Banks told to get on with the hard work of proving that they know their exposure
The FSA has today released Consultative Paper (CP) 09/13 which takes into account comments received in response to the pre-consultation on reporting which was set out in last December’s CP08/22: Strengthening liquidity standards. CP 09/13 sets out the FSA’s proposals for a new liquidity reporting regime, which is part of the proposed overhaul of UK liquidity regulation. The new regime aims to up the ante on the way that liquidity risks are identified, measured, monitored, reported and governed. PJ Di Giammarino, ceo, JWG-IT, the FS think-tank, comments:
“After a rapid review of the 174-page CP09/13 response on liquidity reporting, we think the FSA is essentially saying ‘We appreciate it is going to be hard but get on with it, because we are serious’.
“Despite many of the 98 respondents to the 15 questions in CP 08/22 highlighting the practical issues associated in delivering new reports, the FSA has decided that liquidity problems need to be monitored daily. And for banks this means exactly what it says on the tin.
“The FSA recognises that reporting requirements may be costly to implement but believes the data concerned would normally be utilised by most firms during the normal course of business.
“In an important nod to the recent G20 meeting, it is also clear that the FSA is engaged in international efforts to align other regulators to its data-intensive approach – and then use this as the basis of cross-border benchmarks.
“Firms should expect the new rules and guidance to be in effect in the fourth quarter of this year with new FSA reporting arrangements going live in Q1 2010. It goes without saying that there’s a huge amount of work to be done across the industry to get this right.
“Our discussions with practitioners in banks lead us to conclude that, whilst much of this makes good business sense, it has the consequence of asking banks to rethink their infrastructures from the bottom up. The good news is that investment firms now have a clear and certain regulatory target to aim at.”
For background information on liquidity risk requirements see: www.liquidity-risk.info or www.jwg-it.eu where a full analysis report is available to download.