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Governance & Regulation

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"Profit is the reward for taking risk". Frank Wright, Economist 1921

"In the future we will seek to make judgements on the judgements of senior management and take actions if in our view those actions will lead to risks to our statutory objectives. This is a fundamental change. It is moving from regulation based only on observable facts to regulation based on judgements about the future." Hector Sants, Chief Executive FSA 2009

Displaying 31 to 60 of 63 results in total.

Related Documents

Free to ViewILSA Guidance Consultation

19th November 2010

Letter 17th November 2010 to the FSA regarding Guidance consultation Individual Liquidity Systems Assessment (ILSA) - Simplified ILAS BIPRU Firms November 2010.


Free to ViewILSA Submission Information

16th November 2010

On 9th November 2010 the FSA issued proposed guidance on Individual Liquidity Systems Assessment (ILSA) Submission Information. It is a revised version of a document released earlier this year and attempts to clarify what's required. If you are putting together your ILSA the following may help:


Free to ViewTelephone Taping

15th November 2010

Dealers are human and they do make mistakes. These can come to light quickly or later during the confirmation process. Classic errors include rates, amounts, maturities and even what has been bought or sold.


Free to ViewSuppose big banks move their HQs out of the UK

5th September 2010

Now we are examining the entrails of the crisis one potential outcome is to break up the largest banks. The Commission on Banking will take evidence and decide whether this is a "good thing". No doubt concerted lobbying will occur. This makes the veiled threats to move "offshore" by some of the largest UK banks puzzling. Bank CEOs clearly aren't comfortable with the prospect of separating investment and retail banking apparently one can't work without the other. But if investment banking is so profitable why can't it do without the stolid retail business? It's straight forward. Investment banking gets two huge benefits from being wrapped up with retail banking. Let's see why.


Free to ViewDiscussion Paper 10/4

3rd September 2010

This DP raises questions about the capital charge for trading books. Look more closely and you will find that the regulation of investment banking by the FSA is ineffective. Furthermore there is no reason to think that in the future it will improve. Investment banks will continue to run risks that periodically threaten their solvency. Their current interconnection with the retail deposit business means government support is guaranteed. A pragmatic solution would be to disentangle investment banking from the retail business. This free market approach is much favoured by investment bankers for other industries. Good business flourishes and bad ones die without placing a burden on the taxpayer. Now let's see why regulation won't protect us.


Free to ViewReverse stress testing

20th August 2010

What is reverse stress testing? It is the process of uncovering events that, should they occur, have the potential to make your business unviable. Such events can cover credit, market and liquidity risk. It's important to remember that business failure occurs before you run out of capital. It's when counterparties are unwilling to deal with you.


Free to ViewLiquidity policy - quick guide

30th July 2010

Building societies are expected to have an up to date liquidity policy statement. This will need board approval. What should your liquidity policy contain? NEDs may find this guide helpful.


Free to ViewFunding policy - quick guide

30th July 2010

Building societies are expected to have an up to date funding policy statement. This will need board approval. What should your funding policy contain? NEDs may find this guide helpful.


Free to ViewPolicy Statement 10/5 Presentation

28th July 2010

This presentation was delivered to non executive directors of building societies on 27th and 28th July 2010. It is about the new sourcebook and how it affects a society's treasury.


Free to ViewLiving documents

16th July 2010

If you have read some of the UK regulator's policy then you may well have come across the term "living document". What does it mean?


Free to ViewWhat's your appetite for stress testing?

16th June 2010

A lot's been written about the board's appetite or tolerance for risk. But very little has been said about what this means. Perhaps this will help.


Free to ViewWhat's your risk appetite?

12th June 2010

The regulator is asking boards to define their risk appetite and risk tolerance. Whilst this insistence may be reasonable it certainly doesn't make it any easier to do. Just how do you measure the level of risk you have and then how do you relate that to your firm?


Free to ViewLiquidity risk in a nutshell

10th June 2010

Depositor confidence in the banking system is crucial. It's why banks borrow short term and lend long. Damage this sentiment and the size of cash withdrawals will threaten individual banks and the system as a whole. Hence the new regulatory measures being taken to ensure banks hold sufficient liquid resources to meet just about all eventualities. This is a very brief explanation of the new liquidity regime.


