FSA releases operational risk feedback

London - The Financial Services Authority (FSA) should continue issuing operational risk guidance rather than rules, according to the majority of respondents to the UK regulator’s July 2002 consultation paper on operational risk.

Feedback from 50 financial institutions, including Citigroup, JP Morgan and Lloyds TSB, was released yesterday and showed that most companies believe the operational risk policy laid out in the consultation paper is appropriate.

However, the FSA said some respondents, including the FSA Small Business Practitioner Panel, were concerned that supervisory staff would apply guidance as if it were rules. But the FSA reassured members that it was “committed to providing fair and consistent application of its policies to regulated firms”. It also said that it intended to introduce thorough training for its supervisory staff.

The FSA emphasised that its business continuity policies would not be prescriptive and that it would apply its guidance in a proportionate way. “Our policy on business continuity is designed to be flexible and to be interpreted in accordance with the nature, scale and complexity of a firm’s activities,” the FSA said.

Some respondents seemed unsure whether the regulator was going to implement capital requirements for operational risk, according to the FSA. Consequently, the regulator made it clear that it would apply capital requirements. It said that firms subject to Basel II or Cad 3 requirements would receive more information at an unspecified time in the future.

Clive Briault, director of prudential standards at the FSA, said: “We will later this year issue the final handbook draft of our operational risk systems and control policy – along with our new policies on systems and controls for other types of risk.”

The FSA's report on the feedback is available on their website at:

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