Purpose

The purpose of the group is to help the FSA formulate its policy before consultation; it does not replace consultation so may not definitively resolve any matters discussed.

The group is a pre-consultation forum for discussing:

  • Market Risk and Trading Book policy issues arising from the revised Basel Accord (Basel), the Capital Requirements Directive (CRD) including the recast Capital Adequacy Directive (CAD), and the Basel-IOSCO Trading Book Review (TBR);
  • the FSA's articulation of its potential solutions in Prudential Source Book (PSB) text;
  • issues regarding the practical implementation of, and monitoring of compliance with, Market Risk and other Trading Book policy in the PSB; and
  • domestic Market Risk and other Trading Book issues (e.g. IPRU) not covered by Basel or the CRD.

 

The group will be the medium by which the FSA will:

  • discuss its approach to, and process for, developing rules and to identify areas where it may need to issue guidance to implement the CRD for Market Risk and the Trading Book;
  • collaborate with firms to develop its Market Risk and other Trading Book policy in the PSB;
  • collaborate with firms to address issues about implementing, and monitoring the compliance with, Market Risk and other Trading Book policy in the PSB; and
  • identify the substantive Market Risk and Trading Book issues that need to be raised with the Basel Advisory Group and the PSB Advisory Group.

Remit

The group will be responsible for:

  • Working Groups 1 (counterparty credit risk) and 3 (trading book-banking book boundaries) of the Basel-IOSCO Trading Book Review (TBR);
  • the new Market Risk and Trading Book requirements under the recast CAD, for example the definition of the Trading Book and position risk charges; and,
  • IPRU Market Risk issues.


Responsibilities

The FSA will:

  • ensure that issues raised by firms are given proper consideration, are discussed at the appropriate level within the FSA, and that appropriate action is taken to address them;
  • share with the group members its policy proposals and rationale;
  • highlight and discuss implementation issues;
  • ensure that firms' views on policy options are factored into the FSA's on-going negotiation about Market Risk and the Trading Book in Basel and the EU;
  • circulate minutes from the meeting, comprising action items for the FSA and group members;
  • propose a draft agenda for the next meeting
  • publish on its website the final version of the group minutes;
  • supply group members with the agreed meeting agenda; and
  • provide policy papers explaining the CRD or TBR policy issues that the FSA is seeking to resolve and the proposed solutions to them.

 

The group members are responsible for:

  • providing views on the appropriateness and practicality of the FSA's proposed solutions to policy issues;
  • where proposals are considered inappropriate or impractical, offering alternative solutions to policy issues in respect of CRD Market Risk and other Trading Book implementation in the PSB;
  • reviewing the Handbook and providing suggestions for improvements to the text with respect to Market Risk and the Trading Book; and
  • assisting the FSA in assessing the overall cost and benefits for UK firms of implementing proposals for Market Risk and the Trading Book.

Interaction with other FSA groups

Where an issue arises that requires senior level involvement from firms or the FSA, it will be referred up from the group to one of the following FSA Advisory Groups:

  • the Basel Advisory Group, if a policy matter; or
  • the PSB Advisory Group, if it is a drafting issue.

Meeting frequency

Market Risk and Trading Book group meetings will be held every four to six weeks. Ad hoc meetings may be held where necessary.


Circulation of papers

Group members are free to circulate papers within their organisations and, in the case of trade associations, around trade association members in order to gauge industry views.