Legislators and other policymakers made substantial changes to the financial system to hold firms, and their managers and shareholders, more accountable. A great many of those changes have put both firms and the public sector in a better place. Today, regulators and supervisors expect systemically important financial institutions to be more resilient. They must be prepared for unanticipated losses and shocks to the financial system, including through rigorous (if not always popular) capital and liquidity standards. Supervised firms are also required to have a much greater understanding of the governance and controls supporting their critical operations. This includes, for example, governance frameworks, management information systems, and IT resiliency. This last point is particularly notable because, as many of you are now painfully aware from the data breaches at Equifax and Yahoo (and those are just the most recent ones), cybersecurity risk has increased dramatically in the last several years. Resilience goes a long way. It prepares firms to be ready to fight not only the last war, but also the unanticipated stresses of the next one. It prepares them not to rely on past performance as a guaranty of future performance. But, increased preparedness should not be cause for overconfidence. Supervision and regulation should not and cannot drive all risk from the financial system, and the probability of a systemically important institution’s failure will never be zero.
The Bank now has responsibility for end-to-end risk management for CHAPS including relationships with CHAPS direct participants, and clearer lines of responsibility and integrated governance, enhancing financial stability in the UK. The first glimpse of the new dawn: ISO 20022 – improving payment messaging June next year will be the first step in the UK’s migration to ISO 20022. Its implementation is a foundational step that will enable many of the future changes that are coming, both domestically in the renewal of RTGS and internationally including enhancing cross border payments. Payment messages are the vehicles for transactional data in the payments world. They provide a common data model and a set of rules for exchanging critical information for a transaction to take place for everything from consumer payments to corporate treasury operations. Increasingly used by payment systems across the world, many other key Payment System Operators are also on the journey to implement ISO 20022 including the ECB’s TARGET2 and the Federal Reserve’s Fedwire. In addition, starting in late 2022 SW IFT’s correspondent banking network will retire the use of the existing MT standard by November 2025 and mandate ISO 20022. ISO 20022 will bring enhanced data deliver significant long-term benefits for not only the UK’s payment systems but participants and their customers. It provides flexibility to adapt to changes in the economy, emerging technologies and innovation. It provides international harmonisation, supporting cross-border payments.