UK watchdog FSA sees tougher trading supervision

November 24, 2009

fsa_logo   By Huw Jones
   LONDON, Nov 23 (Reuters) – The UK financial services sector must face a “profound shift in regulatory philosophy” that includes tougher curbs on trading to cut risk, Britain’s financial watchdog said.
   “We have had to change that mindset and we have now done so, and that has implications for our regulatory approach,” Financial Services Authority Chairman Adair Turner said.
   “It means for instance that in setting capital against trading activity we will move from a bias in favour of more trading to a bias to conservatism, whenever we are worried about risk and whenever the real value of the activity is unclear,” Turner told the CBI business lobby conference.
   The FSA is reforming how it supervises banks by applying lessons from the credit crunch.
   New global bank capital rules on trading activities are due to come into force at the end of 2010 and will double or triple the amount of capital firms will have to set aside to cover trading risks.
   The Group of 20 emerging and developed economies has asked the International Monetary Fund to look at ways banks could help pay for taxpayer bailouts, such as a “Tobin Tax” on transactions or a levy towards a global fund. [ID:nGEE5ALOBG]
   The Tobin tax, named after the economist James Tobin who proposed it as a way to dampen speculation in cross-border foreign exchange trading over 20 years ago, has never found enough global support to be introduced.
    Turner was criticised by Britain’s financial district in the summer for raising the possibility of such a tax and the United States has said it would not introduce a transaction tax.
   “We should be willing to think about whether that is possible and desirable,” Turner said.
   Traders help to provide liquidity to markets but not all trading was limitlessly beneficial, he said.
   “I think the chances of it happening are relatively small,” Turner said. 
   He also said that “if we are going to have higher capital requirements for larger banks, it should be a gradually moving charge, like progressive income tax.”
   Regulators must be willing to “extend their regulatory boundaries” to stop banks finding ways to circumnavigate tougher new rules, he said.
   Moves in the past to give building societies freedom to compete with banks were not an “undiluted success story” and they should “stick to their knitting”.
   The FSA had to rescue the Dunfermline building society which owned a hotel, he said.
   The volatile credit extension in the boom years cannot be analysed well or addressed effectively either by a central bank solely focused on an inflation target, nor by a regulator seeking to ensure an individual firm is stable, Turner said.
   The UK government is proposing to give new powers to the FSA to keep the broader financial system stable and Turner said new tools were needed to do this but have yet to be developed.
   (Reporting by Huw Jones, editing by Toby Chopra/Ruth Pitchford)
   ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 44 207 542 3326; huw.jones@thomsonreuters.com))
 Keywords: BRITAIN FSA/ 
  
Monday, 23 November 2009 17:18:11RTRS [nGEE5AM2E6] {C}ENDS

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