The financial sector is facing increasing regulatory scrutiny in 2025, with the Critical Third Parties (CTP) regulation now in effect. Introduced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the CTP regime aims to ensure that financial organisations and their key suppliers are equipped to handle digital disruptions and operational risks.
Why the CTP Regulation Matters
Modern financial institutions rely heavily on a small number of third-party providers to support their services. While these partnerships improve efficiency, they also introduce vulnerabilities. A cyber-attack, power outage, or operational failure within a critical supplier can significantly impact consumers, businesses, and the stability of the UK financial system.
To mitigate these risks, the CTP regime, which came into force on 1 January 2025, requires designated Critical Third Parties (CTPs) to meet strict operational resilience standards. This ensures they can effectively identify, manage, and recover from disruptions that could impact financial services.
Key Requirements of the CTP Regulation
The new CTP rules set out specific obligations for third-party suppliers, including:
- Operational resilience standards – CTPs must demonstrate they can withstand and recover from service disruptions.
- Regular reporting – Firms must provide updates to regulators on their risk management strategies and resilience measures.
- Incident management protocols – CTPs must have structured processes to report and manage significant incidents that could impact the financial sector.
While the FCA and PRA have yet to confirm the official list of designated CTPs, it is expected that major cloud service providers, managed IT firms, and data providers will be included.
Beyond CTPs: The Role of Significant Third Parties (STPs)
Although the CTP regulation primarily applies to designated Critical Third Parties, financial organisations must also assess their other key suppliers. These Significant Third Parties (STPs) may not fall under the regulation but are still crucial to a firm’s operational stability.
Many FinTech firms and smaller service providers will likely be classified as STPs. While they are not legally required to meet CTP standards, adopting best practices for resilience is strongly recommended to maintain trust and compliance in the financial sector.
Best Practices for Supplier Resilience
To align with the CTP regulation and enhance overall operational resilience, financial firms and their suppliers should adopt the following strategies:
1. Evidential Requirements
Firms should obtain clear evidence that their third parties have robust resilience measures. This includes:
- Backup and restore procedures for critical data
- Defined recovery timelines
- Structured governance frameworks
2. Scenario Testing
Third-party providers should conduct regular resilience tests to assess their ability to withstand severe but plausible disruptions. Establishing a scenario library can help firms simulate and prepare for potential crises.
3. Contractual Obligations
Embedding security and resilience requirements into supplier contracts ensures compliance and transparency. Contracts should include:
- Scenario testing commitments
- Incident response obligations
- Reporting structures for regulators
Preparing for a More Resilient Future
The CTP regulation represents a significant step towards strengthening financial resilience in the UK. Even as firms await confirmation of the official list of designated CTPs, financial organisations must proactively assess their critical and significant suppliers to ensure they are meeting the highest security and resilience standards.
By implementing best practices, strengthening supplier oversight, and enhancing operational resilience, financial institutions can protect their clients, businesses, and the wider economy from digital disruptions.
