In response to the Turner Review or the formal re-examination of what caused the material trading losses during the financial crisis, the Financial Services Authority (FSA) issues a Discussion Paper (DP) today that outlines the three (3) major areas of reform needed on the regulation of trading activities.
First, the DP tackles the need for an increased regulatory focus on the valuation of the traded positions and for the specific assessment of valuation uncertainty. Second, it recommends changing the structure of the capital framework in order to bring greater coherence and reduce the chances for structural arbitrage within the banking sector. Third and last, it enumerates specific measures to improve the risk management and modeling standards of the firms, at the same time, taking into consideration that they are still aligned with the regulatory objectives.
Responses to the DP are welcome until the 26th of November 2010. The FSA will subsequently issue a feedback statement in the first quarter of 2011.