FSA publishes proposals for liquidity risk standards

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LONDON - The UK Financial Services Authority (FSA) has issued a consultation paper proposing an overhaul of the UK liquidity regulatory regime through new stress testing and peer comparisons.

The FSA paper, entitled "Strengthening liquidity standards 2: Liquidity reporting" proposes that the regulator's gathering of quantitative liquidity data be granular, frequent, standardised and based on firms' contractual commitments and exposures.

The FSA wants to conduct internal stress testing of "what if?" scenarios and peer comparisons. Firms will need an in-depth understanding of their risk exposures and to manage them much more closely - perhaps daily.

The deadline for responses is July 15, 2009, with a follow-up paper due for issue in summer 2009 and a policy statement on the new regime in Q3 of 2009. The rules and guidance will come into effect in late 2009 for implementation in January 2010.

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