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Fines feared as City struggles to find skills to meet strict FSA requirements


Fines feared as City struggles to find skills to meet strict FSA requirements

Mad dash to the liquidity risk marathon’s starting line underway

London – 4 November 2009.  All signs point to a difficult start to the FSA’s new liquidity risk rules, as half of City banks say they do not have the capability to meet the requirements of the FSA’s Policy Statement 09/16, released on 5 October. 

The FSA gave 2,800 firms approximately 40 days, ending 1 December, to implement the qualitative systems and controls requirements.  All risk disciplines (market, credit, operational) of the businesses are involved.  Firms are being asked to declare (Y/N) whether they maintain robust liquidity risk management policies, plans, governance, measurement and stress testing procedures. 

JWG’s August and September 2009 investigation of banks operating in the UK revealed significant readiness gaps.  Practitioners have rated their ability to meet the new stress testing requirements as 52% able, reporting requirements 49% able and systems and controls requirements 45% able.  This means that almost half are predicting that their compliance efforts could well fall short of expectations on the deadline.

Enforcement by the FSA promises to be intense, with over 200 supervisors committed to spending four months on site with the banks’ treasury staff and attending the firms’ governance meetings.  Penalties are severe.  If a firm cannot prove that they are planning, stress testing and maintaining ‘good quality’ systems and controls, the FSA will penalise them by increasing their Liquid Asset Buffer and issuing fines.

Unsurprisingly, the market in the City for qualified professionals is heating up.  The FSA job board currently lists 14 vacancies which require liquidity skills.  Day rates for contractors have broken the £750 barrier – up 50% since the summer.  Recruitment agents are advertising permanent jobs at banks with pay packets topping £180,000.  Professional services firms are struggling to employ new consultants fast enough to satisfy market demand.  After a rough couple of years, it’s now a sellers’ market.

PJ Di Giammarino, CEO of JWG, comments: “After 100 days of collaborative effort with over 30 firms, we now believe leaders have a good understanding of the ‘known unknowns.’  What is less clear is what ‘good looks like’ and how serious the global regulatory fraternity is about the consequences of looking bad.

“We find the most difficult task for firms at this moment in time is stress testing.  With European policies being set and new FSA reverse stress testing due out this month, firms are struggling to define what their policies should say on 1 December.  Our Liquidity Risk Action Network is producing a comprehensive guide to liquidity risk stress testing that can help firms get to the starting line without tripping up.”  For more information see www.liran.eu.

About JWG

JWG seeks to be recognised by regulators, financial institutions and technology firms as the independent analysts to help determine how the right regulations can be implemented in the right way. 

About LiRAN

LiRAN creates the reference points for investment firms’ and their regulators’ detailed policy and operating model requirements.  By making these transparent, they also form the launch pad for suppliers and service providers who wish to build solutions which are fit for purpose. 



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