| |
UK FSA Compliance
The
Financial Services Authority (www.fsa.gov.uk, FSA) is
an independent non-governmental body,
given statutory powers by the Financial Services and Markets Act
2000.
The Treasury
appoints the FSA Board, which currently consists of a Chairman,
a Chief Executive Officer, three Managing Directors, and 9
non-executive directors (including a lead non-executive member,
the Deputy Chairman).
This Board sets our
overall policy, but day-to-day decisions and management of the
staff are the responsibility of the Executive.
The FSA
is accountable to Treasury Ministers, and through them to
Parliament.
It is operationally independent of
Government and is funded entirely by the firms it regulates.
The FSA is an open and transparent organisation and
provides full information for firms, consumers and others about
its objectives, plans, policies and rules, including through
this website.
An area
of this website provides information specifically for consumers
on financial products, regulation and their rights.
The
FSA has been the single regulator for financial services in the
UK since December 2001, when they were given their statutory
powers by the Financial Services and Markets Act 2000 (FSMA).
Every
Monday
Top 10 risk and compliance management related news
stories and world events
Do you want to receive every
Monday the Top 10 risk and compliance management related
news
stories and world events that (for better or for worse) shaped
the week's agenda, and what is next?
You may submit the
form that follows. We meet strict national and international
privacy standards. You can unsubscribe at any time.
Capital Requirements Directive/Basel
2 and the FSA
The original Basel Accord was agreed
in 1988 by the Basel Committee on Banking Supervision. The 1988
Accord, now referred to as Basel 1, helped to strengthen the
soundness and stability of the international banking system as a
result of the higher capital ratios that it required.
Basel 2 is a revision of the existing framework, which aims to
make the framework more risk sensitive and representative of
modern banks' risk management practices.
There are
four main components to the new
framework:
It is more sensitive to the risks that
firms face: the new framework includes an explicit measure for
operational risk and includes more risk sensitive risk
weightings against credit risk.
It reflects improvements
in firms' risk management practices, for example the internal
ratings based approach (IRB) allows firms to rely to a certain
extent on their own estimates of credit risk.
It
provides incentives for firms to improve their risk management
practices, with more risk sensitive risk weights as firms adopt
more sophisticated approaches to risk management.
The
new framework aims to leave the overall level of capital held by
banks collectively broadly unchanged.
The new Basel
Accord has been implemented in the European Union via the
Capital Requirements Directive (CRD).
It affects banks
and building societies and certain types of investment firms.
The new framework consists of three 'pillars'.
Pillar 1 of the new standards
sets out the minimum capital requirements firms will be required
to meet for credit, market and operational risk.
Under
Pillar 2, firms and
supervisors have to take a view on whether a firm should hold
additional capital against risks not covered in Pillar 1 and
must take action accordingly.
The aim of
Pillar 3 is to improve market
discipline by requiring firms to publish certain details of
their risks, capital and risk management.
MiFID – the Markets in Financial
Instruments Directive and the FSA
MiFID – the
Markets in Financial Instruments Directive – came into effect on
1 November 2007, replacing the Investment Services Directive
(ISD). Amendments to UK legislation and rules to transpose to
its provisions were made by the deadline of 31 January and came
into effect on 1 November 2007.
MiFID extends the
coverage of the ISD and introduces new and more extensive
requirements that firms will have to adapt to, in particular for
their conduct of business and internal organisation.
The
aim of the ISD was to set out basic high-level provisions
governing the organisational and conduct of business
requirements that should apply to firms. It also aimed to
harmonise certain conditions governing the operation of
regulated markets.
MiFID has the same basic purpose. But
it makes significant changes to the regulatory framework to
reflect developments in financial services and markets since the
ISD was implemented.
Wider
scope
It widens the range of ‘core’ investment
services and activities that firms can passport. In addition to
the services covered by the ISD, MiFID:
Upgrades advice
that involves a personal recommendation to a core investment
service that can be passported on a stand-alone basis;
Introduces operating a multilateral trading facility (MTF) as a
new core investment service covered by the passport; and
Extends the scope of the passport to cover commodity
derivatives, credit derivatives and financial contracts for
differences for the first time.
Greater degree of harmonisation
MiFID sets out more detailed requirements governing the
organisation and conduct of business of investment firms, and
how regulated markets and MTFs operate.
It also includes
new pre- and post-trade transparency requirements for equity
markets; the creation of a new regime for ‘systematic
internalisers’ of retail order flow in liquid equities; and more
extensive transaction reporting requirements.
Facilitate cross-border business
MiFID improves the ‘passport’ for investment firms by
drawing a clearer line between the respective responisibilities
of home and host states and generally clarifying some of the
jurisdictional uncertainties that arose under the ISD.
Capital Requirements
Most firms that fall within the scope of MiFID also have to
comply with the new Capital Requirements Directive (CRD) which
sets requirements for the regulatory capital a firm must hold.
