recognition regime.

Only payment systems that are systemically important or are likely to be ‘systemic at launch’ are recognised by HMT. Once HMT specifies a payment system as a recognised system by order, that payment system comes into the Bank’s regulatory remit. Prior to making a recognition order in respect of a payment system, HMT must consult the Bank and consider any representations the Bank makes. When determining whether to make a recognition order for a payment system, the legislation^{footnote [8]} requires HMT to have regard to certain factors. These factors do not include consideration of whether the payment system meets any regulatory requirements. Instead, the assessment is focused on how systemically important the payment system is, or is likely to be, based on the non-exhaustive criteria set out in BA09.^{footnote [9]}

Unlike CCPs and CSDs, some payment systems may already be operating before they are brought into the Bank’s regulatory remit. Others will be ‘systemic at launch’, which means a new payment system is likely to be systemically important in the UK based on HMT’s assessment of the firm (following consultation with the Bank) and the criteria set out in legislation.

The Bank also supervises certain service providers to recognised payment systems that are specified by HMT, where the recognised payment system has outsourced critical parts of its operations to the service provider, and the ability of the recognised payment system to deliver its responsibilities depends on the functioning of the service provider. In order for the Bank to supervise a service provider, HMT must specify a service provider in the recognition order of the payment system to which it relates. This action brings a service provider into the Bank’s direct supervision, making it a specified service provider (SSP).

The different legislative frameworks for FMIs provide the Bank with different powers to discharge its regulatory functions.

The Bank has a number of regulatory powers set out in relevant legislation, all of which form part of its supervisory toolkit.

For CCPs and CSDs, powers include the power of direction under section 296 FSMA 2000 as well as requirements powers by virtue of paragraph 9B of Schedule 17A FSMA 2000. In relation to CCPs, the Bank has an additional direction power under section 296A FSMA 2000.

BA09 sets out the Bank’s regulatory powers for supervising payment systems and related service providers. Among other things, BA09 allows the Bank to issue directions and codes of practice which RPSOs, SSPs and recognised DSA service providers must comply with. It also allows the Bank to publish principles which those firms must have regard to.

To date, the Bank has published four codes of practice: Fundamental Rules, Governance, Operational Resilience, and Outsourcing and Third-Party Risk Management.

The Bank's enforcement powers with respect to FMIs are set out in FSMA 2000 and BA09. Further detail on those powers can be found in Annex 2 of the Bank’s Approach to Enforcement.

Working with other Authorities

Where appropriate and relevant, the Bank will engage with other regulatory authorities such as the Prudential Regulation Authority, Financial Conduct Authority, and the Payment Systems Regulator, on matters of common regulatory interest.

3: Overarching supervisory approach for new FMIs

This section sets out the Bank’s supervisory approach to onboarding FMIs. This approach is split into four stages before firms reach baseline supervision: risk assessment; authorisation or recognition; mobilisation; and scaling (Figure 1). The approach is adaptable to the different legislative and regulatory frameworks that each FMI is subject to. Stage 3 (mobilisation) and stage 4 (scaling) are discretionary stages in the Bank’s approach which could support new firms in establishing and growing their business in a safe way while limiting risks to the Bank’s objectives. The way in which different firms can make use of these stages may depend on different factors such as the FMI type, the maturity of the firm and/or its business model.

Stage 1 – Risk assessment prior to authorisation or recognition of the FMI

Before authorising CCPs and CSDs and recommending recognition of a payment system, the Bank first looks to understand the risks the firm presents or could present if it begins operations. The Bank’s primary focus, consistent with its statutory objective, is on risks to the stability of the financial system. The risk assessment may consider different factors depending on the type of FMI or the nature of its business activities which are relevant to the Bank’s financial stability objective.

