FSA presses Citigroup Japan on improving compliance infrastructure

The FSA in Japan is again pressing Citigroup to overhaul its compliance operations, according to Wall Street Journal’s report on Nov 6 (EST). The regulator has expressed dissatisfaction about the bank’s lax compliance, including anti-money laundering standards. This seems likely to lead to some major personnel shake-ups among the senior ranks of Citigroup Japan. Most recently the bank has hired a recruiter in attempt to replace its current league of senior management. Until Friday, Citigroup Japan had been reporting to the Hong Kong office, which oversaw the Asia-Pacific operations. Citigroup Japan now directly reports to John Havens, the Group’s COO in New York. It is expected that the FSA will issue sanctions against the group within the next 2 months.

Citigroup Japan has not met regulatory expectations on at least three widely publicized occasions to date. The first one occurred in 2004 when the bank was forced to close down its private bank operations over anti money laundering deficiencies. In 2009, two traders were charged with manipulating the London interbank rates (Libor) when the Japan FSA joined hands with the UK FSA and SEC in investigation efforts. Most recently, the FSA found that its retail operations did not make sufficient disclosures to clients about risks underlying investment trusts during the sales process nor did staff properly assess the suitability of products for customers. 

The WSJ report can be found here. 

Tribunal directs FSA on Market Abuse Case

The FSA in UK on 7 Sept has reported on a rather interesting decision of the Upper Tribunal (Tax and Chancery Chamber) on a case of market abuse in the commodities market by a trader. The trader in concern is Jason Geddis, who according to the FSA report, was securing a price of Lead contracts at the London Stock Exchange at an artificial and abnormal level. On 21 Nov 2008, Mr. Geddis was rapidly building up a position on a particular Lead Contract and then unwound it quickly at the LSE open outcry session at rapidly increasing prices. FSA noted in its notice that Mr. Geddis was doing so to squeeze a substantial profit for his own firm.

However, the Tribunal determined that the undertaking only constituted a lack of proper care rather than a failure of integrity. It ruled that there was no premeditated plan for the undertaking. As a penalty, Mr. Geddis is given a public censure, which parts way from FSA’s proposal to fine and impose prohibition order.

The Tribunal decision can be found here.

FSA Announces Appointment of Senior Advisers on Governance & Authorisation

by Karl Hindle - London, UK

The FSA announced the appointment of five senior advisers on governance and competency late last month.  In the hurly burly of the politically driven financial news, this "minor" piece has slipped by the radar of many observers, but when a list of names which reads as the "Who's Who" of corporate governance is retained by the largest financial regulator in the UK, it demands more than passing attention to what is going on.

At the same time as the announcement on the appointments, the FSA issued a statement on the release of the Walker Review on corporate governance in UK banks and financial institutions - one of the recommendations is the focus upon corporate governance and the FSA has clearly picked this up as one to focus upon. 

Hector Sants, FSA Chief Executive, announced the appointment of Sir Dominic Cadbury, Baroness Hogg, Lord Marshall, Sir Brian Pitman and Sir David Scholey, amidst changes to the individual fitness regime as applies to providing authorisations.  Sants said:

"These new advisers have extensive experience acting on boards of major companies and in senior policy positions and will bring valuable insight to the work the FSA is pursuing on governance.

In adding this board expertise to our SIF interview panel, we can continue to ensure those taking up top jobs are the right calibre to lead and challenge the management of the UK's top firms."

 The new appointees will sit upon the SIF panels for interviewing the proposed candidates for senior authorised positions in the largest of the UK's financial companies.  While these advisers will have input in the interview and can forward recommendations, they have no veto on the appointment and the FSA panel makes the final decision.

Any candidate for the board chair, chief executive, senior independent director and the chair of the audit, risk and remuneration committee will be subject to the scrutiny of at least one of the new appointees.

The appointees represent a very heavy bias towards experience and expertise in the corporate governance field, and this represents a new front for the FSA.  The FSA has previously stated it would start focusing on corporate governance in the past, but as this has been the purview of the Financial Reporting Council, an organisation with little in the way of sanctioning authority, it represents a further mechanism for the FSA to control financial firms.  

If a specific violation cannot be demonstrated by the FSA, it will be simpler for them to demonstrate a cavalier attitude, or wanton disregard, for the extremely widely drafted Combined Code on Corporate Governance.  Perhaps this is running ahead, but the scope for firms to now be scrutinised for failing to establish appropriate corporate governance policies and controls, particularly as applies to say, risk management, is a huge leap closer to reality.

