United Kingdom: Guidance on material third party arrangements enters into force

On 18 March 2027, the guidance on material third-party arrangements (FG26/4) comes into force. It applies to designated investment firms, authorised electronic money or payment institutions, and other financial institutions. The guidance requires firms to assess whether arrangements could cause intolerable harm to clients (“materiality”) or threaten the stability and resilience of the financial system. Regulated firms must maintain a structured register of such arrangements and submit it annually to the FCA, supporting the identification of potential critical third parties (CTPs) for Treasury designation. The framework covers both external and intragroup arrangements, especially where there are external dependencies, and outlines factors for assessment including business continuity, operational risk, and the ease of substituting service providers. Firms are expected to assess materiality on a case-by-case basis, taking into account the complexity of the supported functions and the potential impact of failures on regulatory compliance and data integrity obligations.