FSA consults on proposed changes in liquidity requirements
by Gill Montia
The Financial Services Authority (FSA) has published a consultation paper which proposes changes in the liquidity requirements for banks, building societies and investment firms.
The regulator says its proposed new rules are based on international liquidity standards and take into account the difficulties faced by the money markets over the past 18 months.
They aim to develop a new framework for liquidity risk management, emphasising a firms’ ability to assess liquidity risks and develop policies to deal with them.
The proposals include reform to the quantitative framework governing liquidity risk management that would add weight to the importance of stress testing and contingency funding strategies.
In addition, new liquidity reporting requirements would be developed.
According to the FSA, the new measures could be instrumental in reshaping the business models of financial institutions over the coming years.
At the same time they would improve the authority’s ability to monitor and supervise liquidity risk exposures.
The consultation period closes on 4th March 2009 and the FSA hopes to introduce the new rules in October 2009.
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