Overview
In November 2023 the Bank of England (the Bank) published a consultation on the Codes of Practice (CoPs) for wholesale cash distribution (WCD) market oversight.
The consultation set out the Bank’s proposed draft Codes of Practice for market oversight as well as draft guidance to the CoPs and a draft WCD Data Catalogue (which sets out proposed reporting requirements of recognised persons). The consultation also provided background on the UK cash landscape, industry work and recent legislative reforms, as well as the scope of the new wholesale cash distribution legislative framework, and the Bank’s powers and obligations under that framework. The Bank had previously published its Statement of policy on the Bank’s supervisory approach to market oversight for wholesale cash distribution and had consulted on that approach in December 2022 and responded in August 2023.
Following the consultation of November 2023, the Bank has published the final CoPs, guidance and WCD Data Catalogue for the market oversight regime prior to the recognition by HMT, under wholesale cash oversight orders provided for in the new regime, of firms that have ‘market significance’ in respect of their wholesale cash distribution functions and activities.
Consultation questions
The consultation paper was published on 30 November 2023 and interested parties were invited to respond to the following questions by 31 January 2024:
- Do you agree with, or have any feedback or comments on, the proposed CoP on Information Gathering?
- Do you agree with, or have any feedback or comments on, the proposed CoP on Third Party Arrangements?
- Do you agree with, or have any feedback or comments on, the proposed CoP on Cash Centre Closure and Market Exit?
- Do you agree with, or have any feedback or comments on, the guidance for the CoPs?
- Do you agree with, or have any feedback or comments on, the draft WCD Data Catalogue?
Consultation feedback and the Bank’s response
The consultation closed on 31 January 2024 and we received seven responses from stakeholders, including the majority of the direct market participants, and an industry body with a broader cash market view. The Bank has also taken into account its consultation obligations to the UK Information Commissioner's Office (ICO) with respect to the personal data which it is proposed will be collected as part of the data catalogue.
Respondents were broadly supportive of the proposed regime for WCD market oversight and provided some comments and feedback. Below we acknowledge and respond to the feedback received.
1: Do you agree with, or have any feedback or comments on, the proposed CoP on Information-gathering?
Respondents all broadly agreed with the proposed CoP on Information-gathering. Some firms asked whether the Bank would supply templates for submitting business plans and business continuity plans so that they could ensure they provide the detail that the Bank requires. One respondent asked for clarification on the format for self-assessment reporting and whether their ‘attestation’ would form a part of this.
The Bank is content for firms recognised in respect of their wholesale cash distribution functions and activities under a wholesale cash oversight order (recognised firms) to supply their business plans and business continuity plans in any format they choose. We recognise that it would not be proportionate to require firms to produce additional material if what they already hold is satisfactory for our purposes. The level of detail will vary according to the size and complexity of the recognised firm’s wholesale cash distribution business. We will assess submissions from individual firms in order to identify whether there are any gaps in the information provided. Similarly, we will accept each firm’s preferred format for self-assessment reporting and ‘attestation’. Should the Bank have further firm-specific questions on these documents, we expect to raise these directly with firms – for example, in our regular meetings with firms.
We have updated the guidance to state that recognised firms are expected to make their own determination as to the form that their self-assessment document should take and as to the level of detail to be included in the document, taking into account the extent to which the recognised firm has met the Bank’s expectations and requirements under the principles and the codes of practice.
One stakeholder asked if they could combine their annual attestation with their self-assessment document. The Bank has no objection to this and has amended the CoP to reflect that recognised persons may provide their self-assessment either by the deadline set by reference to 31 December each year or (together with the annual attestation) by the anniversary of their recognition under wholesale cash oversight order.
2: Do you agree with, or have any feedback or comments on, the proposed CoP on Third-Party Arrangements?
The respondents all broadly agreed with the proposed CoP on Third-Party Arrangements. Some respondents asked if the Bank would provide specific materiality thresholds for service-level agreements that must be submitted, and one respondent asked for further guidance around addressing any issues that may arise when requesting contractual changes with third-party providers, in particular Cash-in-Transit operators and Cash Centre owners. One firm requested more clarity on the general level of detail that is required about third-party arrangements.