In doing this assessment, the Bank will broadly consider the impact the firm could have on markets, institutions and services in the short-to-medium term, taking into account their systemic importance. The Bank uses its published frameworks as well as the PFMIs to inform its conclusions. Section 3 of the Bank’s Approach to Supervision publication explains the Bank’s risk model for assessing the systemic impact of an FMI. For payment systems, there is a risk assessment built into the recognition process which considers certain criteria set out in BA09.

For new FMIs, the Bank also considers whether there are any novel risks associated with the proposed business model of the firm. Novel risks are those that arise from circumstances that haven’t been thought of or seen before, for example, if an FMI is looking to provide services to a new market or provide new types of services.

Overall, across all FMIs, the Bank first looks to understand and assess the risks the firm poses and form a view on the how systemically important the FMIs could be at launch or in the short-to-medium term.

Stage 2 – Authorisation or recognition of the new FMI

After understanding the potential risks and financial stability implications of the firm, the Bank:

• takes this into consideration in our approach to assessing applications for authorisation for CCPs and CSDs; or
• uses this risk assessment and other relevant information provided by the firm^{footnote [10]} to inform our recommendation to HMT for the recognition of payment systems or DSA service providers or when recommending a service provider is specified in relation to the services it provides to a RPSO

Further detail is provided in Section 4 on the authorisation and recognition processes for CCPs and payment systems.

When a firm enters the Bank’s remit after the authorisation or recognition stage, the level of assurances the Bank seeks in terms of the FMI meeting the legislative and regulatory requirements is proportionate to the risks posed by the firm. This is generally informed by the risk assessment undertaken in stage 1 of this approach and the risk framework as set out in Section 3 of the Bank’s Approach to Supervision. As the FMI’s size and potential risks it poses to the Bank’s objectives evolve over time, so do the Bank’s expectations and assurances required of the FMI (Figure 2).

At this stage, supervisors will categorise the firm based on its potential systemic impact. This categorisation informs the supervisory strategy and workplan for the firm and this step may happen before or after the point at which the FMI enters the Bank’s regulatory remit, depending on the FMI type.^{footnote [11]} Section 3 of the Bank’s Approach to Supervision sets out this categorisation framework in further detail. However, supervisors may exercise judgement on the expectations applied to new or fast-growing firms as they move through the stages of this onboarding approach.

In discussion with the Bank, a firm may indicate its preferred path through the remaining stages of the onboarding approach. Depending on the FMI type, this may happen before or after the point at which the FMI enters the Bank’s regulatory remit. A firm may indicate a preference to make use of one or both of the discretionary stages – stage 3 (mobilisation) and stage 4 (scaling) – or, where appropriate, it may be more suitable for the firm to move straight to baseline supervision.

If the FMI indicates a preference not to enter a mobilisation or scaling stage, it would have to demonstrate to the Bank that it meets the supervisory expectations of an established firm and demonstrate that it is able to safely launch as a fully operational FMI. This might be feasible, for example, if the FMI has sufficiently established its operations and it can demonstrate it can meet supervisory expectations while mitigating risks to the Bank’s objectives.

If the firm prefers to make use of discretionary mobilisation or scaling stages, in some cases it could result in a new firm being able to prepare for market entry earlier. For example, the firm may be able to demonstrate incremental progress to external stakeholders.

Once a firm has agreed its preferred path through stages 3 and/or 4 with the Bank, it is expected to remain within the agreed stage until it is complete and can demonstrate the necessary supervisory assurances. While in stages 3 and/or 4, the Bank retains discretion to set the conditions by which the FMI would move through the stages and will exercise its judgement on the FMI’s readiness to move onto the next stage or into baseline supervision.

Stage 3 – Mobilisation

After the authorisation or recognition stage, some FMIs may move into a mobilisation stage. A mobilisation stage can offer many benefits for firms by providing an efficient way to provide further assurance that they are able to meet regulatory requirements. By entering a mobilisation stage, the FMI may find it will help their readiness for market entry and help them proceed with greater confidence to invest in the final stages of building their business. As part of this stage, an FMI operates under de minimis limits and conducts activities for live testing purposes only, rather than for economic value. Regulatory oversight would be proportionate to the risks posed by the firm in this stage.

