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Months of UK liquidity turmoil drawing to a close


Months of UK liquidity turmoil drawing to a close

New report finds liquidity risk management of utmost importance

London – 16 March 2009.  The Turner Review is poised to define the UK’s future regulatory framework in advance of the 02 April G-20 Summit. Lord Turner is expected to endorse the de Larosièr report which called for formally coherent European FS supervision. Europe and the US have responded with resounding calls for more debate which will not conclude before the summer holidays.

As Hector Sants, chief executive of the FSA, has said, the regulator plans to require UK institutions to improve their operations immediately.

JWG-IT expects the FSA’s newly proposed liquidity risk regime to hold firm although the implementation deadline may be extended to Q1 2010. Banks have tried to ignore the FSA, hoping it will go away or soften requirements but now they are reluctantly coming to the realisation that, however imperfect the rules are, the proposals under consultation today will remain broadly the same.  Though there is a threat of other regulators coming in with alternative requirements, it is likely that the FSA proposals will be looked at as ‘best practice.’

The political reality is that their liquidity failures have caused worldwide disruption and UK regulators and politicians are going to insist on thorough and detailed approaches to its risk management. The bottom line is that the political will to execute what was laid out in December’s 08/22 Consultation Paper is there and the FSA has clearly signalled ‘no more Mr. Nice Guy.’

Banks should be pulling their experts together – treasury, finance, risk communities, business operations and technology management – to break down their internal barriers and define a roadmap which gets each bank to an integrated, global view of its liquidity risks.

The recently released liquidity risk management report from JWG-IT details the UK’s requirements in light of global imperatives which call for banks to maintain:

  • Highly granular data for all assets and liabilities ‘on demand’
  • Sophisticated models which stress test dynamic and ‘extreme but plausible’ scenarios
  • Extensive liquidity reports for which senior management will be held responsible by the FSA

This is going to happen. Banks should move away from their broad opposition and work with the FSA on fine tuning the rules and lists of ‘known unknowns’ or risk a repeat of the failures embodied in Sarbanes-Oxley. Banks and the FSA should soon be entering discussion of what ‘reasonable implementation looks like.’

For more information on the Liquidity risk management report: the new imperative click here for for more information on liquidity risk, click on www.liran.eu.

About JWG-IT Group Limited

JWG-IT is the only financial services industry think-tank to facilitate collaborative work to resolve industry issues created by regulatory change.  Based on a working model started in 2005, JWG-IT has established strong relationships with EU administrators, leading firms and companies.  It is neither lobbyist nor consultancy and revenues are restricted to membership and event fees and content sales.  The JWG-IT Think-Tank is designed to help members and participants manage regulatory-driven change better, quicker, cheaper and with less risk.  JWG-IT launched the customer data management group and the liquidity risk action network in 2008.  For more information, see www.jwg-it.eu



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