Innovation and Resilience in the BPA Sector - speech by Gareth Truran

The Bank of England's executive director for insurance supervision has called on the business process administration sector — the companies that manage the back-office functions of banks and insurers — to invest more in resilience and to prepare for a future in which the services they provide are subject to the same regulatory standards as the financial institutions they serve.

In a speech to an industry conference, Gareth Truran said the BPA sector had grown rapidly over the past decade, driven by the financial services industry's desire to reduce costs and to focus on its core activities. But he warned that the sector's growth had not been matched by investment in the systems, processes and governance that would be needed to ensure that a failure of a BPA provider did not disrupt the financial system.

Truran identified several areas where the sector needed to improve. The concentration of critical services in a small number of providers created single points of failure that could affect multiple financial institutions simultaneously. The sector's reliance on legacy technology, much of which was inherited from the institutions that outsourced their operations, created vulnerabilities that could be exploited by cyber attackers. And the sector's governance arrangements, which in some cases did not provide for effective board-level oversight of operational risk, were not adequate for the systemic importance that the sector had acquired.

The Bank has said it will consult on new requirements for the BPA sector, including standards for operational resilience, cyber security and governance. Truran said the consultation would be published later this year and that the Bank expected the sector to engage constructively with the development of the new framework.