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Hector Sants |
On Tuesday, in a presentation to the Investment Management Association’s (IMA) annual dinner, Hector Sants, Chief Executive of the Financial Services Authority (FSA), spoke on the events of the last ten months and outlined the FSA’s approach to ensuring that then negative impacts of the credit crunch did not happen again.
Sants says that the crisis was created by inaccurate pricing, little understanding of the products and a failure in discipline exacerbated by a lack of transparency. This created a crash in investor confidence and with resulting liquidity issues, investing banks stopped lending. He believes that the liquidity problem is receding due to the strong actions of central banks and we are entering a period of economic downturn with associated credit management problems.
The FSA’s response has been on three fronts – increased supervision, greater transparency in the pricing of structured instruments, and the restoration of consumer confidence. Sants said the FSA was focused on more robust contingency planning and in ensuring that all major firms had sustainable funding and liquidity plans. “We have also significantly increased the regularity with which positions are reported by regulated firms; we are in daily contact with those firms that pose the greatest risk and the frequency of liquidity reporting schedules have been increased.” On the subject of transparency Sants said that the FSA sought to encourage robust valuation and prompt disclosure of that valuation. “It is our belief that timely and more accurate disclosures will help promote not only a quality market in bank shares but also in structured instruments themselves.”
Sants went on to describe four mid-term goals - international supervisory co-ordination, improving the liquidity framework, an improved regime for dealing with failed banks and upgrading the supervisory regime.
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