The FSA Head of Banking, Thomas Huertas, stated at the RiskMinds conference in Geneva that any banks not conforming to guidelines would be more liable to Government intervention. He also pointed out that Risk Managers were accountable for the predicament faced by the banks and that they would need to be more involved in the future.
Rules are changing to address the ‘needs of the day’. There will be more of a focus on principle based regulation, with more drilling down and closer supervision.
Business models are going to be under scrutiny and there will be an increasing number of FSA visits to firms. The relationship between firms and the regulator will have to be closer, with the FSA taking action if they think business models are unsustainable.
The CRO of State Street, Maureen Miskovic, stated that CROs need to be independent of the traders and should ideally sit on the board to affect strategic decision making. She also pointed out the need for a move away from quantitative processes towards more qualitative scenario analysis.
Other
The Financial Services and Markets Act (FSMA) sets out 4 objectives: maintain confidence in the UK financial system; promote public understanding of the financial system; secure the appropriate degree of protection for consumers and help reduce the scope of financial crime. In order to achieve this there are 3 strategic aims of the FSA: promote orderly and fair markets; help retail customers achieve a fair deal; improve business capability and effectiveness.
Despite difficult economic and financial conditions, firms must continue to focus on COB requirements, in particular TCF, tackle market abuse and other areas of financial crime. Quality of advice must also be high. By the end of 2008, firms must be able to demonstrate that they are consistently treating their customers fairly. Ultimately, retail consumers needs must be satisfied.
Capital adequacy and stress testing will be very important. All firms are being asked to revise ICAAP by the end of the year as it formalises risks and puts them into a proper structure.
Firms must look to strengthen risk management processes in order to deal with economic and financial shocks. Firms should focus on stress testing work where they consider sufficiently stressful scenarios. The recent market conditions have highlighted the importance of robust business plans which can deal with the financial crisis.
One big project in 2009 will be on CDS – Credit Default Swaps. Hedge funds are still a challenge to the regulator as there are concerns over internal controls. Chris Rexworthy who helped set up the FSA hedge fund team believes the FSA now understands the industry better. The hedge fund team has grown and is more experienced now.
Scenario based training will become a focus.
The FSA wants to ensure that it has the right people in place to successfully deliver regulatory strategy and principles based regulation. They want to attract, motivate and develop talented individuals to deliver objectives as well as build a reputation as an employer of choice