Firms taking the mobilisation route (paths A or B outlined in Figure 1) will generally not have fully developed operational capabilities, and this phase could allow the firm to complete its operational set-up and continue building its risk and governance capabilities above the minimum necessary level of assurances with which it was authorised or at the point it was recognised. It may have otherwise been unable to do this ahead of being authorised or recognised. For example, prior to authorisation or recognition it may be more challenging for the firm to unlock investment, sign contracts with suppliers or further invest in IT systems. This stage may also be helpful for a firm that might not yet be in a position to begin scaling its business immediately post-authorisation or recognition but may find benefits of undertaking regulated activity under de minimis limits, that might be necessary to establish viable operations.

The mobilisation period could also provide the Bank with a period to monitor the firm and gain further assurances on any measures that may be necessary to mitigate risks to financial stability, which may not have been possible during the authorisation or recognition process. For example, if it was not possible for a firm to conduct sufficient testing ahead of authorisation or recognition, this stage would allow for firms to test their activities further.

If entering a mobilisation stage, the Bank would set out for the FMI:

• what are the appropriate types and nature of the de minimis limits for the FMI. The de minimis limits set by the Bank would differ depending on the FMI and the type of business it undertakes
• what supervisory requirements the firm will need to meet during this stage and what are the conditions for the FMI to exit the mobilisation stage and have the de minimis limits removed.

The Bank anticipates that a mobilisation period would likely last for up to a year. It could be longer or shorter depending on the progress the firm makes in demonstrating compliance with the requirements and conditions during this period but should not continue indefinitely.

For firms seeking access to RTGS settlement accounts or services in parallel, this would most likely occur alongside the RTGS live proving stage (detailed in the RTGS access policy).

Following a mobilisation stage, the FMI could proceed to the next stage and begin scaling to conduct limited activity for economic value or it may move straight to baseline supervision.

Stage 4 – Scaling

As new FMIs become more established and begin to grow, the Bank’s focus will remain on ensuring the firm can do so safely while managing risks to the Bank’s objectives. Stage 4 allows FMIs to conduct business for economic value, but when certain business restrictions or conditions are necessary to limit risks to the Bank’s objectives. For example, this may be because the firm has met the conditions to move out of mobilisation but there may still be some supervisory assurances the Bank would like the firm to meet before it can grow further. In other cases, FMIs may enter Stage 4 directly after authorisation or recognition.

An FMI may find a scaling stage helpful if it is still in the early phases of growing its business, as this stage gives firms an opportunity to conduct live business while it continues to mature some of its risk management capabilities (for example, further developing its risk management frameworks and reporting capabilities or appointing key senior management).

At the same time the Bank would apply appropriate supervisory expectations and engagement to mitigate risks as the firm grows. While the firm’s operations remain small, the Bank’s supervisory expectations would be appropriately tailored.

The length of this stage and the specific plan for progressing through this stage would vary depending on FMI type and individual firm circumstances, but this would be communicated by the Bank from the outset of this stage. It would be made clear to firms how they would be required to adapt as their systemic impact increases while ensuring the Bank can apply proportionate supervision commensurate with the risks posed by the firm.

During the scaling stage the Bank may consider imposing business restrictions on the FMI that are necessary to limit risks to financial stability. These restrictions could be imposed from the beginning of the scaling stage or as a result of pre-agreed specific conditions being met. Some conditions that could lead the Bank to introduce restrictions may include: if the firm is growing faster than its risk management capabilities are, if it starts providing novel services or services to novel markets, or if the firm becomes interconnected with other systemic markets or institutions. In such cases, the conditions of the restrictions and when they would be increased or lifted would be set out to the firm in advance of entering this stage.

