Critical Third Parties: The Next Wave of UK Financial Sector Regulation to Plug the Systemic Risk Gap

Financial services firms are increasingly turning to third-party service providers to augment their operating models and leverage the benefits of specialisation whilst supporting digital transformation and innovation. However, the rise of these service providers poses an increase in systemic risks for individual financial services firms and financial market infrastructures. Whilst the UK supervisory framework provides limited tools for managing these risks, policymakers have concluded that additional legislative measures are needed to address this gap; designated critical third-party (CTP) regulatory requirements.

This article explains how these new CTP requirements will affect regulated firms, FMIs and CTPS, what the firms can do ahead of the effective date of the unknown, and how the FRC, PRA and HM Treasury plan to enforce their new powers.