The FSA outlook describes among other issues, the prudential risk management challenges for financial institutions created by the combination of the macroeconomic environment, the changing regulatory regime, and the future withdrawal of funding and liquidity support.
This year’s FRO is divided into four sections:
· Macroeconomic background and outlook looks at how fiscal and monetary policy support has limited the scale and duration of the global recession, and the future impact of its removal;
· Financial Stability and Prudential Risks and Issues highlights the importance of effectively managing prudential and financial stability risks for all stakeholders in the financial system. The chapter explores the new regulatory frameworks being developed to strengthen firms’ capital and liquidity management under stressed conditions and the FSA’s updated stress test;
· Market Risks and Issues explores risks derived directly from the crisis and other ongoing risks to which regulators and market participants need to respond;
· Retail Conduct Risks and Issues identifies retail conduct of business risks, some of which have resulted from today’s specific economic circumstances but many of which are rooted in enduring features of retail financial services markets: such as business models that cross subsidise loss-making core products and very high margin products.
The analysis which lies behind the FRO helps inform how the FSA sets priorities and deploys its resources. The FSA’s Business Plan, published next week, describes those priorities and the resulting resource requirements.
© FSA - Financial Services Authority
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