Bank of England orders Euroclear to build resilience after 2020 blackout

The Bank of England has ordered Euroclear to improve its technology and operational resilience after a deadlock last year in a crucial part of the plumbing that underpins the markets thwarted a planned auction to buy gilt.

The central bank on Friday launched supervisory action against the UK and Irish arm of the Belgian company, which runs London’s main utility for settling bond and stock trades, following a major IT glitch in September from last year.

Euroclear suffered a two-day outage of its Crest system, which plays a vital role in the functioning of markets by settling transactions on behalf of investors and transferring money between the central bank and commercial banks.

A problem with its messaging software meant that Crest – which settled 80.4 million transactions last year worth more than £ 360 billion – couldn’t clear a backlog of transactions. He forced the BoE to temporarily halt government bond purchases as part of its quantitative easing program, intended to help stimulate the UK economy during the pandemic.

This was the first time Crest had to use a back-up system to settle trades at the end of the day, forcing the Bank of England to step in to ensure trades were completed and parties did not remain exposed .

Euroclear previously called the outage “very unusual”. He later commissioned an independent review led by consulting firm Duff & Phelps, but the scope was broadened after a second technical glitch in November.

The outages occurred as Euroclear finalized its request to operate under new, stricter rules for settlement houses and was spending on IT to meet the requirements. The BoE nevertheless approved Euroclear’s request in December.

The BoE and Euroclear declined to expand on the recommendations of the independent report, and the BoE added that the move did not imply that Euroclear had violated regulatory requirements or constituted a coercive measure.

However, Euroclear conceded in its 2020 annual report that it had failed to meet its own performance standards in terms of service resilience and system availability.

It also said it will review its business and IT strategy this year to further improve its operational resilience and incorporate processes to allow it to continue to comply with new settlement regulations.

In a statement, Euroclear said it was “fully committed to implementing these changes and that in fact a number of recommendations have already been implemented”. He kept the regulator, customers and stakeholders informed of the review process, he added.

The BoE said it would formally require the company to implement the changes and appoint a so-called “qualified person” to oversee them. The appointee will provide the bank with a report in the first half of next year, to give them assurance that the changes have been made.

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