With the launch of the FSA’s Business Plan, which sets out the regulator’s programme of work for 2008, it will outline initiatives regarding heightened supervisory oversight in areas such as firms’ liquidity, adequacy of stress testing and general operational preparedness for unexpected events.
It is also continuing work on the regulatory framework for liquidity following the publication of a discussion paper in December 2007. The regulator is also set to review the depositor protection regime and reform insolvency law for financial institutions.
The regulator confirmed that the plan would ‘continue to focus on liquidity in 2008 to ensure that firms take a suitably prudent approach’.
It stated that firms should take a comprehensive view of all the possible demands on liquidity that could arise from various sources, on balance sheet or off, and should develop plans to meet those demands, even in times of stress.
It also claimed that as a further safeguard, firms should maintain a supply of cash, or assets that could immediately be turned into cash.
It further stated: ‘We expect all firms which are exposed to such risks to give high priority to their planning and preparations. Our supervisory teams will continue focusing on firms’ efforts in this area, particularly in the first half of 2008.’
With some firms facing insolvency recently, the FSA also pushed the importance of stress-testing. It said: ‘Firms should continue to expect increased supervisory attention to their funding and liquidity arrangements and the adequacy of their stress testing.
'It will be a challenge for firms to ensure they are adequately equipped to deal with uncertain market conditions while maintaining sufficient focus on other important business-as-usual processes and regulatory priorities.
'We expect all firms to meet this challenge.’
Hector Sants, chief executive of the FSA, said: “A successful regulator needs to be nimble in its reaction to immediate events and determined in embedding, into its institutional memory, the lessons learnt from the past. In executing this year’s plan the FSA will demonstrate these characteristics.”
Bill Warren, director of associate members at the Regulatory Alliance of Mortgage Packagers, commented: “These are things in the current marketplace that are crucial, no matter the size of the business, the same principles apply.
"People should be stress testing all the time anyway, monthly if not quarterly to ensure that they are suitably prepared.”
