United Kingdom
Turner Review - does it affect your client? - Fiona Raistrick
The eagerly anticipated Turner Review was recently published, 'A regulatory response to the global banking crisis'. The Review was not as groundbreaking as many may have expected. It was instead a considered paper which collated much material that was already spread across a number of FSA consultation papers, EU Reports and the de Larosiere Report.
As the title suggests, the review predominantly focuses on the impact of the UK's banking sector on the current economic situation but FSA regulated firms that are not within this sector should take notice of the content of the report and its recommendations. There is likely to be regulatory drift in some of the key areas noted within the review.
The key proposals:
- Increased capital requirements - considering both the amount and quality of capital and including the need for counter-cyclical capital buffers. Firms should start considering the implications of increased capital requirements.
- Improved liquidity risk management - in line with the FSA's recent consultation paper on 'Strengthing Liquidity Standards', which firms should already be reviewing to assess the impact on their asset allocation.
- Remuneration policies - which the FSA also began the consultation process on the same day as the Review. This may require all firms to follow a code of practice when considering remuneration. Firms should be aware that remuneration policies will be considered as part of upcoming ARROW visits with immediate effect.
- Enhanced supervision – following the FSA's attempts to strengthen its supervisory approach, the Review recommends more intense and dedicated supervision. Many firms may have already experiences the new, more robust approach from the FSA.
- Extension of scope of regulation – the Review proposes possible regulation of credit rating agencies and increased 'supervision' over hedge funds.
- European regulatory considerations – proposals were made with regard to international regulatory coordination, the European supervisory approach and possible restrictions over cross-border branch passporting, which may lead to 'subsidiarisation' or limiting retail deposit taking of branches of third country banks.
- International accounting considerations – there are many questions raised over international accounting treatments including the proposal for 'Economic Cycle Reserves' which would anticipate potential future losses to be included within firms published accounts. Consideration should be made on the impact of such a requirement on such areas shareholder expectations, employee expectations regarding remuneration.
Next steps
The Review included many proposals that will need to be considered at the European or even international level, so it is likely that much more discussion will be had before reams of new legislation are produced. This should not though be taken as an opportunity for firms to sit back and wait for changes to arrive on their doorstep.
If you would like to discuss the potential impact and consequences of the Turner Review on your business, do not hesitate to contact Fiona Raistrick, Head of Financial Services Regulatory Practice or your local BDO contact.