The Bank expects recognised firms to develop their own approach to assessing the materiality of their third-party arrangements and service-level agreements. The approach should involve the exercise of judgment about the financial and operational impact that the provision of the product or services could have on the ability of the firm to perform its designated wholesale cash distribution functions. The Bank considers that it is appropriate for firms to make this judgment in the first instance, taking into account both qualitative and quantitative criteria in their materiality assessments. The guidance is designed to be flexible to enable firms to develop an approach suitable to their particular circumstances. Other than for CiT arrangements, the Bank does not require firms to provide us with a copy of their materiality assessments unless we ask for them. In such a case, if the Bank did not consider a firm’s materiality assessment to be reasonable, we would request it be reviewed in light of the Bank’s feedback. If firms have specific issues and questions regarding contract changes with their third-party providers, these can be raised with the Bank’s supervision team.
3: Do you agree with, or have any feedback or comments on, the proposed CoP on Cash Centre Closure and Market Exit?
The respondents all broadly agreed with the proposed CoP on Cash Centre Closure and Market Exit. Some respondents asked for additional clarification around what would constitute a ‘cash centre closure’ and what would constitute a ‘market exit’, and some asked for reassurances that we would have due regard for their commercial decisions if we made any objections or asked them to delay a cash centre closure or market exit, especially the possible impact on operations and market competition.
The Bank has updated the guidance to the CoPs document to clarify how a ‘cash centre closure’ and a ‘market exit’ are defined and how they would apply to a recognised firm carrying on only recognised activities relating to a cash centre. The Bank will not seek to stop commercial solutions to the challenges faced by the industry, and does not seek to bind firms into the WCD market, but endeavours to ensure structural changes can be managed in an orderly way that does not jeopardise the stability of the wider wholesale cash infrastructure. The Bank has set specific notice periods that we consider will allow us to perform a market-wide impact assessment of a proposed closure or exit. This is a vital safeguard to ensure the Bank can identify risks to the effectiveness, resilience and sustainability of wholesale cash distribution and enter into a dialogue with firms about how to manage those risks, whilst balancing other factors including the possible impact on operations and market competition. The sooner a firm can make us aware of such plans and their proposal to mitigate risks, the sooner we can conduct that analysis and engage in supervisory dialogue directly with relevant firms.
4: Do you agree with, or have any feedback or comments on, the guidance for the CoPs?
The respondents all broadly agreed with the Guidance for the CoPs. One respondent asked if we could provide separate guidance documents specific to backing FIs, omitting the guidance that is relevant only to Operators.
The Bank will not be producing firm-type-specific guidance documents as it considers the current proposed guidance to be sufficiently clear for different firm types. The Bank will continue its regular meetings with firms and will provide any additional clarifications where necessary.
We have updated the guidance to clarify that the wholesale cash centres captured under the WCD supervisory regime have a broader definition than those captured under the NCS arrangements, and include, for example, some coin processing centres and non-NCS eligible centres.
5: Do you agree with, or have any feedback or comments on, the draft WCD Data Catalogue?
The respondents all broadly agreed with the draft WCD Data Catalogue although most respondents queried their ability to provide one or more data items due to the availability of the data in the specific detail requested or due to the cost of obtaining it. One respondent suggested adding a column for firms to make comments against data fields they are reporting.
The Bank recognises the additional resource burden of providing certain data. In response to the feedback, we have made some items optional which should reduce the impact on firms. Items that remain mandatory to report are data that the Bank considers to be proportionate, taking into account the impact the reporting requirements place on recognised firms and the duty of the Bank to exercise its powers for the purpose of managing risks to the effectiveness, resilience and sustainability of the wholesale cash distribution regime.
For the remaining data items, recognised firms will need to assess their reporting capabilities and take steps necessary to meet the Bank’s requirements. Firms are also reminded that the requirements of the WCD Data Catalogue apply only to recognised firms in respect of their designated wholesale cash distribution functions and activities as set out in the wholesale cash oversight order made in respect of them.
