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FSA finalises far-reaching overhaul of UK liquidity regulation

05 October 2009  |  5781 views  |  1 grid

UK financial services firms are facing a multi-million pound compliance bill to meet new liquidity reporting requirements set out Monday by the Financial Services Authority.

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.

The publication of the final rules follows a six-month consultation exercise, during which firms expressed concern over the overall cost and burden of the original proposals stemmming from the high level of frequency and granularity of reporting and the tight implementation timetable.

The watchdog accordingly has tweaked its original plans to accommodate some of the feedback, in particular by extending the timeframe for the introduction of liquidity buffers, but remains steadfast in pushing for a staggered 2010 reporting deadline.

Paul Sharma, FSA director of prudential policy, says: "We must learn the lessons of the financial crisis and we believe that implementing tougher liquidity rules is essential to ensure we are in a better position to face future crises."

He says the FSA is making a significant investment in new systems and business intelligence tools to handle the large volumes of intra-day data that will flow from the regime.

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.

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

In a statement, the FSA says: "While we accept that our reporting requirements may be costly to implement for many firms, we also believe that the data concerned would normally be required by most firms for their own purposes in undertaking prudent liquidity risk management."

Read the proposals in full:» Download the document now 1.4 mb (PDF File)

Comments: (1)

A Finextra member
A Finextra member | 05 October, 2009, 12:38

This is an expected result from the financial crisis. It is important that these rules are standard accross all global markets or we will begin to create black holes. The management and reporting of liquidity has to be able in real time. Even a day late could cause problems. The good news that there is technology arround to acheive the new reporting requirements but is there the budget or the will?

 

Gary 

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