UK and US participants held the sixth meeting of the UK-US Financial Regulation Working Group (the Working Group) virtually on 21 July 2022. The Working Group was formed in 2018 to deepen bilateral regulatory cooperation with a view to better promoting financial stability; investor protection; fair, orderly and efficient markets; and capital formation in both jurisdictions.
Participants included officials and senior staff from HM Treasury and the US Treasury, and from independent UK and US regulatory agencies, including the Bank of England (BOE), the Financial Conduct Authority (FCA), the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the Securities and Exchange Commission (SEC). Participants from the United Kingdom and the United States shared views on issues in their respective areas of responsibility.
The working group meeting focused on seven topics: (1) international and bilateral cooperation, (2) benchmark transition, (3) financial innovation, (4) sustainable finance, (5) non-bank financial intermediation, (6 ) operational resilience, and (7) cross-border regimes.
At the meeting, participants took stock of market developments since Russia’s unprovoked and unjustified invasion of Ukraine. The working group also discussed ongoing international and bilateral cooperation and areas of mutual interest where cooperation can be further strengthened to promote global standards. The task force co-chairs emphasized their continued commitment and support for sound financial markets and international financial regulatory standards that promote financial stability and mitigate unwanted market fragmentation. They also exchanged views on the respective priorities of the international financial sector in the G7, the G20, the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO).
The participants discussed the risks of the non-banking financial intermediation (NBFI) sector and the interconnectedness with other financial and non-financial players. Participants discussed the need to take steps to strengthen the sector’s resilience, including strengthening liquidity risk management practices, and expressed support for future cooperation, including in relevant international forums, in this sense.
The working group also discussed the mutual desire to promote multilateral cooperation around risk management in global banking and derivatives markets. The importance of minimizing regulatory fragmentation by limiting differences in the substance and timing of application of international standards that would otherwise discourage market participants from carrying out certain cross-border activities was also discussed.
On the Basel III reforms, participants reaffirmed their commitment to the final prudential rules and reiterated the value of global cooperation in their implementation. The participants agreed to discuss further when the respective authorities present their implementation proposals.
On the topic of financial innovation, participants reflected on the outcomes of the US-UK Financial Innovation Partnership meeting in June 2022. This included exchanging views on cryptoasset regulation and recent market developments, including those related to stablecoins, and the exploration of central bank digital currencies (CBDCs). All participants pledged to continue cooperating to support safe financial innovation as well as to strengthen regulatory outcomes for stablecoins in all jurisdictions. Participants also considered future opportunities for further discussion on broader cryptoasset regulatory initiatives. Participants recognized the continued importance of the ongoing partnership for global financial innovation and recognized the importance of maintaining and further engaging in multilateral discussions on these issues.
Participants took stock of ongoing efforts in relation to the transition to LIBOR, the FCA’s recent consultation on the settlement of ‘synthetic’ sterling LIBOR and its request to seek views on the need for any type of LIBOR synthetic in US dollars and the importance of continuing the transition to a robust alternative. benchmark rates in all jurisdictions, while appreciating the successful completion of the important end-2021 milestones. They noted the importance of maintaining a coordinated approach ahead of the cessation of the remaining USD LIBOR setting at the end of June 2023.
Participants discussed national and international progress made in work related to sustainable finance this year and discussed priorities and issues for further work and cooperation, both multilaterally and bilaterally. They also provided respective national updates. US participants discussed the work being done by US agencies, including that described in the US Financial Stability Oversight Board’s Report on Climate-Related Financial Risk. Participants from the United Kingdom discussed the exploratory scenario of the Climate Biennale and the United Kingdom noted the usefulness of scenario analysis as a tool for supervisory risk assessments and financial institutions. Participants also discussed providers of environmental, social and governance (ESG) data and ratings and provided updates on the development of climate-related financial disclosure regimes.
UK and US participants also welcomed the progress of the International Sustainability Standards Board (ISSB) as it develops a global baseline for corporate sustainability reporting, noting the importance of reporting interoperability between different jurisdictional approaches.
In addition, participants discussed ongoing cooperation in international efforts to address climate change issues within the financial sector, including the FSB’s Roadmap for Addressing Climate-Related Financial Risk and the Finance Working Group and the G20 Sustainable Finance Roadmap.
Participants discussed regulatory approaches to “critical” third-party providers, particularly those providing services across borders and sectors, and noted the need for financial authorities to understand and manage the financial stability and confidence risks of the market that could arise as a result of failure or interruption of third party suppliers. Participants discussed the value of developing shared international approaches to identify critical services and providers; expectations for its use in the financial sector; and collaborative methods of assurance, and the importance of promoting bilateral and multilateral cooperation between competent authorities in this matter.
The participants will conduct follow-up work on the above topics and other issues of mutual interest through bilateral engagement and in multilateral fora before the next working group meeting, which is expected to take place later in 2022.