This review has made a wide set of recommendations, some of which can be considered formal FSA proposals for action, but some of which need to be deliberated further at global or UK level.
The FSA Discussion Paper, which accompanies this Review, covers the formal proposals, and invites feedback from interested parties in line with standard FSA procedures. In addition, we would welcome responses to the wider issues raised by the Review. If you would like to respond, please follow the procedure set out in the Discussion Paper.
54 A key tradeoff to be struck will be between the desire to maximise government proceeds in privatisation of bank holdings and the pace at which capital buffers can be built up, for instance via dividend restraint or new capital raising alongside privatisation sales.
Capital adequacy
• Higher quantity and quality of capital
• Trading book capital – Immediate changes and
significant increase – Fundamental review
• Avoiding procyclicality
• Introducing counter- cyclical capital buffers
• Changes to published accounts
• Gross leverage ratio
Liquidity
• Major reforms to liquidity regime
FSA interim regime (4% CT1) already in place
International agreement on long- term regime required
BCBS proposals issued January 2009 FSA proposing BCBS review
FSA adjustments (variable scalars) now being introduced
Ideally as part of international agreement. General principle agreed in FSF and BCBS
Requires international agreement with regulators and accounting standards bodies
Ideally as part of international agreement. Principle broadly accepted by FSF
FSA Consultation Paper (08/22) has already made proposals; can be implemented at national level But general principles also supported by BCBS
BCBS proposals on capital quality October 2009.
Review of regulatory capital minimum in 2010
In effect by December 2010 Start 2009 and complete by December 2010
In place by March 2009
BCBS proposals October 2009
To be agreed by FSF
BCBS final report on supplementary measures in December 2009
Phased implementation Q4 2009 through to 2010 RECOMMENDATIONS AND IMPLEMENTATION DEPENDENCIES
RECOMMENDATIONS DEPENDENCIES NEXT STEPS/TIMING
Organisations referred to in this table are
BCBS: Basel Committee on Bank Supervision FSF: Financial Stability Forum IASB: International Accounting Standards Board FASB: Financial Accounting Standards Board IOSCO: International Organisation of Securities Commissions FSCS: Financial Services Compensation Scheme
In some cases the indications of timing for next steps reflect FSA proposals rather than formally agreed commitments by the bodies concerned.
• Consider ‘Core funding ratio’
Institutional and geographic coverage
• Economic substance, not legal form
• Information from hedge funds
• Offshore countries covered by regulation Deposit insurance in UK
• Increase from pre-crisis level
• Consider brand versus entity and temporary large balance issues
• Communicate to ensure consumer understanding UK Bank Resolution Regime
Credit Rating Agencies
• Registration and
supervision of governance
• Clearer communication of appropriate use
• Review of use of
structured finance ratings in Basel II
Can be implemented nationally, but global agreement on principles desirable
FSA already has some powers to enforce in UK
FSA will introduce increased
requirements on London located asset managers. Global agreement highly desirable; principle accepted by FSF Dependent on overall political support
Already implemented
FSA consultation in hand
FSA working with FSCS to design communication programme Introduced by Banking Act, 2009
Dependent on European agreement and legislation and ideally on globally agreed approach. New IOSCO Code of Conduct published May 2008 Requires action by CRAs, industry associations and regulatory bodies eg IOSCO
FSA proposing review by BCBS
FSA Discussion Paper invites responses; possible
implementation in 2010
Additional powers on information gathering and right to extend regulation now required
G20 commitment to principle
G20 commitment to principle
Proposals by Q3 2009
Probably Q3 2009
In place
Legislation expected to be introduced summer 2009.
Implementation probably by Q2 2010
EU legislation requires specific disclosures.
Further IOSCO work To be determined
RECOMMENDATIONS DEPENDENCIES NEXT STEPS/TIMING
Remuneration
• UK Code
• Global agreement
Central Clearing of CDS
Macro-prudential analysis
• Within UK
• At European level
• Globally
FSA supervisory approach
• Supervisory Enhancement Programme (SEP)
• Further intensification of change
Already issued by FSA in Consultation Paper (CP 09/10) Dependent on international agreement to:
- A global code
- Processes for ensuring
enforcement in all major centres FSA approved proposal for some European Index CDS products in December 2008
US authorities have approved proposal for some North American Index CDS products
Bank of England and FSA need to put in place resources, methodologies and coordination processes
Dependent on future institutional relationships (see 2.10 below) Requires commitment to allow e.g.
IMF robust independence in reports
Already being implemented
Will be implemented by FSA - Macro-prudential capability - Increased role in balance sheet
analysis and accounting judgements
Implementation possible by November 2009
Agreed by FSF March 2009 BCBS to coordinate implementation
Nine leading dealers have confirmed engagement to use EU-based central clearing for eligible EU CDS contracts by end-July, 2009
Define formal character of relationship between FSA and Bank of England
To be determined
G20 commitment
Main changes in place by Q2 2009
In place by Q4 2009 Already underway with APS analysis. Proposals for role in accounting judgements by Q3 2009
RECOMMENDATIONS DEPENDENCIES NEXT STEPS/TIMING
Firm Risk Management and Governance
Cross-border Banks: Global
• Colleges of supervisors for all major cross-border firms
• Improved coordination and contingency planning for crisis management
• Increased use of national powers over capital and liquidity
Cross-border Banks: Within Europe
• New European body for regulation and oversight of supervision
• Increased national powers over subsidiarisation or branch liquidity
• Possible European aspect to deposit insurance of cross-border banks
To be addressed by Walker Review with FSA input
FSA will decide implications for rules and processes
FSF has agreed standards for proposal to G20. Colleges already in place for 25 out of 30 major global firms
Can be pursued by FSA alone;
significant changes to practice already introduced, and will be reinforced by new Liquidity Standards regulation
Dependent on European debate and agreement, with other ideas input by e.g. Larosière Commission
Q4 2009
Q4 2009
FSF to review follow-up by Q3 2009
Liquidity policy to be implemented Q4 2009 to 2010
To be determined
RECOMMENDATIONS DEPENDENCIES NEXT STEPS/TIMING
WIDER ISSUES : OPEN QUESTIONS Product Regulation
• Mortgage market
• Wholesale products (eg CDS)
Additional counter-cyclical tools
• Counter-cyclical LTV or LTI limits
• Avoiding pro-cyclicality in collateral margin ‘haircuts’
Balancing liquidity versus stability concerns
(e.g. in regulation of short-selling)
UK specific policy decision
Issue for global debate
UK specific policy decision: for debate within wider Bank of England led consideration of macro-economic tools
Review global debate and agreement
FSA will apply special measures if needed
Wider legal powers (beyond market abuse justification) would give greater flexibility-
FSA Mortgage Market Review by Q3 2009
FSA Mortgage Market Review by Q3 2009
On FSF forward agenda
Ongoing
For discussion with HMT RECOMMENDATIONS DEPENDENCIES NEXT STEPS/TIMING