Policy paper

Joint statement on the UK-U.S. Financial Regulatory Working Group meeting

Published 26 July 2022

This was published under the 2019 to 2022 Johnson Conservative government

UK and U.S. participants held the sixth meeting of the UK-U.S. Financial Regulatory 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 the further promotion of 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 U.S. Department of the Treasury, and from UK and U.S. independent 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 Comptroller of the Currency (OCC), and the Securities and Exchange Commission (SEC). UK and U.S. participants shared views on issues in their respective areas of responsibility.

The Working Group meeting focused on seven themes: (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 unjustifiable invasion of Ukraine. The Working Group also discussed ongoing international and bilateral cooperation and areas of mutual interest where cooperation can continue to be strengthened to promote global standards. The Working Group Co-Chairs highlighted their continued commitment to, and support for, robust financial markets and international financial regulatory standards that promote financial stability and mitigate unintended market fragmentation. They also exchanged views on respective international financial sector priorities at the G7, the G20, the Financial Stability Board (FSB), and the International Organisation of Securities Commissions (IOSCO).

Participants discussed risks in the Non-Bank Financial Intermediation (NBFI) sector and interconnectedness with other financial and non-financial actors. Participants discussed the need to take steps toward strengthening the resilience of the sector, including strengthening liquidity risk management practices and expressed support for future cooperation, including in relevant international fora, in this regard.

The Working Group also discussed the mutual desire to promote multilateral cooperation around risk management in global derivatives and banking markets. It also discussed the importance of minimizing regulatory fragmentation by limiting differences in the substance and timing of implementation of international standards that would otherwise disincentivise market participants from undertaking certain cross-border activities.

On Basel III reforms, participants reaffirmed their commitment to the final prudential standards and reiterated the value of global cooperation in their implementation. Participants agreed to discuss further when respective authorities bring forward their implementation proposals.

On the topic of financial innovation, participants reflected on the outcomes of the U.S.-UK Financial Innovation Partnership meeting in June 2022. This included exchanging views on crypto-asset regulation and recent market developments, including those in relation to stablecoins, and the exploration of central bank digital currencies (CBDCs). All participants committed to continued cooperation to support safe financial innovation, as well as to strengthen regulatory outcomes for stablecoins across jurisdictions. Participants also considered future opportunities for further discussion on broader crypto-asset regulatory initiatives. Participants recognised the continued importance of the ongoing partnership on global financial innovation and acknowledged the importance of both maintaining and further engaging in multilateral discussions on these topics.

Participants took stock of ongoing efforts in relation to LIBOR transition, the FCA’s recent consultation on winding down ‘synthetic’ sterling LIBOR and its request seeking views on the need for any synthetic U.S. dollar LIBOR rates, and the importance of continuing to transition to robust alternative reference rates across jurisdictions, whilst welcoming the successful completion of the important end-2021 milestones. They noted the importance of maintaining a coordinated approach in the lead up to the cessation of remaining USD LIBOR settings at the end of June 2023.

Participants discussed domestic and international progress made on work relating to sustainable finance this year and discussed priorities and issues for continued work and cooperation, both multilaterally and bilaterally. They also provided respective domestic updates. U.S. participants discussed work undertaken by U.S. agencies, including as outlined in the U.S. Financial Stability Oversight Council’s Report on Climate-Related Financial Risk. UK participants discussed the Climate Biennial Exploratory Scenario and the UK noted the usefulness of scenario analysis as a tool for supervisory risk assessments and financial institutions. Participants also discussed Environmental, Social, and Governance (ESG) data and ratings providers and provided updates on the development of climate-related financial disclosures regimes.

UK and U.S. participants also welcomed the progress of the International Sustainability Standards Board (ISSB) as it develops a global baseline for corporate reporting on sustainability, noting the importance of interoperability of reporting across different jurisdictional approaches

In addition, participants discussed ongoing cooperation on international efforts to address climate change issues within the financial sector, including the FSB’s Roadmap for Addressing Climate-Related Financial Risk, and the G20 Sustainable Finance Working Group and Sustainable Finance Roadmap.

Participants discussed regulatory approaches to ‘critical’ third-party providers, in particular those that provide services across borders and across sectors, and noted the need for financial authorities to understand and manage the financial stability and market confidence risks that could arise as a result of failure of or disruption at third-party providers. Participants discussed the value of developing shared, international approaches to identifying critical services and providers; expectations for their use in the financial sector; and collaborative methods of assurance, and the importance of promoting cooperation on a bilateral and multilateral basis between relevant authorities on this issue.

Participants will conduct follow-up work on the above topics and other issues of mutual interest through bilateral engagement and in multilateral fora ahead of the next Working Group meeting, which is expected to occur later in 2022.