The Financial Services Authority published its draft of new prudential standards this week which aim ...
It proposes that requirement on capital and related systems and controls be set as far as possible by risk factor rather than by the sector from which the firm comes. So standards will be organised by market, credit, operational, insurance and group risk and not according to whether the firm is a bank, an insurance company or an investment firm.
The FSA says the key features of the new approach is its requirement on firms to determine for themselves, using stress and scenario testing, the level of resources they need to meet the risks - credit, market, insurance, operational etc - in their business.
There will be more guidance on systems and controls, simplified rules for valuing assets, new and less rigid rules on the use of derivatives and simplified assets and counterparty admissibility limits.
There will be simplified requirements for firms whose failure would not normally involve risk of loss to customers. A single requirement on outsourcing - requiring firms to assess how outsourcing of functions will affect their own risk profile and its potential impact on customers. The future capital and other requirements will reflect better the risks that each firm might pose to the FSA's statutory objectives.
"We will adopt a common approach to identifying, describing and mitigating risks and the same systems and controls requirements will apply to all sectors," said Clive Briault, FSA Director of Prudential Standards.
"This will clarify and reduce differences between industry sectors and facilitate competition. And it will be easier for firms to understand prudential requirements linked to the types of risk they take. Our proposals also provide the required platform from which to incorporate the revised Basel Committee Capital Accord and other new international standards, once these are agreed."
The Integrated Prudential Sourcebook - Consultation Paper and draft rules - are open to response for of six months.
The result, says the FSA, will be a more stream-lined and transparent set of requirements which should promote competition and ease compliance costs.
The FSA hopes to implement the Integrated Prudential Sourcebook in 2004, if possible at the same time as the new international standards, particularly the revised Basel Committee.
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds
Variable operating expenses