Business restrictions could then be lifted incrementally to allow the firm to engage in more activity when it can demonstrate it can meet higher supervisory expectations. However, as the firm continues to grow and take on greater business and risk, the Bank would increase supervisory expectations to those we would expect of an FMI with potentially greater systemic impact.

For firms seeking access to RTGS settlement accounts or services in parallel, the scaling stage would most likely occur alongside the RTGS mobilisation stage (detailed in the RTGS access policy).

How could the Bank impose business restrictions?

There is a range of powers that the Bank could use to impose business restrictions for financial stability purposes, which could be used in stage 3 and stage 4 of this approach. These include powers by which the Bank can direct a CCP to take, or refrain from taking, a specified action where it is necessary for financial stability or when there is a breach or likely breach of a relevant legal requirement. The Bank also has powers to impose a requirement on CCPs and CSDs where it is desirable for financial stability. The imposition of a requirement on a CCP or CSD can be done either upon application or imposed on the Bank’s own initiative. For payment systems, DSA service providers or SSPs, the Bank could use its power of direction. The powers used by the Bank would take account of the type of FMI and the risks posed in each case.

The Bank will retain its discretion to use its full range of supervisory tools in relation to the FMI as it considers appropriate to advance its statutory objectives.

The Bank may continue to impose business restrictions until the FMI can demonstrate it can meet higher supervisory expectations and mitigate the risks it poses to the Bank’s objectives.

What happens next?

The Bank expects that some FMIs will grow their business through the stages described in this publication and mature to move into baseline supervision. These firms will be supervised in line with the Bank’s Approach to Supervision and the usual supervisory engagement will apply in the same way as for existing firms.

Other FMIs may need to operate with business restrictions for a longer time if the Bank is not satisfied they can meet the required supervisory expectations to mitigate risks to the Bank’s objectives. FMIs operating for a longer period with business restrictions may face market pressures, which is an inherent risk for all firms, especially for start-ups. This could eventually affect their profitability and viability.

The Bank will continue to monitor the FMI’s activities and take any action appropriate to the risks in line with the Bank’s Approach to Supervision.

For CCPs and CSDs, if the Bank determines that the firm meets the criteria for the withdrawal of authorisation^{footnote [12]}, including any failure to comply with the conditions under which the authorisation was granted or there is a serious or systemic infringement of regulatory requirements, the Bank may withdraw authorisation from the FMI.

If a RPSO or DSA service provider no longer meet criteria to be considered systemically important, HMT may, following consultation with the Bank, de-recognise the firm. This may also affect any decisions by HMT to issue an order to a SSP with respect to the services it provides to a RPSO. The Bank may also give a closure notice^{footnote [13]} if there is a compliance failure that threatens UK financial stability or has serious consequences for businesses or other interests in the UK.

The Bank will also keep under review other related decisions, eg decisions on access to RTGS settlement accounts or services (such as Omnibus Account access).

4: How does this apply to different FMI types?

The overarching approach outlined in Section 3 applies to all FMI types. This section provides more detail on the approach specifically for payment systems and CCPs. In due course, the Bank may set out further specific considerations for other FMI types. For example, the Bank may use learnings from the Digital Securities Sandbox and update this section of the approach to provide additional detail for the onboarding of new CSDs.

Payment Systems

Stage 1 – Risk assessment prior to recognition

As above, only systemic payment systems recognised by HMT, and SSPs to those payment systems, fall under the Bank’s remit. HMT is responsible for deciding which payment systems are recognised as systemically important and must consult with the Bank prior to making this decision. The criteria to assess whether a payment system is systemic is set out in Part 5 of BA09. Under BA09, in considering whether to recognise a payment system, HMT must have regard to:

• the number and value of the transactions that the system presently processes or is likely to process in the future
• the nature of the transactions that the system processes
• whether those transactions or their equivalent could be handled by other systems
• the relationship between the system and other systems
• whether the system is used by the Bank in the course of its role as a monetary authority

As part of this stage, when making its recommendation to HMT, the Bank takes a holistic view of the risks posed by the payment system. This includes using the criteria set out above to inform its risk assessment. As noted in Section 3, for ‘systemic at launch’ or new payment systems, the Bank also considers whether there are any novel risks associated with the proposed business model of the payment system.

