"Too Little Too Late?" Question Liquidity Risk Experts

LONDON - Market participants have raised concerns regarding the delayed focus on data requirements for the Financial Services Authority's (FSA) liquidity risk regulation implementation in the UK, and the tight implementation deadline for the new directive, officials tell Inside Reference Data.

On January 13, the FSA issued a CEO letter titled FSA requirements on your firm's liquidity risk management. The letter stated the UK regulator gives financial institutions until February 12, 2010 to comply with the new systems and control requirements.

The letter highlighted the role of data in the new regime, stating: "Later this year, we will focus work on compliance with our liquidity data regulatory reporting requirements. The liquidity data we are planning to collect from firms will be the cornerstone of the new regime as it will enable us to monitor firms' compliance with our liquidity risk standards, their liquidity risk profiles and draw market-wide and peer-group comparisons. It will also allow us to run our own stress scenarios on the basis of the contractual data collected."

London-based PJ Di Giammarino, chief executive at think-tank JWG, says this letter is a positive sign, but he suggests saying data will be dealt with in due course is too little too late. "The data issues have been highlighted to the FSA for some time, but they have chosen to put them on the back burner until now," he says.

London-based data expert Gavin Quinn, associate director of JWG, says: "It's not only about what data you have, but it is also about the granularity of that data and how you slice and dice it within your scenarios."

When contacted by Inside Reference Data, the FSA declined to provide further comment.

Meanwhile, The Capital Markets Chamber, a specialist group within the Financial Services Club, held a meeting in London in January, and speakers were concerned about the tight deadline for compliance with the new requirements.

"The FSA asks firms to confirm whether they have successfully embedded the new systems and controls requirements within their firms. But this suggests they have had the time to do so," said an audience member.

Research carried out by JWG-IT group last year revealed banks were unprepared for a new liquidity regime. JWG-IT polled more than 30 financial institutions and 10 vendors on their implementation readiness during April/May and twice in July.

The research revealed that only 41% of 750 individuals at 65 firms had heard of the FSA's liquidity risk standards consultation paper (CP 08/22) released in December 2008. On July 15, 28% of respondents indicated that no resources had been allocated to their top three issues of scenario/stress testing, risk modeling/analytics and data (Inside Reference Data, August 2009).

Di Giammarino said: "Last year we told the industry that from our research, 50% of the firms were not ready for a systems and controls regime as of December 1 when it went live." He said this was partly because firms only had 40 days from when the final policy statement was issued by the FSA to get ready.