Today, the U.K. Financial Services Authority (FSA) published a discussion paper entitled “The prudential regime for trading activities - a fundamental review” that considers fundamental changes to the regulation of trading activities. The Discussion Paper resulted from recommendations of the Turner Review following material trading losses incurred during the global banking crisis.‬

‪The Discussion Paper describes the FSA’s current perspectives regarding major areas of reform that should be considered to address areas of structural weakness. The recommendations set forth in the Discussion Paper can be grouped into three key areas:‬

  1. Valuation: Increased regulatory focus on the valuation of traded positions, along with a need for a specific assessment of valuation uncertainty.‬
  2. Coverage, coherence and the capital framework: Change the structure of the capital framework to bring greater coherence and to reduce the opportunities for structural arbitrage within the banking sector and the wider financial system.‬
  3. Risk management and modeling: Implementation of specific measures aimed at improving firms’ risk management and modeling standards, and ensuring that these are aligned with regulatory objectives.‬

‪‬‪The closing date for responses is November 26, 2010. The FSA will issue a feedback statement in the first half of 2011 on this topic