(7 October 2009 – UK) The UK Financial Service Authority (FSA) has become the first major regulator to introduce tighter liquidity requirements for the financial services sector, after releasing its final rules on liquidity requirements.In a move to enhance British financial service firms’ liquidity risk management practices, the FSA will implement the new rules in what it calls a quantitative regime, coupled with a narrowed definition of liquid assets.
The scheme is also set to include a new regime for foreign branches that operate in the UK and enhanced systems and control requirements.
In its liquidity rules, the FSA focused on over-arching principals of self sufficiency, adequacy of liquid resources, granular and more frequent reporting requirements.
Paul Sharma, FSA director of prudential policy, said that the FSA is the first major regulator to introduce tighter liquidity requirements for the financial service sector.
Mr Sharma added that the FSA must learn the lessons of the financial crisis and that he believes that implementing tougher liquidity rules is essential to ensure everyone is in a better position to face future crises.
The precise amount of liquidity that each firm will need to hold will be refined over time to ensure that the combined impact of higher capital and liquidity standards is proportionate.
The qualitative aspects of the regime will be put into place by December 2009.