FSA has published its final rules on liquidity and feedback on its various consultations, which started at the end of 2007. FSA says changes had to address:  

  • inadequate quality and quantity of liquid capital buffers;  
  • poor liquidity risk management techniques;  
  • specific liquidity risk factors;  
  • global liquidity pools of UK branches and subsidiaries of foreign banking groups; and  
  • insufficient regulatory data.  

The new rules:  

  • update the quantitative regime and introduce a narrow definition of “liquid assets”;  
  • introduce overarching principles of self-sufficiency and adequacy of liquid resources;  
  • bring in enhanced systems and controls requirements;  
  • make reporting more frequent and granular; and  
  • introduce a new regime for branches of foreign banks that operate in the UK: FSA has stuck to its views despite objections from respondents who thought imposing domestic standards on overseas banks could have various undesirable consequences.  

FSA is introducing its rules now, while CEBS and the Basel Committee are still working on international initiatives, despite industry concern early changes would make the UK’s position uncompetitive. It says the new regime should bring substantial long-term benefits. Following consultation, FSA made a few changes to its proposals, including reducing the scope of the quantitative regime to encompass only around 100 firms and widening the eligibility criteria for a simplified liquidity approach. It also changed the definition of liquid assets to align the criteria for firms in both small and standard quantitative regimes. The changes are in two instruments:  

  • the BIPRU (Liquidity) Instrument 2009, which amends the Glossary and SYSC as well as introducing a new chapter 12 to BIPRU; and  
  • the SUP (Integrated Regulatory Reporting of Liquidity for Banks, Building Societies and Investment Firms) Instrument 2009, which amends the Glossary and SUP.  

FSA is phasing in the changes from 1 December 2009 to 1 October 2010 with a number of transitional provisions allowing some firms to follow current standards until dates in 2010 or disapplying rules until then. It is keen first to switch the systems and controls requirements, although it will allow UK branches of overseas banks with a global liquidity concession not to apply them until November 2010. FSA plans to tell firms individually about the prospective impact on them of the new qualitative requirements and will agree a timetable for them to transition to it. Only firms using the simplified regime will not benefit from the long transition. FSA expects firms to meet its timescales and had no sympathy for comments that compliance would be costly. FSA’s view is it has expected firms to be in a position to make daily liquidity reports for some time and it threatens serious regulatory consequences for those that are not ready to comply. FSA also published detailed analysis of feedback and a new suite of forms.