The FSA has launched an impact study to support its case that pan-European proposals for capital ade...
The FSA has launched an impact study to support its case that pan-European proposals for capital adequacy designed for the banking sector should not be applied directly to investment management firms.
Howard Davies, chairman of the FSA, said the imposition of the proposed amounts of capital that investment firms are required to hold to back their business against operational risk would result in disproportionate hikes in the quantity of cash they will be forced to hold.
Davies said the FSA still had a year to lobby while the European Commission decides on the wording of a directive which make the proposals part of European law. The proposals are those agreed at Basel by a group of central banks and regulators from developed world countries.
Davies said: 'One key element of the new Basel proposals is the inclusion of a separate capital charge for operational risk. We are clear that this must be part of the equation in the long run. But it is unfortunately true that the initial Basel calibration generated operational risk charges which, for investment firms and fund managers in particular, seem to be well above what might reasonably be required.
'A simple extrapolation of the Basel model to investment firms produced percentage increases for fund managers which, in some cases, were quite outlandish. This is clearly not what was intended. What we are doing now at a European level is carrying out an impact study to assess the effect of the proposals in detail, particularly on investment firms.'
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