“When it comes to CTPs’ customers and terms of business, they may not need to change but CTPs may want to develop packages or standard terms to be clear about the processes they have implemented in order to comply with the requirements.”
Compliance
The law firm said this new regime should not change compliance for firms.
Firms that already engage a CTP are likely to want to ask the CTP what they are doing to comply with these new requirements and how they are approaching the consultation.
“We think it will be particularly relevant for firms in the context of operational resilience as the paper envisages that firms will align their impact tolerances with CTPs and as such, firms will want to know what those impact tolerances are.”
CMS said it has occasionally been challenging for firms to get enough information from third parties to support their impact tolerance setting so it expects these proposals may be helpful.
“Although the regulators have tried to address the potential for misuse of CTP designation status in the paper, it is difficult to see how that can be effectively implemented as firms entering into material outsourcing arrangements will want to understand how the CTP complies with the proposed new rules in their tendering and how it might impact their effective oversight,” it explained.
The consultation closes on March 15, 2024 and the regulators intend to publish an approach document setting out how they will carry out their oversight roles in relation to CTPs.
“For those designated as CTPs, who have never before been regulated directly by financial regulators, it will likely result in significant work for CTPs,” the law firm said.
“Although CTPs will have a great deal of latitude on how they meet these requirements, they will also have to face a naturally dynamic regulatory environment.”
sonia.rach@ft.com
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