Stage 2 – Recognition

For payment systems, recognition is informed by the criteria set out in stage 1. Recognition is ultimately determined by HMT, having consulted with the Bank, and is focused on the systemic impact, or likely systemic impact, of the payment system. Our views on the risks and financial stability implications of the firm, informed by our risk assessment at stage 1, informs the Bank’s recommendation to HMT for recognition. The higher the potential financial stability impact, the more likely the Bank is to recommend HMT issues a recognition order.

After considering the legislative criteria set out in stage 1, HMT may recognise a payment system as being systemically important if it is satisfied that any deficiencies in the design of a system, or any disruption of the system’s operation, would be likely to threaten the stability of, or confidence in, the UK financial system, or could have serious consequences for business or other interests throughout the UK.

The assessment of financial stability risks and subsequent decision to recommend recognition might also affect related decisions at the Bank, for example a decision to grant a payment system access to an Omnibus Account at the Bank.

In the case of a payment system looking to access an Omnibus Account^{footnote [15]}, both the Payments Directorate (PD) and the Financial Market Infrastructure Directorate (FMID) are responsible for assessing risks to the Bank’s wider financial and monetary stability objectives. PD is responsible for operating the Real Time Gross Settlement (RTGS) service and CHAPS, the UK’s high-value payment system. PD is also responsible for deciding whether a firm can have access to an Omnibus Account and assessing whether the firm, or its use cases, pose risks outside the Bank’s tolerance to RTGS, CHAPS or the Bank. FMID is responsible for recommending recognition to HMT, and subsequently supervising any firms brought into the Bank’s regulatory remit. While the decision to offer a payment system an Omnibus Account is a separate assessment to the recognition assessment conducted by FMID, the decisions are made in parallel.

Once HMT issues a recognition order, the payment system would enter the Bank’s supervisory remit. It would be at this point that the firm, in discussion with the Bank, would determine its path through the remainder of the onboarding approach.

Stage 3 – Mobilisation

Upon recognition, some payment systems may enter a mobilisation stage, whereby it would be permitted to undertake payments activities for live testing purposes only, subject to de minimis limits.

A mobilisation stage would likely be most relevant for new firms which are considered for recognition as ‘systemic at launch’.

A payment system would find a mobilisation stage helpful if it is a new firm which still needed to complete its operational set-up and test its systems which it may have been otherwise unable to do before recognition. The Bank may find it beneficial for a payment system to enter a mobilisation stage if it thought it would be helpful to gain further assurances about the effectiveness of the firm’s governance or risk management capabilities to ensure it does not present risks to the wider ecosystem or to the Bank’s objectives.

While the Bank has discretion to offer a mobilisation stage for firms, our approach to this stage would also take account of any onboarding stages required as part of the RTGS access policy, where applicable. For example, for a payment system that is applying for access to an Omnibus Account at the Bank, a mobilisation stage would typically run in parallel to the RTGS live proving stage.

Ahead of commencing the mobilisation stage, the Bank would set out the de minimis limits the firm would be subject to. The Bank would do this using its power of direction.^{footnote [16]} It would also set out the supervisory expectations the firm must demonstrate it can meet to move from mobilisation into the next stage. Where a firm is seeking RTGS access in parallel with onboarding as a new FMI, the Bank would set the de minimis limits and expectations taking into account requirements of both processes. The Bank will also take into account any staged restrictions applied to RTGS, where applicable.

