With the Financial Services Authority (FSA) chairman, Lord Turner, set to publish the results of his enquiry into how the financial sector is regulated on 18 March, a report from JWG-IT has highlighted the importance of liquidity risk management.
The Turner Review is poised to define the UK’s future regulatory framework in advance of the 2 April G-20 Summit. Lord Turner is expected to endorse the de Larosièr report that called for formally coherent European FS supervision. Europe and the US have responded with resounding calls for more debate that 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.
The Liquidity Risk Management Report from the think-tank details the UK’s requirements in light of global imperatives that 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.
JWG-IT points out that this is going to happen, arguing that 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. The think-tank suggests that banks and the FSA should soon be entering discussion of what ‘reasonable implementation’ would look like.
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