FSA releases Financial Risk Outlook

The UK regulator has released its Financial Risk Outlook for firms in 2009

LONDON - UK regulator the Financial Services Authority (FSA) has published its Financial Risk Outlook (FRO). The release outlines the major risks affecting firms, consumers and the regulatory system for the year ahead. It concentrates on problems created by the banking sector and deleveraging of the real economy.

The FRO says a major problem will be for banks to adjust their business models to operate effectively in the current desultory conditions, both in the financial sector and the wider economy.

Consumers are asked to identify warning signs that they are getting into financial difficulty. The regulator says they must be wary of financial offers deemed "too good to be true", and be cautious in their selection of sources of financial advice. Businesses are in turn reminded of their newly enshrined responsibilities under the FSA's Treating Customers Fairly initiative.

The paper is split into three parts. The first sets out an integrated macroeconomic view of financial and regulatory developments behind the crisis. It outlines areas concerning the current regulation of banks and non-banking entities that will be evaluated in a review by FSA chairman Lord Adair Turner and an FSA discussion paper - both due in March.

The second section looks at the economic outlook. It describes a central scenario devised from industry forecasts and focuses in particular on the effect that ongoing deleveraging will have on firms, markets, consumers and the FSA.

The final part provides a general outlook for financial firms and consumers, identifying risks and wider, systemic consequences for businesses and consumers, looking across firms and across markets.

The regulator says the FRO is designed to raise awareness of key issues facing the industry and put regulatory moves in context, before the regulator lays out its priorities in its Business Plan, due for February 12 release.

The FRO is available here.