The results of an Financial Services Authority (FSA) survey of 34 firms have shown that the potential incremental costs for UK banks to implement the new liquidity reporting regime could be over £2.4bn.
Consultative Paper (CP) 09/13: Strengthening Liquidity Standards 2 suggests in chapter seven that the 661 firms who are significantly affected will need to devote resources to change their systems and hire more staff to cope with the new requirements. This could cost from £49,000 each for the 58 building societies through £3.3m for 157 UK banks, up to £7.4m for 244 full-scope investment firms. In addition, 202 UK branches of foreign banks are looking at costs of £542,000 each. On an ongoing basis, banks will need to spend between £517,000 and £775m, depending on how much crisis reporting is required. Comments on the CP are due by 15 July 2009 and the revised reporting must be implemented by March 2010.
JWG-IT, a financial services think-tank, has analysed the figures and confirmed the implications with the FSA. Although the FSA stated that the figures do not take account of the size and complexity of banks, it is clear that an implementation challenge of this scale is unprecedented and that the 09/13 estimate overwhelms the estimated costs of between £870m and £1bn from one year ahead of MiFID implementation. According to JWG-IT, the findings suggest that the FSA and the firms need to urgently investigate the basis of these calculations to confirm accuracy and, if the figures prove correct, to work together to ensure that the regulatory burden is not so financially debilitating.
PJ Di Giammarino, chief executive of JWG-IT, said: “The FSA’s analysis of the impact these new standards will have on the firms has been prepared quickly and should obviously be taken with a pinch of salt. There are clearly different interpretations of ‘modest’, depending on which side of the risk fence you sit on. But, whatever your perspective, these cost estimates should serve as a wake-up call.
“The debate is no longer about whether we need capital ratio brakes or liquidity airbags; this global financial services vehicle needs both. There is little competitive advantage for a bank to monitor liquidity risk better than another – the industry needs global standards to comply with this new regime better, faster and cheaper,” he said.
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