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FSA delays liquidity requirements due to market conditions

The FSA has announced it will again delay its proposals to tighten quantitative standards, including increased liquidity requirements for firms, until an economic recovery is assured.

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.

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. Incompetent Regulators Awards Team 8th March 2010 at 1:06 pm

    What about eh FSAs’ liquidity requirements?

    How about asking the current and previous staff to pay back some unjustifiable salaries and bonuses to prop up their balance sheet?

    Do as I say, not as do. Great expample coming from a rotten regulator!

  2. Sensible move given they were being pro-active with this anyway. Silly to bring anything like this in 3 months before an election, especially when the FSA itself might be history in 12 months’ time.

  3. Another concession!

  4. Julian Stevens 8th March 2010 at 4:35 pm

    The FSA “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.”

    So what’s new? It’s just another way of describing the FSA’s long standing and frequently exercised freedom to move the goalposts whenever and however it wants to, isn’t it?

    Regime. Now there’s an interesting word to describe the FSA.

  5. Mike Fitzgerald 8th March 2010 at 4:39 pm

    Its nice to see that the FSA are holding off on tighter liquidity for companies a while longer.
    the threat of tighter liquidity was starting to have an effcet on firms
    Perhaps the impending election was on their minds

  6. My, my, I cannot believe the FSA has missed a glorious opportuntity like this because if they did impose the new liquidity requirements, look at all the IFA’s that could pay more fines for not matching the new liquidity levels: shame on you FSA, that Final Salary Pension scheme reinstatement will have to wait!

  7. Julian Stevens 8th March 2010 at 6:13 pm

    The FSA “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.”

    So what’s new? It’s just another way of describing the FSA’s long standing and frequently exercised freedom to move the goalposts whenever and however it wants to, isn’t it?

    Regime. Now there’s an interesting word to describe the FSA.

  8. BIG DEAL FSA !

  9. This is because there would be outrage if they asked the small IFA for an additional £10K liquidity at the same time wanting a further £10K to bail out the FSA failure to regulate Keydata. Have all these new model advisers worked out how much they will be charged when all of the cash cow sub level 4 boys are kicked out?

    This would be the regulatory bail of straw that broke the IFA camels back! Maybe it would be best if the they did levy this fee and put us all out of our misery making the total hit £20K, 500 hours of degree study, loss of commission and an economic depression!

    Hello AIFA is there anyone at home?

  10. If you lot could be a little more flexible, not so antagonistic and more cooperative there might be hope of more relaxation of restrictive rules and regulations.

    Simon, it is a bale of straw.

    AIFA is at home but unfortunately nobody knows what they are doing.

  11. When you read that the regime includes:

    •An updated quantitative regime coupled with a narrow definition of liquid assets;

    •Over-arching principles of self-sufficiency and adequacy of liquid resources;

    It still sounds to me like Paul Sharma is in charge of the drinks supply for Hector Sants’ leaving do – perhaps that’s why it has been delayed for a while?

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