(c) 2009 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.LONDON -- The U.K.'s Financial Services Authority said it will focus on the risks posed by systemically important firms and the impact of new capital and liquidity rules.
The U.K. regulator said Wednesday that it will publish a paper on one of the thorniest regulatory reform issues: how to handle international banks that are deemed "too big to fail." It partly reflects pressure from the Group of 20 industrial and developing nations to apply higher regulatory standards to such firms.
The paper, which will lay out the FSA's options for creating rules and is the first phase in the regulation process, will look at how best to identify systemically important firms, the policy tools that might be available to reduce the risks they pose for the financial system, and how those tools might be applied, the FSA said in a statement.
While new policies for systemic banks were mentioned in the FSA Chairman Adair Turner's review of regulatory reform in March and in speeches by Mr. Turner since then, the paper, due in October, will be the first time financial firms see concrete details of what the changes could be.
It also will consider whether limits should be placed on the ability of retail banks to get involved in trading and how to handle regulation of large cross-border banks that are "too big to fail" but also "too big to rescue."
The issue of how to deal with systemically important banks is one of the most difficult for regulators to address, largely because it often involves dealing with banks whose operations span the globe and require cross-border cooperation on supervision and government support.
"This issue requires political leadership because it's bound up with public policy, social policy and taxation," said Jonathan McMahon, director of Promontory Financial Group, a company that advises firms on meeting their regulatory requirements.
The FSA also will seek to put a price tag on all its overhauls, comparing the costs of the reforms to financial institutions alongside the benefits of achieving financial stability. The cost-benefit analysis follows requests from banks for an impact assessment on the range of changes, the FSA said, although it couldn't say when that might be carried out.
The FSA published Wednesday the feedback it received in response to an earlier paper, issued in March, which outlined the FSA's planned overhauls. The FSA said financial institutions are most concerned that there is international agreement on how to formulate and implement rules to avoid damaging London's competitiveness.
The FSA plans to hold a second conference to discuss its regulatory plans Nov. 2.
Credit: By Adam Bradbery
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