FSA is consulting on the conclusions of its review of how it sets prudential standards for Recognised Investment Exchanges and Clearing Houses. It has looked at the traditional requirement against recent developments, and the requirements placed on regulated firms and those that apply to Multilateral Trading Facilities (MTFs). It found no major problems in the model it has used to date, but now plans to modernise it to reflect:

  • a clearer description of what regulatory capital is for;
  • a stronger "standard approach" as an objective proxy for the cost of orderly closure by standardising the meaning of "operating expenses";
  • using the "standard approach" as a floor to the financial resources requirement, by not allowing alternative bespoke arrangements;
  • a change to existing supervisory practices in relation to the use of a “liquidity buffer” with specific risk-based processes, to protect a Recognised Body against business losses likely to arise in stressed but plausible market conditions; and
  • new guidance on measuring group risk as a component of the financial resources calculation.

FSA wants comments by 6 January 2012. (Source: CP 11/19**: Financial Resources Requirements for Recognised Bodies)