Baroness Hogg is deputy chair of the Financial Reporting Council (tasked with the Combined Code on Corporate Governance and the promulgation of a Stewardship Code for relations between institutional investors and companies); Sir Dominic Cadbury hails from a line of Cadbury executives with strong influence on the UK's development of corporate governance policy (Cadbury is also a former Misys non-executive director); Sir David Scholey is a former member of the Board of Banking Supervision and also Court of the Bank of England; Sir Brian Pitman is a former Chief Executive of Lloyds TSB; and Lord Marshall is a former non-executive director of Nomura.

All the appointees are due to commence their duties January, 2010.

The FSA appointment announcement can be found here.

The FSA statement on the Walker Report can be found here.

FSA Announces Tough Measures for Investors in Lehman-backed Structured Products

by Karl Hindle – London UK

On 27th October, the Financial Services Authority (FSA) announced a series of wide-ranging and very tough measures in favour of investors who bought or relied upon Lehman-backed investments.

Lehman Brothers collapse signified the definite arrival of a major global financial crisis. It was not simply that a bank had failed but the far-reaching impact on global financial markets and the realisation that this was not an isolated event but systemic.

The link to the FSA announcement is here

The FSA has performed a review of marketing and distribution of structured products and not just those of Lehman Brothers, though it has paid special attention to them. This review found “significant advice failings” amongst most advisory firms recommending structured products for investors and also, “serious deficiencies” in marketing collateral used by plan managers.

Consequentially, the FSA is imposing strong measures to treat investors fairly.

These include:

• investors advised by three firms now in insolvency administration will be compensated by the Financial Services Compensation Scheme (FSCS); 
• all firms which provided advice on Lehman-backed structured products must follow an FSA complaint template and handling process to ensure fair investor treatment; 
• three further advisory firms are being subjected to enforcement action by the FSA, for providing unsuitable advice and ordering other advisers involved in providing unsuitable advice to pay financial compensation to affected investors; 
• for all other firms involved in advising and using Lehman-backed structured products, strict guidance has been issued on standards of conduct expected when using any structured product or advising on them;  and
• retroactive assessment of structured product sales is to be made by larger sellers and to assess how their standards compare to the measures which are being introduced by the FSA now.

Redress is to be made where appropriate and the FSA has stated it will be conducting follow-up assessments in 2010 to ensure compliance.

It should come as no surprise that 2010 will herald a raft of fine announcements, above and beyond the enforcement action which has already been taken. While Lehman Brothers is dead, the mess left behind is still being cleaned up but, as with any politically charged issue, someone is going to have to be seen to be "doing something" and someone is going to have to shoulder the financial blame.

As Dan Waters, the FSA's Director of Conduct Risk stated, “...we will not hesitate in taking action if firms do not take sufficient steps to respond to our concerns.”

You can find several documents of note which were published along with the announcement at the following links:

For the FSA review document - Quality of advice on structured investment products

For the complaint template and associated guidance

For the Plan Manager Review of non-Lehman-backed products

For additional information visit the Wider Implications website

FSA Funded Research on Impact of AIFM – €3.2 Billion initial Costs and a Host of Negatives

by Karl Hindle – London UK

With news dominated in the UK by the banking sector shake-up, a survey conducted by Charles River Associates on behalf of the FSA was published earlier this month...quietly.

The link to the document is here

The survey was conducted amongst EU Alternative Investment Funds (AIFs) and investors across the EU and the results are not surprising, but do raise more questions than answers for both politicians, investors and AIFs.

Reduced Investor Choice and Decreased Returns

Under the AIFM Draft Directive, AIFs will need to be domiciled in the EU in order to market to EU customers. The bulk of AIFs are non-EU domiciled with 94% of hedge funds based outside the EU. While some AIFs will establish an EU domicile to continue marketing to EU investors, it is clear that not all will and under the FSA projections, it is expected that 40% of hedge funds will no longer be available with private equity AIFs reduced by 35%; venture capital firms by 19%; and the liquidation of all UK investment trusts which cannot operate under AIFM in its present form.

This will naturally lead to reduced competition with AIFM effectively providing barriers to entry while EU investors will no longer able to access “best in class” AIFs leading to a reduction in returns as they will have compliance costs passed on to them.

