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FSA liquidity regime in jeopardy

Further to the discussion about liquidity last week PJ Di Giammarino, Chairman of the the Financial Services Club's Capital Markets Chamber, released his firm’s findings about liquidity views in the City today.

PJ’s company, JWG-IT, polled over 30 financial institutions and 10 vendors on their implementation readiness for the FSA’s new rulings in the spring and twice more in July.

The results showed that banks are not ready for the new liquidity regime, and that the FSA’s attempts to set and communicate an actionable implementation plan for liquidity risk have so far failed.

Part of the issue appears to be the differing opinions on how to run the banks in the future, with disagreements between the FSA, Bank of England and Treasury causing uncertainty of approach.

That’s fine, except that the FSA’s aggressive timescales now leave banks less than 75 work days to implement a data-intensive approach to liquidity risk management.

Bearing in mind that their own estimates show that the price tag for this regime will be well in excess of £2 billion, that’s a problem.

JWG-IT’s research found that senior management within banks are only just beginning to understand the magnitude of the upgrades required for liquidity risk. The main findings from the research include:

  • Awareness: Only 41% had heard of the FSA’s liquidity risk standards consultation paper (CP 08/22) which were released in December 2008
  • Systems: 64% of 20 bank respondents indicated that their existing systems could not be easily adapted to the new liquidity requirements.
  • Data quality: 41% of bank respondents indicated that meeting liquidity data requirements would be their biggest implementation challenge.
  • Controls: 33% of respondents ranked liquidity risk systems and controls as their top issue – carrying the highest risk and requiring the most resource to resolve
  • Resources: 28% of respondents indicated that no resources had been allocated to their top 3 issues of scenario/stress testing, risk modelling/analytics and data.

For further information see JWG-IT’s analysis report, “Winning the risk governance battle”, which was released last week


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About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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