Those firms newly covered by MiFID will be subject to
directive-based capital requirements for the first time.
MiFID is a major part of the European Union’s Financial
Services Action Plan (FSAP), which is designed to help integrate
Europe's financial markets. MiFID comprises two levels of
European legislation. ‘Level 1’, the Directive itself, was
adopted in April 2004. In several places, however, it makes
provision for its requirements to be supplemented by ‘technical
implementing measures’, so-called ‘Level 2’ legislation.
The Commission's Level 2 measures were developed on the
basis of advice provided by the Committee of European Securities
Regulators (CESR) and were the subject of negotiation at
European level in the European Securities Committee (ESC). They
were formally adopted by the Commission and published in the
Official Journal of the European Union on 2 September 2006 (see
European Timetable).
Impact on
firms
In general MiFID covers most, if not all,
firms that were subject to the ISD, plus some that were not.
This will include:
investment
banks;
portfolio managers;
stockbrokers and broker
dealers;
corporate finance firms;
many futures and
options firms; and
some commodities firms.
In
some areas, the position for firms is less clear-cut. For
instance, retail banks and building societies will be subject to
MiFID for some parts of their business – for example, selling
securities, or investment products which contain securities, to
customers - but not others.
So, we have considered
carefully whether that certain MiFID requirements should apply
to some firms and business outside the scope of MiFID. We will
consider each individual issue carefully, and consider the costs
and benefits involved and consulting appropriately.
Also, we have used implementation of MiFID as a catalyst for
reviewing and simplifying our Handbook. We have removed rules
that are no longer effective or proportionate, in line with our
move towards more principles-based regulation. We have
introduced a new Conduct of Business Sourcebook (COBS), which is
shorter, simpler and easier for firms to use. These changes
affect all firms subject to Conduct of Business regulation, many
of whom will not fall within the scope of MiFID.
Solvency 2 and the FSA
Solvency 2 is a fundamental review of
the capital adequacy regime for the European insurance industry.
It aims to establish a revised set of EU-wide capital
requirements and risk management standards that will replace the
current Solvency 1 requirements.
Solvency 2
should help supervisors protect policyholders' interests more
effectively by making prudential failure less likely, and
reducing the probability of consumer loss or market disruption.
It should also make it easier for firms to do business across
the EU as the current patchwork of varying local standards will
be replaced by more harmonised requirements.
The
framework under development consists of
three ‘pillars’.
Pillar 1 sets out a valuation
standard for liabilities to policyholders and the capital
requirements firms will be required to meet for insurance,
credit, market and operational risk.
Capital
requirements may be calculated using a standard formula or, if
firms have supervisory approval, they may use their own capital
models.
Pillar 2 will
be the supervisory review process that focuses on evaluating the
adequacy of capital and risk management systems and processes.
Supervisors may decide a firm should hold additional capital
against any risks not adequately covered in Pillar 1.
The aim of Pillar 3
disclosures is to harness market discipline by requiring firms
to publish certain details of their risks, capital and risk
management. We expect that Solvency 2 will require firms to
value their assets and liabilities on a market-consistent basis
and that more risk-sensitive capital requirements will address
asset as well as liability risks, consistent with the domestic
prudential reforms that we implemented for insurers in 2004.
The Lamfalussy framework’s four-level approach will be used
to develop the new Solvency regime:
Level 1 - Primary
legislation to define broad 'framework' principles.
Level 2 - The Commission adopts technical implementing measures,
assisted by a regulatory committee and taking account of advice
from the Committee of European Insurance and Occupational
Pensions Supervisors (CEIOPS)
Level 3 - Cooperation
among national regulators to ensure consistent interpretation of
Level 2 rules.
Level 4 - Enforcement to ensure
consistent implementation of EU legislation.
Work on
Solvency 2 is progressing well. The European Commission
published its draft proposal for the Level 1 text in July 2007.
The European Council Working Group (CWG) and the European
Parliament have been discussing this text through Level 1
negotiations with HM Treasury, supported by the FSA,
representing the UK in the CWG.
At the same time the FSA
is a member of CEIOPS, which provides technical advice to the
Commission. Currently, CEIOPS is drafting advice on the Level 2
implementing measures and has conducted a number of quantitative
impact studies (QIS) to test the financial impact and
suitability of proposed requirements.
|
Free
E-book: 100 Job Descriptions in Risk and Compliance Management
Certified Risk and Compliance Management Professional (CRCMP)
Distance Learning and Online Certification Program
Certified Information Systems Risk and Compliance
Professional (CISRCP)
Distance Learning and Online Certification Program
To learn more:
www.risk-compliance-association.com/Distance_Learning_and_Certification.htm
Receive the New Member Orientation Newsletters
You will have the opportunity to learn what members
registered before you have already learned. Understand better
risk and compliance management, projects, careers, challenges
and opportunities.
| |
