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Monday, UK's Financial Services Authority published its final rules on the liquidity requirements to protect customers and other participants in financial services markets from the potentially consequences of imprudent liquidity risk management practices.
Paul Sharma, FSA director of prudential policy said, "The FSA is the first major regulator to introduce tighter liquidity requirements for firms." "In the current crisis some firms weathered the storm better than others. These firms tended to be those that had policies that were similar to those that we are introducing today - including holding assets that were truly liquid, such as government bonds," added Sharma.
The new rules include an updated quantitative regime along with a narrow definition of liquid assets and over-arching principles of self-sufficiency and adequacy of liquid resources.
The regulator will not tighten quantitative standards before economic recovery is assured. The precise volume of liquidity that each firm will need to hold will be refined over a period of time to ensure that the combined impact of higher capital and liquidity standards is proportionate. Further, the qualitative aspects of the regime will be put into place by December.
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