The Bank of England has ordered Euroclear to improve its technology and operational resilience after a blockage last year in a crucial portion of the plumbing that underlies markets scuppered a planned gilt purchase auction.
The central bank on Friday launched a supervisory action against the Belgian company’s UK and Ireland arm, which runs London’s main utility for settling bond and equity deals, following an extensive IT glitch in September last year.
Euroclear suffered a two-day outage of its Crest system, which has a critical function in the running of markets by settling trades on behalf of investors and transferring money between the central bank and commercial banks.
A problem with its messaging software meant Crest — which settled 80.4m trades last year with a value of more than £360tn — was unable to clear a backlog of trades. It forced the BoE to temporarily halt purchases of government bonds as part of its quantitative easing programme, intended to help boost the UK economy during the pandemic.
It was the first time that Crest had to use a back-up system to settle deals at the end of the day, requiring the Bank of England step in to ensure trades were completed and parties not left exposed.
Euroclear has previously described the outage as “highly unusual”. It subsequently commissioned an independent review led by consultancy Duff & Phelps, but the scope was widened after a second technical issue in November.
The outages happened as Euroclear was finalising its application to operate under new tougher rules for settlement houses and was spending on IT to meet the requirements. The BoE nevertheless approved Euroclear’s application in December.
Both the BoE and Euroclear declined to elaborate on the recommendations in the independent report, and the BoE added that the move did not imply Euroclear had breached regulatory requirements or constitute enforcement action.
However, Euroclear conceded in its 2020 annual report that it had not met its own performance standards on service resilience and system availability.
It also said it would review its business and IT strategy this year to further improve its operational resilience, and embed processes that would ensure it continued to comply with the new settlement regulations.
In a statement, Euroclear said it was “fully committed to implementing these changes and in fact a number of the recommendations have already been executed”. It had kept the regulator, clients and stakeholders informed of the review process, it added.
The BoE said it would formally require the company to implement the changes and would appoint a so-called “skilled person” to oversee them. The appointee will give the bank a report in the first half of next year, to give it assurances the changes have been made.