During this stage, the de minimis limits on a payment system would likely include limits on volumes and values of transactions that the system is permitted to process, which would only be for live testing purposes. These limits would depend on the stage at which the firm is in its operations and the level of risk it poses once recognised. For example, the payment system may only be permitted to transact a specified number of payments per day, or the Bank may set limits on the value of payments that the system can process each day. Generally, these would be such amounts as the Bank considers small enough to not pose risk to the financial system and would not be for the purposes of economic activity. The Bank would require the firm to demonstrate that it has adequate controls to manage the limits that are in place so that it does not present any wider risks.

As well as having controls to manage limits, the Bank may also require other minimum assurances at this point. These minimum assurances may be different to the expectations that would be set for the firm to move into the next stage but in both cases the expectations would be clearly communicated to the firm.

These assurances during mobilisation will be firm specific depending on the payment system’s operating model but would be focused on the key risk channels identified for the firm in question. These assurances may be lower than what we would expect of a more developed firm that has demonstrated it can operate at scale but would be proportionate to the risks presented by the firm at this stage. The assurances may include considerations around:

• financial resources, including having sufficient resources to wind down without disrupting the market
• operational and cyber risk management frameworks
• for payment systems operating an Omnibus Account, the Bank would need to ensure the firm has appropriate controls to maintain the 1:1 backing of the participants’ assets in the Omnibus Account and the liabilities on the payment system’s ledger. The firm also needs to ensure it has robust legal and contractual arrangements, including holding the funds in trust on behalf of participants and that payments are subject to appropriate settlement finality protections

This list is indicative, and the assurances the Bank would require at this stage would be firm specific and proportionate.

Once the firm has demonstrated that it can meet the supervisory expectations that were set out at the beginning of this stage, after discussions with the Bank, the firm may move into the scaling stage or onto baseline supervision. For firms seeking access to RTGS settlement accounts or services in parallel and that have entered the RTGS live proving stage, it is likely (but not necessary) that the firm will move out of the RTGS live proving stage at broadly the same time.

Stage 4 – Scaling

Following recognition or mobilisation, a payment system may enter the scaling stage as it begins to grow its business. In the scaling stage, a payment system would be permitted to process payments for the purposes of economic activity but where certain restrictions or conditions are necessary to mitigate risks to the Bank’s objectives.

Business restrictions for a payment system would typically involve limits on the volumes and values of the payments processed by the firm, but they would be higher than the de minimis limits set during the mobilisation stage. As the firm demonstrates it can meet increasing supervisory expectations and manage the risks it poses to the Bank’s objectives, the restrictions on the volumes and values of payments would incrementally increase so the firm can engage in more activity. Business restrictions could also involve restrictions on, for example, onboarding new participants, or restrictions on taking on new business lines.

If the firm scales and demonstrates that it can meet higher supervisory assurances, and the Bank is satisfied that it can leave the scaling stage, the conditions would be lifted. From that point onwards the Bank’s usual supervisory engagement would apply.

As above, while the Bank has discretion to offer a scaling stage for firms, our approach to this stage would take account of any onboarding stages required as part of the RTGS access policy. For example, this stage would typically run in parallel to the RTGS mobilisation stage. Where a firm is seeking RTGS access in parallel, the Bank would set the conditions and expectations for this stage taking into account requirements of both the process for RTGS access and for on-boarding as a new FMI. For firms seeking access to RTGS settlement accounts or services in parallel and that have entered the RTGS mobilisation stage it is likely (but not necessary) that the firm will move out of that stage at broadly the same time.

CCPs

Stage 1 – Risk assessment prior to authorisation

The Bank encourages prospective CCP applicants to engage with the Bank at an early stage on the practical aspects of their application. This engagement also supports the Bank in developing its risk assessment, which includes an assessment of the CCP’s proposed business model and its impact on financial stability. This helps support a better-quality application and can be highly beneficial for all parties.

Our financial stability risk assessment takes account of a number of factors. These may differ depending on the proposed business model of the CCP, but broadly includes consideration of the impact the firm could have on systemic markets, systemic institutions and vital services in the short-to-medium term. It may also take account of the maturity of the firm’s risk management frameworks or the proposed business lines and operating model of the firm.