One-off Costs Associated with AIFM Implementation

The FSA survey explores the issue of one-off costs associated with AIFM but there are some wide-ranging assumptions being used to estimate how many AIFs will be prepared to re-domicile in the EU in order to market there.

The FSA believes that “if enough hedge funds re-domicile in the EU to fulfil current needs”, and kindly note the “if” in that statement, the cost will amount to €0.9 billion for re-domiciling plus a further €0.6 billion mostly borne by larger AIFs who will need to alter their value chains and legal structures.

Note that this assessment does not take into account the impact of reducing leverage which is also going to result in increased costs and decreased returns – AIFM is targeting leverage because its proponents believe systemic risk is caused by it. This is also a major bone of contention as AIFM does not cover many methods of taking on leverage so while systemic risk will largely be unaffected, industry (and ultimately consumer costs) are dramatically increased.

Private equity and venture capital AIFs are expected to incur the largest cost for implementing AIFM with €248 million and €33 million respectively. There is also another example of cost being attached for little or no perceived benefit. The disclosure regime holds little value for larger investors who responded they already have adequate information for decision making, however, AIFM will compel public disclosure which it is felt, will provide valuable information to competitors outside the EU.

Investment trusts, which are peculiar to the UK, are facing liquidation under AIFM as they cannot operate, hence the growing interest in UCITS. The cost is anticipated to be around €543 million for transferring their assets to compliant structures.

Finally, real estate AIFs are largely untouched by AIFM in a regulatory sense but this does not mean they have escaped the impact of cost. Rearranging value chains and the re-domiciling of Channel Islands AIFs is going to cost €451 million.

Summary

Total one-off costs of implementing AIFM will be in the order of €3.2 billion. In addition there will be additional recurring costs in the order of €313 million. This will ultimately be passed on to the investor and will reduce returns in the short and long-term for EU domiciled AIFs. Consumer choice will be reduced because many AIFs will not seek to re-domicile in the EU, in fact, the FSA expects the majority of global hedge funds and other AIFs will not choose to do so. Significant costs will be incurred in monetary and opportunity cost terms which are not being replaced by matching benefits to the consumer, the industry or the economy.

FSA Assumes Regulation of Banks Customer Contact but for How Long?

by Karl Hindle – London UK

The FSA assumes responsibility for regulating Britain's High Street banks and their customer relationships on Monday, 2nd November.

The link to the FSA announcement is here

The FSA remit includes regulating the sale of banking products including direct debits (a form of regular, variable bill payment in the UK), instant access and savers' accounts as well as notifications to customers such as interest rate changes. High Street banks must now provide full disclosure at point of sale to customers on exactly how a product works rather than providing a summary of features and benefits.

This may seem all pretty minor stuff except, the idea that the FSA should have anything to do with regulating high street banks is viewed as a definite encroachment by the FSA upon the Bank of England's territory. With the Banking Act 2009 further widening FSA regulatory responsibility for High Street banks, there is a clear-cut schism between the in-office Labour left and the favourites for the next election, the right-wing Conservatives.

If Labour win the next election, the FSA can be expected to expand, many believe, into the UK's “Super Regulator”, but if the Conservatives win, they have pledged to abolish the FSA entirely and devolve its functions elsewhere.

This development comes just as Number 11 Downing Street, the home of the British Chancellor of the Exchequer, Alistair Darling announced a major shake-up in how Britain's High Street will look with a number of new, smaller banks being introduced amidst the break-up of larger ones which have sought refuge under the British government's bail-out umbrella.

It is expected that there will be three new UK High Street banks introduced and a spate of other financial entities as a consequence of the repackaging and sale of Government banking assets acquired during the recent turmoil. One old name will be revived in Williams & Glynn, which has its origins on Threadneedle Street but which disappeared when it was gobbled up by NatWest while Trustee Savings Bank (TSB) will also make a reappearance.

The FSA stepping into the banking realm may be short-lived depending on the result of the next British elections which are looming ever closer. The right-wing Conservatives have pledged to dismantle the FSA and Shadow Chancellor, George Osborne confirmed this last week in a meeting with FSA staff members.

Election fever has not yet gripped the UK – news media outlets are surprisingly muted on the issue as to when an election will be called (in the UK, the ruling party has the option of when to call an election as long as it is within its term of office). There is widespread consensus that Prime Minister Gordon Brown will not retain leadership of the Labour Party and is unlikely to win the next election in any event, so expect the incumbents to run until the last moment before the election is called.

