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.