The regulator published its enhanced liquidity regime in October 2009. This introduced tougher qualitative and quantitative standards for firms.
At that stage the FSA said that it would not tighten quantitative standards before economic recovery is assured, given that all firms were experiencing a market-wide stress. It committed to giving a further update in the first quarter of 2010.
The FSA today says it would be premature to increase liquidity requirements across the industry at the current time.
This position will be reviewed later in the year, with a further announcement in Q4, 2010.
The FSA says it plans to phase in the quantitative aspects of the regime in several stages, over an adjustment period of several years.
FSA director of prudential policy Paul Sharma says: “The FSA is the first major regulator to introduce tighter liquidity requirements for firms. 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.
“In the current crisis some firms weathered the storm better than others. These firms tended to be those that had policies that were similar to those that we are introducing today – including holding assets that were truly liquid, such as government bonds. Phasing the period in which firms will build up their liquidity buffers should mitigate the knock-on effects to bank lending.”
The qualitative aspects of the regime were put in place in December 2009.
The FSA says it strongly supports the liquidity workstreams that are underway internationally, but it recognises that it may be some time before there is international agreement on specific proposals.
It insists that the structure of the new UK regime is sufficiently flexible to allow the FSA to amend it through time to reflect any new international standards.