On October 5, the UK Financial Services Authority (FSA) published PS09/16. This Policy Statement follows from the FSA’s consultation on strengthening liquidity standards, which began in December 2008 (see the December 5, 2008, edition of Corporate and Financial Weekly Digest) and contains final rules on the liquidity requirements applicable to regulated firms. The new rules are designed to enhance firms’ liquidity risk management practices. Specific new rules include:

  • an updated quantitative regime coupled with a narrow definition of liquid assets;
  • over-arching principles of self-sufficiency and adequacy of liquid resources;
  • enhanced systems and controls requirements;
  • more frequent reporting requirements; and
  • a new regime for foreign branches that operate in the UK.

The FSA stated that it will not tighten quantitative standards before economic recovery is assured. It plans to phase in the quantitative aspects of the regime in several stages, over an adjustment period of several years. The qualitative aspects of the regime will be put into place by December 2009.

The FSA considers that it has made the structure of its new regime sufficiently flexible to allow the FSA to modify it so as to reflect any new international standards introduced in the short to medium term.

To read PS09/16, click here.