The FSA welcomes European Commission Review of Capital Adequacy rules

Welcoming the paper, Howard Davies, the Chairman of the FSA, said:

"It is important that the legislation is brought up-to-date, particularly since the Basel Accord 1988 is currently being reviewed. This Consultation Paper represents a first step in reforming EU capital adequacy legislation, and the European Commission is to be commended on moving quickly. The approach in the European Consultation Document is broadly consistent with that in the Basel Committee''s June Consultation Paper, and we thoroughly welcome that. UK banks, which are subject to both Basel Accord and EU law, will want to be subject to the same rules for the same risks.

"The relevant EU legislation covers banks, building societies and investment firms - all of which are regulated in the UK by the FSA - so this Consultation Paper is an important document. A broad and diverse set of financial companies will be affected. We are working with our European colleagues to ensure that the resulting legislation is appropriate for all types of firm and has the flexibility to enable supervisors to cope with a rapidly changing financial system.

"The FSA is in the process of consulting the industry and consumer groups on the proposed reform of the 1988 Basel Accord and will now broaden its consultation processes to encompass both the Basel and EU papers in parallel. Changing European law takes time, but the European authorities are working quickly. Interested parties should make their views known to us as soon as possible."

The Consultation Document has been prepared by the European Commission Services, which have themselves taken the advice of banking and investment firm regulators and finance ministries in Member States.

Notes for editors

The Governments intention, as set out in the Financial Services and Markets (FSM) Bill currently at the Committee stage in Parliament is that the FSA should be the single statutory regulator of financial services business.

The European Commissions consultation process is being carried out primarily at national level, and the FSA is co-ordinating this process in the UK. The FSA will be collating comments received and forwarding them to the Commission. In the UK, comments should be sent to the FSA no later than 31 March 2000. Responses to the Commissions document should be sent to Stephen Bland, Head of BBSD Policy, at the Financial Services Authority. The FSA will assume that responses can be made public unless otherwise indicated.

The Commissions document is in five chapters. The first chapter discusses the context of the review, while the other chapters deal with scope of application of legislation, proposed changes to the current minimum capital requirements; a supervisory review process; and disclosure as an aid to market discipline. These topics are also covered in the Basel Committees June CP, and the Commissions document takes a broadly consistent approach.

The Basel Accord is designed for internationally-active banks in the G10 countries (although in practice it has been implemented much more widely). The Commissions document reviews capital adequacy legislation that covers banks, building societies and investment firms in the EU.

Copies of the European Commissions Consultation Document are available on its website www.europa.eu.int/comm/dg15/en/finances. The Basel Committee on Banking Supervisions Consultative Paper is available on the BIS website, www.bis.org

Links to BIS and European Commission websites, press releases, minutes of the FSAs high-level Advisory Group and responses to the consultation papers can be viewed on a dedicated section of this website, http://www.fsa.gov.uk/basel.htm