It is not simply the relatively minor issue of bank/customer relationship regulation by the FSA, but the outcome of the political cat fight which will determine the picture of the UK regulatory regime. In the interim, the two main regulators, the FSA and Bank of England, are marking regulatory time and concentrating on positioning themselves for what may follow.

FSA Refuses Parliamentarians Request to Investigate Icelandic Banking Advice

by Karl Hindle – London UK

An All-Party Committee investigating the advice local authorities received from treasury fund advisers has had its request to the Financial Services Authority (FSA) rebuffed.

The Committee which is composed of Members of Parliament (MP's) from a cross section of parties, wanted an investigation into the advice provided to Local Authorities which resulted in £1 billion (USD $1.6 billion) of taxpayers money being deposited with Icelandic banks which subsequently collapsed.

The Icelandic banking affair resulted in depositor losses which the British government has managed to claim back in a one-sided deal with Iceland. This has done a great deal to sour relations between the two countries, not to mention cause significant economic hardship to Iceland which is a country whose size is out of all proportion to the UK's.

At home, the announcement of recovering the money by Prime Minister Brown was viewed with mixed feelings – no-one likes a bully.

The FSA declined to investigate because it claims not to have a remit to regulate bank deposits and as such, an investigation by the FSA would not be justified. This is not something which has prevented the FSA in the past, whilst the regulator has not been averse to assuming responsibility elsewhere, that is of course, where an opportunity to further expand its own sphere of influence exists.

Though the Parliamentary Committee is formed of a cross-section of MP's it is led by Phyllis Starkey, a Labour veteran, who has worked hard to get the City regulator on board in launching an investigation. While the FSA may be technically correct in that it may not have the remit, it could launch an investigation based upon the request by the Parliamentary Committee, though what power it had to actually do anything other than investigate and report is unclear.

Upsetting a Labour controlled committee is out of character for the FSA, which may demonstrate a changing attitude as to who will be occupying the offices of its political masters in a few short months. The FSA did not simply refuse to investigate the advice, but also the issue of conflicts of interest by treasury advisers who formed part of larger firms which benefited financially from the implementation of advice recommendations.  

On the other hand, by refusing to investigate because it has no remit, the FSA has made a clear point to the Parliamentarians that if they want this form of banking activity regulated, they'll have to give them the power to do so. Coming so close to the commencement of FSA regulation of banking relationships with personal customers, including the provision of advice and explanations at the point of sale for deposit accounts, the refusal to investigate smacks of playing a poker hand with an influential group of politicians, some of whom will certainly be in power next year no matter what their political persuasion. If Labour remain in power next year, the FSA is in a situation where it can present a “win-win” scenario for the Committee – you want this investigated, we need you to give us the power to regulate – and if Parliamentarians want it done chances are the FSA will get the formal powers, which is mud in the eye for the Bank of England.

On the other hand, a Labour victory is far from certain, and probably unlikely, which underlines the FSA's caution.

The King Speaks - Bank of England Governor Advises More Regulation is Not Enough

by Karl Hindle, London UK

“Never has so much money been owed by so few to so many.”

Paraphrasing Winston Churchill, Mervyn King, Governor of the Bank of England, emerged from his almost deafening silence this week with an announcement on bank and financial reform which seems revolutionary if not, downright rebellious!

At first sight that is.

Mervyn King is a past master at timing and the delivery of the oratorical coup d’grace; this week’s developments will only enhance that reputation and especially as Lord Turner and the FSA are due to unveil their views on regulatory reform next week.

King took the opportunity to give forth to his views at a gathering of Scottish business organisations on Wednesday evening.  The full text of his speech is found here.

King’s view is that banks must split their traditional functions, which are vital to effective operation of the economy, from other, riskier money-making activities.  Regulation is simply not enough. In a simple yet elegant statement, King demonstrated his command of the “Big Picture”;

"The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion."

Strong words indeed, but we ought not to be so surprised as, after all, it was King who baldly stated to the Commons Select Committee much earlier this year;

“If a bank is considered too large to fail then perhaps it is simply too large.”