Free to ViewPolicy Statement 10/5

21st April 2010

Policy Statement 10/5 A specialist sourcebook for building societies: Enhanced supervisory guidance on financial and credit risk management. March 2010. The following refers to treasury management What's it about? This PS follows on from CP09/17. It's about how the FSA expects building societies to manage their treasury business. The resultant Building Societies Sourcebook (BSOCS) isn't too complicated but putting it all into practice may prove to be a challenge. A society is expected to align itself with one of five approaches used to define treasury risk management.


Free to ViewRisk limits

22nd February 2010

You may be thinking about reviewing or changing your risk limits. But before you jump straight in it's worth taking stock. After all badly designed risk limits and poor operational processes will just add to your problems. Let's look at some of the issues you need to consider.


Free to ViewGovernance > CP10/3 Effective corporate governance

12th February 2010

As a result of the crisis the FSA has identified shortcomings in the way firms are governed and the way in which risk is managed. Whilst most would agree with these comments from the regulator, drafting policy to improve things is a difficult issue. One of the main problems the FSA faces is that not all firms are identical. Therefore policy must be relatively broad but at the same time flexible. An additional problem for policy makers is that governance and to a lesser extent risk is subjective. The FSA treads a fine line in 10/3 between prescriptive regulation and principal based regulation. NEDs in particular should take note of its contents. Let's look at some of the issues that are raised.


Free to ViewRegulation > Does liquidity risk overshadow market risk?

23rd January 2010

In a world where regulators are focusing on liquidity and capital it's easy to overlook market risk. In many firms this means interest rate exposure. In the UK with Bank Rate at an all time low it's tempting to think that hedging fixed rate assets is just a waste of money. After all why pay 3.25% on a 5 year swap when 3 month Libor is only 51 basis points? Surely matching the interest basis on assets and liabilities ends up costing you 274 bps doesn't it?


Free to ViewPS 10 5 presentation January 2010

15th January 2010

This presentation is about the introduction of new liquidity standards in the UK. It was delivered to bank and building society executives and NEDs in January 2010.


Free to ViewRegulation > Predicting the future just got easier

4th January 2010

Leafing through the pages of the Sunday Times late in December 2009 reminded me how dangerous predictions can be. Economic forecasts made a year earlier by leading institutions proved in many cases to be well off the mark. To be fair it's always been a mine field. But there is one area that I can safely predict in the coming year. That's regulation.


Registration RequiredRegulation > Policy statement 09/20 Stress testing and scenario testing December 2009

18th December 2009

What's stress testing about? The regulator is imposing a stress testing regime on firms because the risk management techniques employed before the crisis did not accurately reflect what could happen. In particular risk models allowed firms (and regulators) to ignore tail-risks. As a result many firms have found themselves badly exposed in the crisis. In order to mitigate against this happening again the FSA is making stress testing and reverse stress testing mandatory. Let's answer a few questions.


Registration RequiredGovernance > The regulatory impact of Walker

14th December 2009

The final recommendations of the Walker review were published on 26th November 2009. There are 39 recommendations The following paraphrases 6.1-6.12 of the report and considers what it means for the governance of risk and boards facing the regulator.


Free to ViewRegulation > Liquid assets

14th November 2009

Two things took my eye in the FSA's Policy Statement 09/16 - Strengthening liquidity standards. I thought I might share them with you. The first altered my opinion, the second puzzled me.


Registration RequiredRegulation > Policy Statement 09/16 Stengthening liquidity standards October 2009

7th November 2009

Policy Statement 09/16 Strengthening liquidity standards refers to earlier consultation papers CP08/22, CP09/13 and CP09/14 and the comments received. In general whilst the FSA acknowledges many of the issues raised little has altered in the final policy. Firms will be expected to be self sufficient for liquidity purposes. Senior management is responsible for reviewing the level of liquidity, compliance and reporting to the Board. The FSA highlights that many firms have been unable to identify and report contractual cash flows on a regular basis. This will be unacceptable. Non compliance will be treated with regulatory sanction. How a firm is subject to Individual Liquidity Adequacy Standards (ILAS) depends on the size of the firm and the risks it presents. The ILAS framework comprises an Individual Liquidity Adequacy Assessment (ILAA), a Supervisory Liquidity Review Process (SLRP) and Individual Liquidity Guidance (ILG). Firms are obliged in the ILAA to undertake robust stress testing. The purpose of this is to show that the firm fully understands its liquidity risk. ILAS firms will need to report the stress test results in their ILAA. Liquidity management systems, controls and stress testing are all board responsibilities. The ILG is the amount of liquid resources the FSA expects a firm to hold. This will contain "guidance" on the amount of the liquid asset buffer and the firm's funding profile. As an incentive for firms to improve their systems and controls, the FSA will increase the amount of liquidity the firm must hold. Deposits at the central bank and tradable securities issued by the central bank will count towards the buffer. Holding currency denominated bonds should take into account potential problems in the FX market. For this reason a domestic bank with mainly sterling liabilities must hold its buffer in gilts. The FSA now require firms to price the cost of liquidity into products. This should mean that the cost of holding the liquidity buffer is passed on to those customers that create a stressed outflow requirement. The new regime will be phased in. The scope and application of the new rules will depend on the importance of the firm and its ability to create systemic risk.


