UK financial regulator to begin 'intensive supervision' of banks
The Financial Services Authority (FSA) in the UK today outlined its intention to regulate banks with "intensive supervision" as it moves to shrug off its "light touch" reputation.
Here are the key recommendations of the FSA report are as follows:
The watchdog will fundamentally change its methods, from the previous focus on individual firms, to a broader approach assessing the wider risks to the financial system.
Banks would be required to build up bigger reserves of capital during the good years to protect them in rockier times.
Those that dabble in more risky trading would be required to hold more capital.
Scrutiny of pay policies will become part of standard investigations. The FSA code will require remuneration - including bonuses - to reflect performance and discourage risky behaviour. Firms that do not comply could be forced to hold more capital.
The so-called "shadow banking" activities of unregulated financial firms like hedge funds would be subject to regulation.
The report called for major reforms in European banking regulation, with a new pan-Europe watchdog and increased national powers to constrain risky cross-border activity.
Tighter regulation of banks' liquidity, or cashflow.
Regulation of credit rating agencies, which assess the risk of different investments, will also be regulated. The FSA said there were concerns over potential conflicts of interest in the sector, where agencies are in competition to rate new products.
