A challenging regime for time-strapped banks
29 Jun 09
Liquidity remains the top challenge for financial institutions despite compliance deadline being pushed back
by Dave Hanley
In April this year, the Financial Services Authority published Strengthening Liquidity Standards 2: Liquidity Reporting, which sets out in detail the regulatory reporting requirements for the FSA’s new liquidity regime.
The new regulations aim to ensure banks reduce balance sheet risk through enforcing increased holdings of low yielding liquid assets, particularly Government bonds. They also impose wide-ranging requirements on risk identification, measurement, monitoring, control, reporting and contingency planning to strengthen a firm’s capacity to withstand shocks – all with considerable technology and business process implications.
The UK is the first country to introduce regulation of this type, setting a precedent for other European countries to follow. Compliance with the regulations could, however, for the largest Scottish financial institutions, require more than 15 man-years of additional work to be completed this year. At Atos, we estimate that it will cost the Scottish financial industry more than £50m to implement.
The implementation date has been postponed by three months to January 2010. Financial institutions are still in danger of missing this later deadline, if they are not by now in the process of completing the assessment stage of the project. Due to the variety of sources and systems from which the banks need to draw data for the daily, weekly and monthly reports to the FSA, implementation needs to start imminently.
In the light of recent announced job losses at a number of the major financial institutions, there is a high risk that in order to meet the deadline for the liquidity regulation other projects, such as those related to post M&A integration, will need to be postponed.
Liquidity regulation brings with it a significant challenge for financial institutions in Scotland, given the limited amount of time there is left to achieve compliance. This is a step towards a new regime impacting on not only the banks, but on the large number of investment houses based in Edinburgh and other parts of the country.
Overall, however, we welcome the latest consultation paper from the FSA, which we believe provides the detailed requirements that financial institutions need to confidently commission the necessary changes to their IT systems.
DAVE HANLEY is a director with Atos Origin