We have updated the WCD Data Catalogue to include an additional field in some of the reporting templates, which recognised firms can use to add comments against the data entry. This will assist the Bank in performing its analysis of the data.
The Bank received some additional specific queries about the WCD Data Catalogue, and has responded to the specific questions raised:
Duplicate reporting: Some firms were concerned that there could be a duplication of data that was requested, and that data requested under this regime may be captured by other areas of the Bank, other regulators, or even by different entries within the WCD data catalogue.
The Bank has taken steps to ensure where possible there is no duplication of data reporting within the Bank, and between regulators except for certain areas where it is time critical. The Bank has updated the WCD Data Catalogue to remove some requirements where information was previously requested in duplicate formats including typical vault space in m³ and High-Speed Note Sorter (HSNS), Medium-Speed Note Sorter (MSNS), bulk coin sorter and bulk coin bagger capacity. We will also seek to remove any duplication of reporting across the Note Circulation Scheme (NCS) and WCD regime, where applicable. In some instances, the Bank has requested similar data from different firm types (ie backing FI and operator) but this is only where the data could be interpreted or captured differently from the perspective of different firms.
Cash centre inflow: Some respondents stated that they would be unable to report their cash centre inflows split by banknote issuer. The Bank has made it optional to report cash centre inflows for non-Bank of England banknotes with the expectation that firms that do hold these data will provide them.
Additionally, cash centre inflow and cash centre outflow have been renamed to ‘total cash in’ and ‘total cash out’ respectively to align more closely with the nature of the reporting requirement. We have also added in additional optional fields for recognised firms to separately report their collections from and deliveries to issuer and transfers to and transfers from other cash centres. These optional items are in addition to reporting aggregated figures relating to total cash in and total cash out. This will allow the Bank to better understand the movement of cash within the wholesale cash distribution system.
Customer dispense: Some respondents stated that it would be difficult to report their dispense to individual customers split by denomination and note issuer. The Bank requires these data in order to understand how the market is operating, so this requirement will remain unchanged.
Firm financials: some respondents stated that it would be challenging to report their revenue and costs, including CiT costs, separately for banknotes issued by the Bank of England (Bank of England banknotes) and for coin. The Bank has now amended the reporting requirements to make it mandatory to provide only revenue and cost information, and in such cases, in aggregate for all banknotes issued by the Bank of England or Scottish, Northern Ireland, Channel Islands or Isle of Man banknote issuers, and optional to provide it separately for Bank of England banknotes and for coin. Where recognised persons hold this information separately for Bank of England banknotes or for coin, the Bank would ask firms to provide it voluntarily in order to ensure that the Bank has a detailed understanding of the commercial considerations for different products within the wholesale cash distribution industry.
Misreporting: One respondent asked about the consequences of ‘misreporting’, especially where they feel data are ‘best estimates’ versus ‘reported values’. The Bank requires accurate reporting of the data we have requested. If a firm identifies misreporting it must notify the Bank as soon as reasonably practicable. The Bank may require the firm to investigate the root cause of the misreporting and provide a report to the Bank.
Format: Some respondents raised queries about the specific format in which data were requested, for example the units (hours versus minutes) used to measure machine usage, or the way processing costs are calculated, and the way vault utilisation is measured. The Bank has updated the definitions of some items where clarification was sought. For example, how to count part cages when reporting vault utilisation, when it is required to report Bond Vault Capacity separately and whether to consider insurance limits when reporting Vault Capacity. The Bank will also be discussing other items directly with recognised firms and working with them to consider any minor adjustments in the way data are measured and/or presented which would make it easier for firms to report. The Bank will consult on such changes where necessary. The Bank will work closely with recognised firms to ensure they are able to complete their data reporting within the requested timeframe.
6: Other comments and questions raised
Some respondents asked us to confirm that we will be reviewing the regime regularly and making changes if and when we discover any items that we have requested have become redundant.
