Hong Kong Law
The Turner Review And Discussion Paper 09/2 - A Regulatory Response To The Global Banking Crisis
On 18 March 2009, the Financial Services Authority (FSA) published a Review of the global banking crisis, conducted by Lord Turner, Chairman of the FSA (the "Review") along with the FSA's Discussion Paper 09/2 (the "Discussion Paper").
The Review provides Lord Turner's recommendations for reforming UK and international approaches to the way banks are regulated. It offers an in-depth look at the three underlying causes of the crisis (macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations) along with 38 recommendations which the UK and the international community will need to consider to improve regulatory standards, supervisory approaches and international cooperation and coordination. The Review distinguishes areas where the FSA have taken action, areas where the UK can proceed nationally and those that require international agreement, in particular:
Fundamental changes are needed in the regulatory approach to capital, liquidity and accounting;
A central role for much tighter regulation of liquidity;
A system-wide approach is needed to identify and deal with macro-prudential risks, to complement stronger micro-prudential supervisions of individual firms;
Regulation of Credit Rating Agencies to limit conflicts of interest and inappropriate application of rating techniques;
Changes need to be made to the scope of regulation of "shadow banking" activities to make sure that the economic substance of activities are regulated, not the legal form - increasing the reporting requirements for unregulated financial institutions such as hedge funds, and regulator powers to extend capital regulation; and
The international framework for the regulation and supervision of cross-border banks needs strengthening in the light of the crisis. The Review recommends combining a new European regulatory authority (a European "supervisor of supervisors") and increased national powers to set the standards and oversee supervision.
The Discussion Paper is limited to the issues set out in Chapter 2 of the Review. It provides further background to those issues and discusses options for the policy choices for supervisory authorities around the world to create a significantly stronger global regulatory and supervisory framework.
The Review and the Discussion Paper are both seeking to propose a significant impact on the banking sector and on other financial services sectors. A summary of the FSA's proposed Actions Required To Create A Stable And Effective Banking System is attached below.
Comments on the Turner Review and the Discussion Paper are due by 18 June 2009.
On 27 March 2009, Lord Turner spoke at the Turner Review Conference which highlighted several areas for debate. It also concentrated on the fundamental recommendations and the important open issues in the Turner Review. Lord Turner's speech and power-point slides can be viewed here.
Actions Required To Create A Stable And Effective Banking System
Capital adequacy, accounting and liquidity
Institutional and geographic coverage of regulation
UK Bank Resolution
Credit rating agencies
Credit Default Swap (CDS) market infrastructure
FSA supervisory approach
Firm risk management and governance
Utility banking versus investment banking
Global cross-border banks
European cross-border banks
Open questions for further debate
This note contains a summary only of certain issues raised in the FSA Discussion Paper "A regulatory response to the global banking crisis" and its contents do not constitute legal advice. Charltons is qualified to advise only as to matters of Hong Kong law.
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Charltons - Hong Kong Law Newsletter - Issue 73 - 22 April 2009