Fines Feared as City Struggles to Meet FSA Requirements

All signs point to a difficult start to the UK’s Financial Services Authority’s (FSA’s) new liquidity risk rules, as half of the City of London’s 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 and operational) of the businesses are involved. Firms are being asked to declare 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 will 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 (LBA) and issuing fines.

Unsurprisingly, the market in the City for qualified professionals is heating up. The FSA job board currently lists 14 vacancies that 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, chief executive officer (CEO) of JWG, said: “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.”


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