The Bank will review its approach to oversight under the regime regularly, to ensure the Bank is acting reasonably and proportionately and in line with the objectives of the regime. We plan to maintain efficiency by removing, where necessary, any regulatory material which becomes redundant. If the Bank intended to make any substantive changes to its statement of policy, its principles or the CoPs (including the WCD Data Catalogue) the Bank is required to consult with affected firms on the proposals. The Bank also conducts horizon scanning in order to achieve an overall view of the market, including wider market information gathering and dialogue with other relevant market participants and authorities. The information gained from reporting and meetings is used to inform the Bank’s risk assessment and is regularly reviewed, including a full review at least annually, as part of the Bank’s annual supervisory cycle.
Some respondents asked for reassurance that the Bank would have due regard for confidentiality, especially when handling market sensitive data.
Confidential information provided to the Bank under the Code of Practice on Information-gathering (including for example, information on the identities of firms’ ‘wholesale customers’) is likely to be subject to a duty of confidence on the part of the Bank, under general principles of law. The Bank views this as meaning that the Bank would be obliged not to disclose the information to any person in breach of that duty other than where there is a ‘public interest’ to do so.
Whether the Bank would view a disclosure to be in the ‘public interest’ depends on the nature of the information and the circumstances in which disclosure is requested. The Bank is likely to be guided by the statutory gateways that exist for disclosure of information obtained by the Bank using its statutory information-gathering power in section 206Z3 of the Banking Act 2009 in interpreting the extent of the ‘public interest’ in disclosure. That is, the Bank would likely consider that it would be in the public interest for information subject to the general duty of confidence, to be disclosed to HMT and to the FCA, PRA and The Royal Mint where such disclosure would support the discharge of their functions.
To the extent that the Bank receives confidential price-sensitive information relevant to listed securities, the Bank would be obliged to handle such information in line with applicable market disclosure and transparency requirements.
Some respondents questioned the proportionality of the regime, both in general terms and in terms of whether there was sufficient regard to the differences between the different firm types (operator, backing FI, and operator/FI).
The Bank has given due consideration to the different types of firms expected to be recognised as being within scope of the regime and the different range of functions they undertake. The Bank recognises that within the access to cash regime as a whole there is a distinction between wholesale and retail cash distribution activities; and in the context of the wholesale cash distribution regime there is a distinction between market significant and systemically significant firms. Taking this into account, the Bank is satisfied that within the context of the wholesale cash market oversight regime, the distinction between operators, backing FIs and operators/backing FIs is proportionate. The Bank further refers firms to the impact assessment on the access to cash regimes carried out by HMT, available here.
Several respondents questioned why Cash-in-Transit (CiT) firms were not expected to be brought within scope of this regime.
Decisions on making wholesale cash oversight orders in respect of individual firms are to be taken by His Majesty’s Treasury (HMT) under Part 5A of the Banking Act 2009, engaging closely with the Bank. We currently consider that the analysis of the third-party arrangements information provided by recognised firms, plus the power to gather information directly from non-recognised firms if needed, will be sufficient at this time for the purposes of our oversight regime. The Bank, working with HMT, will closely monitor risks in this market and the scope of the regime will remain under review.
A number of minor queries were raised by respondents relating to the administration of the regime, such as requesting details about the implementation process and the reporting mechanism, as well as questioning whether six months was a long enough period within which to comply with the regime, especially as some data could be time-consuming to obtain.
We welcome feedback from stakeholders on the administration of the regime. Taking into consideration the voluntary commitments that have been in place since 2022, the Bank reviewed the timeframe for complying with the regime carefully and considers six months to be an adequate length of time within which to comply. The Bank informally consulted with firms in mid-2023 on an earlier draft of the WCD Data Catalogue and we consider that firms have had sufficient time to prepare for the initial data submission timeframes. The Bank will work closely with firms, answering queries and addressing issues raised, in order to assist firms with compliance.
Next steps
Any issues that were raised by respondents that do not relate directly to the consultation will be discussed directly with the respondent that raised it in the Bank’s regular meetings with firms.
Together with this feedback statement, the Bank has published its final Codes of Practice along with guidance and the WCD Data Catalogue. These will come into effect for recognised firms following their recognition by HMT as having ‘market significance’ in respect of their wholesale cash distribution functions and activities, under wholesale cash oversight orders provided for in the new regime.