Firms face multi-million pound liquidity reporting bill

Firms face multi-million pound liquidity reporting bill

Regulatory proposals for a new liquidity reporting regime could cost the UK financial services industry up to £700 million to implement, according to estimates by Atos Consulting.

The new regulations aim to ensure banks reduce balance sheet risk through enforcing increased holdings of low yielding liquid assets, particularly Government bonds. They also impose wide-ranging requirements on risk identification, measurement, monitoring, control, reporting and contingency planning to strengthen a firm's capacity to withstand shocks.

A consultation paper on the new regime was issued by the Financial Services Authority (FSA) Wednesday. It signalled a delay in the implementation of the rules from an original October 2009 deadline to January 2010. This followed feedback from member firms querying the level of reporting and the aggressive timescales required to make the necessary back-end systems changes.

"While we recognise that, compared with past practice, our reporting requirements may be costly to implement for many of the firms that fall within the scope of our Individual Liquidity Adequacy Standards (ILAS) regime, we believe the data concerned would normally be required by most firms in undertaking prudent liquidity risk management for their own purposes," states the FSA. "The cost of complying with our proposed reporting regime should be modest when measured against what prudent risk management itself requires of firms."

The Atos Consulting analysis of the proposals estimates that implementation will require over 15 man-years of additional work to be completed this year at an industry-wide cost of between £300 and £700 million.

In order to comply with the rules, financial institutions will need to develop new daily, weekly and monthly reporting systems to extract relevant data from a wide variety of sources and systems.

States Atos Consulting: "In light of the recent job losses at a number of the major financial institutions, there is a high risk that in order to meet the deadline for the liquidity regulation, other projects such as those related to post M&A integration, will need to be postponed."

The FSA is inviting comments on the consultation paper by 15 July.

Read the full liquidity reporting paper:

Download the document now 977.7 kb (PDF File)

Comments: (1)

Steven Husk
Steven Husk - FRSGlobal - Brussels 30 April, 2009, 10:13Be the first to give this comment the thumbs up 0 likes

CP 09/13 on strengthening liquidity standards has made it clear that the FSA means business. Alongside The Turner Review it highlights an overt and ambitious attempt to embed liquidity risk and its management into the everyday processes of a financial institution. Sants' comments before the liquidity consultation paper came out should have served to highlight the intent: "We do want to have a somewhat intrusive approach to regulation." It is clear that financial institutions must now act quickly to get their houses in order against the backdrop of a regulator now unafraid of stepping centre stage.

Trending