The Financial Services Authority (FSA) today published its Financial Risk Outlook (FRO) outlining the main risks facing firms, consumers and the regulatory system in the economic downturn, in particular the challenges created by banking sector and real economy deleveraging.
These challenges include banks adjusting their business models to operate successfully in difficult conditions in financial markets and in the real economy. Firms are also reminded of the importance of treating customers facing difficulties with fairness. Consumers will need to be able to identify warning signs that might suggest they are getting into financial difficulty, should be cautious of financial deals which seem too good to be true and know where to go for impartial finance advice.
This year’s FRO is divided into three sections:
* Financial and economic crisis sets out an integrated view of the macroeconomic, financial and regulatory developments which lie behind the crisis. It outlines issues relating to the regulation of banks and bank-like institutions which will be covered by the Turner Review and an FSA discussion paper due to be published in March;
* Economic outlook describes a central economic scenario drawn from various forecasts focusing in particular on how deleveraging is likely to affect firms, markets, consumers and the FSA. Three alternative scenarios explore the ways in which the economy and financial sector could plausibly evolve over the medium and long term to highlight the substantial uncertainties that face both firms and consumers;
* Outlook for financial sectors and consumers identifies the risks and implications of the financial and economic environment for firms, market participants and consumers.
By publishing this document, the FSA seeks to raise awareness of the key issues facing it and the regulated industry and to place the actions and decisions the FSA makes in context. The FRO’s conclusions are a key element in the FSA’s priority-setting arrangements which will be set out in its Business Plan due to be published on 12 February 2009.