Free to ViewRegulation > Do liquid assets give you risk?

14th October 2009

This is written for anyone interested in liquidity. Here's a brief summary. Firms will be required to hold substantially more liquidity (20%); T-bills, cash and treasuries (Gilts) will be the main recipients; Gilts are not risk free; Interest rate risk can be hedged; Swap spread risk, (basis risk), can't and the risk can be large; Try the liquid asset KISS test; It's the balance sheet structure that will give you the edge (is that what individual assessments are about?)


Registration RequiredRegulation > Consultation Paper 09/17: A Specialist Sourcebook for Building Societies June 2009

1st August 2009

The general thrust of the CP is that Societies must prove that they have both the management and the systems capable of effectively dealing with the risks they face. This is part of the enhanced supervisory approach now adopted by the FSA. It states that systems and controls must match the level of complexity in a firm's business model. The FSA will adopt a more interventionist approach in order to ensure this is the case. The proposal is that building societies and the regulator will determine whether the risk management policies adopted are appropriate. Where they are not the Society can either simplify its business or improve its risk management. The FSA also intends to limit societies diversifying their business without a full assessment of capital adequacy. The FSA has considered applying similar CP 17 guidance to the banking sector but has decided on account of the "lack of homogeneity" that this would not be practical and in their case a firm-by-firm approach is more appropriate. The CP addresses treasury and lending. It contains five approaches to treasury management, three areas of treasury guidance and three approaches to lending. Consultation closes on 5th September 2009 with implementation due in early 2010 when a new Building Societies Sourcebook (BSOCS) will replace IPRU-BSOC.


Registration RequiredGovernance > Walker review consultation

1st July 2009

The Walker review A review of corporate governance in UK banks and other financial industry entities This is an independent review led by Sir David Walker into the corporate governance of banks. A consultation document was published on 16th July 2009. There are 39 recommendations. This is a summary.


Free to ViewRegulation > CP 09/14 Strengthening liquidity standards 3: Liquidity transitional measures June 2009

29th June 2009

The FSA presumes that every firm must be self sufficient for liquidity purposes unless a waiver is granted. The systems and controls requirement applies to all firms from Q4 2009 and will have no phased or transitional introduction. This is a summary of the CP.


Free to ViewRegulation > CP 09/13 Strengthening liquidity standards 2: Liquidity reporting April 2009

28th April 2009

This CP is mainly concerned with questions about what firms should report and the frequency and scope of reporting. The Individual Liquidity Guidance (ILG) will lead to a strengthening of firms' liquidity over a period of several years. The rules and guidance on liquidity risk including the transitional arrangements are to be effective in Q4 2009. New reporting arrangements are to go live in Q1 2010.


Registration RequiredRegulation > Consultation Paper 08/24 Stress and scenario testing December 2008

12th April 2009

The FSA wants to see more stress and scenario testing in firms. Senior management should be involved. Previous assumptions have been too relaxed. Stress testing should be in detail with the mitigating actions rehearsed. Reverse stress testing is introduced as a method of identifying critical events. The FSA is not going to tell you how to do this, it's up to you. However firms can expect greater challenge on the assumptions made.


Free to ViewGovernance > NEDs an onerous position

9th April 2009

As you will know the Turner Review and Discussion Paper 09/2 from the FSA indicate that the financial services industry in the UK will be facing much more intrusive regulation. Furthermore H.M. Treasury has asked Sir David Walker to lead an independent review of corporate governance in the UK banking industry. What does this mean for you?


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