The FSA forecasts a flexible future for financial regulation
02/12/1999
Speaking today at an FSA conference, Howard Davies, Chairman of the FSA, reviewed the progress made so far in reforming the 1988 Basel Accord, the benchmark for capital adequacy used around the world. The conference focuses on the Basel Committee and European Commission consultation documents on capital adequacy and how they could affect the business of banks, building societies and investment firms in the UK.
Speaking on the Basel Committees global responsibilities, Howard Davies said:
"The new Accord will be implemented world-wide. So the Basel Committee needs to take into account its unavoidable responsibility for setting standards that go beyond banks in the G10 countries. All those involved in framing proposals in Basel need to consider applicability outside the G10 not as an afterthought, but as a core part of the analysis. The challenge is to design a new Accord that could still be applied to banks large and small around the world, including the most sophisticated banks."
One Accord, different options
"In order to have rules that are appropriate to different banks, we will need a menu approach. We propose to have a standard approach, using rating agencies, and at least one approach that takes account of banks internal ratings. We will also need to be able to waive rules where the burden is not justified by prudential benefits.
"The Asian and other crises have shown that successful banking supervision requires solid foundations. Any country wanting to implement the Accord must get the Basel Core Principles done first."
Reviewing capital adequacy in the EU
"The approach in the European Consultation Document is broadly consistent with that in the Basel Committee''s document. The EU members states also endorse the three-pillar approach. In some areas, though, the Commission has made clear progress over the Basel work."
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 Basel Accord is designed for internationally-active banks in the G10 countries (although in practice it has been implemented much more widely). The European Commissions document reviews capital adequacy legislation that covers banks, building societies and investment firms in the EU.
The Commissions consultation process is being carried out primarily at national level, and the FSA is co-ordinating this process in the UK.