King has rightly identified a glaring weakness in financial and banking regulatory reforms; banks, and indeed any company, will continue to take risks and engage in even riskier behaviour, if they believe they are too big to fail and will be bailed out by the taxpayer.  Bailing out banks has reinforced the belief that no matter what they do, a big bank will not be allowed to fail and this belief will undercut any true commercial risk assessment and whether to take that extra risk on.

While the G20 called for much tighter regulation of the banking and financial sector, backed by higher capital adequacy levels, King is still concerned.  Achieving regulatory compliance will only tackle the symptoms of the disease and not tackle the underlying causes of the crisis.  It’s a brave observer who is prepared to state this in the face of overwhelming G20 consensus that regulation is the answer, but King has delicately and exquisitely placed his finger on the problem.

Governments wish to reduce risk inherent in the banking and financial system, which sounds like a good idea except, actually what they really are looking for is to reduce the risk the economy is exposed to by the banking sector.  If a bank wishes to diversify into so-called “casino banking”, such as hedge fund management or other alternative activities, so be it.  If it fails, as far as the economy and taxpayers are concerned, it is of no consequence.  King’s view is that such a bank should not be allowed to back that risk by using the financial position gained through traditional banking business vital to the economy and global financial system.  Traditional activities such as holding savings and loans, have been used by big banks to effectively diversify away the “casino” risk onto the taxpayer as they will be bailed out. 

King wants banks broken up so the riskier segments cannot be allowed to piggy back on traditional, economically critical activities.

I think King is absolutely right.

No amount of regulatory reform is going to tackle the problem that we have created for ourselves.  The banking sector may have had an exceptional jolt, but they have been bailed out with relatively few casualties by taxpayers around the world. The lesson has been taught and no doubt learned, the taxpayer will bail out risk takers who ought to have stopped assuming risk a long time ago.

Next week is Lord Taylor’s turn and I predict it will be a rerun of previous “guidance and pronouncements” with a layer of gloss to meet G20 commitments.  Expect accusations of displaying little imagination or “Blue Sky Thinking” which Turner is known for; did I mention King has impeccable timing?

From a UK big bank perspective, if King wants a large-scale break up of big banks and Turner wants more and more regulation, it is time to be afraid… be very afraid!

Financial Stability Board Issues Principles for Sound Compensation Practices

by Karl Hindle - London, UK

The Financial Stability Board (FSB) issued a 6-page Principles document dealing with remuneration and immediately following the announcement of the G20 Final Communique, which outlined the French-led bonus regulation agreement.

The full Principles for Sound Compensation Practices is found here.

The FSB is a very new body and established:

...to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability.

It comprises senior representatives of national financial authorities (central banks, regulatory and supervisory authorities and ministries of finance), international financial institutions, standard setting bodies, and committees of central bank experts.

Notably, the FSB is supported by a small secretariat of the Bank of International Settlements in Basel, Switzerland and on that note, nothing has so far been heard out of the Basel committee on remuneration but as the preamble states:

The Basel Committee on Banking Supervision, the International Association of
Insurance Supervisors (IAIS) and the International Organization of Securities
Commissions (IOSCO) should undertake all necessary measures to support and address prompt implementation of these standards.

More notably, the FSB is the creation of the G20 and effectively the de facto, global regulatory mouthpiece of the world's leading economies.

Pay Structure and Alignment

The main points are:

1. The total variable compensation pool and bonus allocation must take into account the full and potential risk and especially costs of capital to support the risk;
2. Losses should result in a contraction of the bonus pool and trigger clawback of paid bonuses;
3. Senior executives and employees whose actions have a material impact on risk exposure should be paid an allocation based on individual, business unit and firm-wide performance with substantial bonus amounts (40% to 60%) paid under deferral arrangements over "years"with more senior staff taking higher amounts deferred than more junior colleagues;
4. Deferral periods should be not less than 3 years;
5. More than 50% of bonus payments should be in shares or share-linked instruments and not cash and the shares should be subject to a suitable share retention policy;
6. Where bail outs and government injections have been taken, the national regulator should have the ability to restructure a firm's compensation practice; and
7. Guaranteed bonuses are inconsistent with sound risk management and should only be offered to new hires and the guaranteed period last for no longer than one year.

Analysis

The FSB view on remuneration (or bonuses) is clear; "Compensation at significant financial institutions is one factor among many that contributed to the financial crisis that began in 2007."  In other words, bonuses are going to be dealt with and form one regulatory aspect of G20 domestic regulators' remits - for the UK, this is obviously the FSA.

