|
The Financial Services Authority (FSA) today published its Financial Risk Outlook (FRO). This 90-page annual report gives the FSA’s views on the main risks facing firms, consumers and the regulatory system in the current economic downturn. This year the FSA has changed the format to focus on three issues: a view of the current crisis including comments on regulatory failures; an economic outlook; and the risks that the financial and economic environments face. Statistics are given to end-January.
The FRO’s review of regulation suggests that there is no need for any fundamental review of the FSA’s approach to regulation, but highlights changes to the detailed approach to specific categories. Ongoing critical concerns for the FSA are financial crime, market abuse and poor conduct of business, exacerbated by the worsening economic environment. Sections on the lessons learnt from the collapse of Lehman’s and the handling of the Icelandic banks’ failure are included.
Whilst the FSA sees a major challenge for financial institutions as they adjust their business models to the current economic crisis, it reminds them not to lose focus on consumer issues – the importance of treating customers fairly (TCF) must be maintained and consumers need to be able to identify warning signs that suggest that firms are getting into financial difficulties. The information should be there to identify those “financial deals which seem too good to be true”.
The three parts of the FRO are:
- Financial and economic crisis sets out an integrated view of the macroeconomic, financial and regulatory developments which lie behind the crisis. It outlines issues relating to the regulation of banks and bank-like institutions which will be covered by the Turner Review and an FSA discussion paper due to be published in March;
- Economic outlook describes a central economic scenario drawn from various forecasts focusing in particular on how deleveraging is likely to affect firms, markets, consumers and the FSA. Three alternative scenarios explore the ways in which the economy and financial sector could plausibly evolve over the medium and long term;
- Outlook for financial sectors and consumers identifies the risks and implications of the financial and economic environment for firms, market participants and consumers.
Each part of the FRO has a "Key messages for firms" section at its end. In part 3, there are additional sub-sections, each with key messages, for banks, building societies, life insurance companies, general insurers, retail intermediaries, asset managers, consumers, capital management and investment firms, accountants and auditors. Financial crime gets a sub-section of its own.
The FRO describes how the FSA will prioritise its activities. On February 12th, the FSA will publish “Our Business Plan” which will set out how it plans to respond to these priorities.
| 
