The UK government has proposed giving more powers to financial regulators to oversee ‘critical’ third party cloud service providers to mitigate the risk of potential disruption of the banking system. 

In a policy statement, the finance ministry of the UK said as of 2020 “over 65% of UK firms used the same four cloud providers for cloud infrastructure services.”

The authorities are concerned that the increased reliance on the same third party and the potential disruption poses threat to the stability of the financial system of the UK. 

In 2021, the Bank of England’s Financial Policy Committee (FPC) concluded that “the increasing reliance on a small number of cloud service providers and other critical third parties could increase financial stability risks without greater direct regulatory oversight of the resilience of the services they provide”.

Since then, the finance ministry has been working with BoE, including the Prudential Regulation Authority (PRA), and Financial Conduct Authority (FCA) to develop a framework to deal with such risks. 

The finance ministry noted that the current powers of the financial regulators are not enough “tackle the systemic risk that disruption at a third party providing key services to multiple firms could cause”.

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“The proposed regime will fill this gap in the regulators’ powers, by allowing them to directly oversee services that critical third parties provide to firms. This will enable the regulators to ensure that services critical third parties provide to firms in the finance sector are resilient, thereby reducing the risk of systemic disruption,” it added.

The powers to be granted to the financial regulators will allow them to request information from ‘critical’ third parties, appoint an investigator to look for potential breaches and make onsite visits among others.