While requiring "significant financial institutions" adopt and comply with the Principles as well as complementary guidance from Basel et al, the thrust seems to be that total variable compensation (i.e. bonuses) will not hamper the ability to restore the capital base and that national regulators, "should limit variable compensation as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base."

The FSB clearly, and rightly, is concerned that excessive compensation will not interfere with capital adequacy requirements but as is to be expected from global statements and guidance, it is couched in broad terms - what constitutes a significant financial institution and at what levels of capital adequacy does a given level of compensation become "inconsistent" with a "sound capital base"?  None of these terms are defined and presumably will be left to national regulators to deal with.

Clearly, guaranteed bonuses except for new hires are on the way out but how well the principles will achieve better corporate governance is unclear.  There is no global agreement as yet, only a G20 listing with some adjunct "guests" so as with the concerns over the "Tobin Tax", will we see a flight to offshore banking and tax havens where these regulations will not need to be followed?  Last week, a Barclays team led by Stephen King and Michael Keeley quit, taking 45 staff with them and commenced working offshore, mirroring a high-profile team departure from Societe Generale in Paris for exactly the same reasons - escaping European bonus controls.  

While the odd team leaving a "significant financial institution" will happen, if there is a flight to offshore tax and banking centres by high-earners, what will be done about the concentration of banking and financial activity in these havens?  Of more concern, what will happen if one of these "concentrated" havens goes under in similar fashion to Iceland?  Who will bail that out?

What is clear is that the FSA and other G20 national regulators are going to be having fun and games reviewing their own practices in the light of the G20 and FSB pronouncements but it is vital that bonuses do not allow regulators and governments to take their eye of the economic football and the wider regulatory issues.

FSA Outlines How to Make EU’s AIFM Directive More Workable

Sally Dewar, Managing Director of the FSA’s Wholesale Markets Division, gave a speech earlier today outlining four key areas which need to be addressed in order to ensure effective fund regulation and the regulatory approach which ought to be adopted.

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FSA and SEC Agreement on Data Sharing

UK and US regulators have agreed to scope out common reporting requirements for key market players, including hedge funds. While the data sharing is expected to cover reporting requirements it falls short of dual-supervision. Last Wednesday, in the wake of the G20 Pre Summit Meeting held in London at the start of September, representatives from the FSA and SEC agreed to explore and identify common data classes which they will collect from hedge fund managers and advisers. The FSA and SEC have been holding regular, top-level meetings dealing with areas deemed to be of mutual interest to both regulators.

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UK Finance Minister Outlines Thinking on Bonuses

The British Chancellor of the Exchequer Alistair Darling has been intimately involved in the creation of the modern British regulatory landscape, but all this may be about to change with a General Election due within 10 months. He also succeeds arguably one of the most successful Chancellor's in the 21st Century - the current Prime Minister, Gordon Brown - just as Tony Blair has been a tough act to follow, Darling has had to step into Brown's shoes at The Treasury.

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FSA Announces Doubling of Fees for Investment Banks

The FSA is increasing the amount of money raised from the industry to £435.5m – a hike of 35.8%. This represents a doubling of regulatory fees for the largest retail and investment banks and for several, the increases are higher than this – both HSBC and Lloyds Banking Group have been hit with higher increases and the largest UK deposit takers now have a bill in excess of £22m. The increases have been created by a number of UK based issues.

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Updates to retail banking conduct code in the UK

From the FSA Handbook Development No.111 May, 2009 Regulating retail banking conduct of business The FSA sought views on a proposed new framework for regulating retail banking conduct of business. This would replace the current two Banking Codes (the Banking Code and the Business Banking Code). The new regime be implemented on 1 November 2009, in line with the implementation of the Payment Services Directive (PSD), which is European legislation that will apply to most payment transactions carried out by banks and building societies as well as certain aspects of the operation of ‘payment accounts’.

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UK regulatory commentary on stress tests

From the FSA: FSA statement on its use of stress tests, May, 28th, 2009 The publication in the US of the results of bank stress tests has provoked considerable interest in the use of stress testing by authorities in other countries, in particular in Europe. This statement clarifies how stress tests have been used within the UK and describes how the UK approach fits within the EU-wide stress testing exercise on the aggregate banking system being co-ordinated by the Committee of European Banking Supervisors (CEBS).

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