To undertake this assessment, the Bank will require a high-level summary of the applicant CCP’s business proposition, including:

• the proposed business model
• governance and sources of funding
• risks the firm is exposed to and the risks generated by the proposed activities
• an overview and timeline of the prospective CCP’s plans to set up its operations

Stage 2 – Authorisation

As set out in FSMA 2000 and UK EMIR, prospective CCPs must submit a formal application for authorisation in accordance with the procedure set out in UK EMIR Article 17. In order to be authorised, the Bank must be fully satisfied that a CCP meets the requirements set out in UK EMIR, including associated technical standards. It must also appear to the Bank that the CCP satisfies the recognition requirements applicable to it under s. 290 FSMA 2000. The Bank may exercise judgement around the level of assurance it will require a CCP to demonstrate as part of this assessment. This approach will be proportionate to the financial stability risks posed by the firm.

The Bank encourages prospective CCPs to submit draft application materials to the Bank ahead of submitting a formal application for authorisation. This enables prospective CCPs to gain informal feedback on their draft material and supports the Bank’s review process.

Once the applicant CCP submits its formal application to the Bank, UK EMIR provides that the Bank must assess whether the application is complete within 30 working days of receipt. UK EMIR further provides that within six months of the submission of a complete application, the Bank shall inform the applicants in writing, with a fully reasoned explanation, whether authorisation has been granted or refused.

In granting authorisation to a CCP, the Bank will specify the services or activities which the CCP is authorised to provide or perform, including the classes of financial instruments covered by such authorisation. A CCP wishing to extend its business to additional services or activities not covered by the initial authorisation will be required to submit a request for extension to the Bank in line with Article 15 of UK EMIR.

Stage 3 – Mobilisation

A CCP should indicate its preference to enter mobilisation ahead of submitting a full application for authorisation. During mobilisation a CCP would operate with business restrictions and would be subject to proportionate regulatory oversight. A mobilisation period can offer many benefits by providing an efficient way for new CCPs to provide further assurance that they are able to meet the requirements in UK EMIR. It can allow CCPs to build out their operational capabilities by putting in place certain arrangements which may be more difficult to achieve without certainty of authorisation. This can include signing contracts with suppliers, hiring staff, unlocking funding or securing further investment in IT systems. A mobilisation period can also facilitate live testing with de minimis amounts of business which can enable a CCP to demonstrate that its systems and controls are robust before expanding.

Generally, mobilisation is suitable for new start-up CCPs, which may not have all of the upfront investment they require or may need additional time to complete the build-out of their IT systems, recruit certain staff or engage with third-party suppliers. Mobilisation may not be necessary for firms that already have the resources, capital, and infrastructure in place, such as a large established market infrastructure group setting up a UK-established CCP.

A CCP seeking to enter mobilisation should provide the Bank with a mobilisation plan alongside its initial business plan and the other materials required for authorisation under UK EMIR. The Bank anticipates that a CCP mobilisation period would likely last for up to a year. It could be longer or shorter depending on the progress the firm makes in demonstrating compliance with the requirements and conditions during this period but should not continue indefinitely.

Stage 4 – Scaling

Following authorisation or mobilisation a new CCP may enter a scaling stage as it expands its business. The Bank will apply appropriate supervisory expectations and engagement to mitigate risks as the firm grows. As set out in the Bank’s Approach to Supervision, the Bank’s approach to supervising CCPs will follow four key principles: i) judgment based; ii) forward looking; iii) focused on key risks; and iv) proportionate. As part of this stage, the Bank could introduce limits on a CCP’s activities. Any restrictions will be considered on a case-by-case basis and would be based on the risks posed by the firm to the Bank’s objectives. The Bank will set out the conditions of any restrictions and when they would be increased or lifted in advance of a CCP entering the scaling stage.