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The Financial Services Authority (FSA) has today published a response to the feedback it received to the Turner Review and associated discussion paper (DP) issued in March.

The feedback statement sets out the FSA’s analysis of the responses received and reports on the progress made since March, in implementing change and in achieving international agreement.

Respondents generally agreed with the analysis of the Turner Review and the broad approach it proposed.  The majority offered clear support for the analysis of causes, the main recommendations and the FSA’s supervisory approach as detailed in the Turner Review and DP.

The key issues raised by respondents were as follows:

• An international approach was needed when looking at policy options;
• Concerns were raised that any measures implemented by the UK alone could damage London’s competitiveness;
• Large firms were against increased requirements for systemically important firms; and
• The need for an impact assessment of the ‘whole package’ of reform to be carried out.

The strongest concern was the need for international consistency in formulation and implementation of the regulatory policy response to the crisis.

The FSA recognises that the policy solutions that emerge to tackle the cause of the crisis will have to be both radical and internationally agreed in order to be effective. The Review and DP were intended to stimulate debate on the causes of the crisis and made recommendations on the global regulatory changes needed. To this end, the FSA has been actively engaged with international partners and counter-parts, firms, academics and other Tripartite members to make progress on these issues.

Alongside the process of formal response to the proposals made in the Turner Review and DP, wider debate has continued on the overall approach to financial regulation. In this context, the FSA’s own thinking has continued to develop on certain proposals which now require a more detailed analysis. Therefore, in addition to this feedback statement, the FSA plans to issue a further discussion paper in October which will focus on key areas including:

• Systemically important firms – Respondents questioned how regulators should deal with systemically important firms and the G20 has called for higher prudential standards for such firms. The new DP will address the issue of how to identify ‘systemically important firms’, the policy tools available and how they might be applied. This will include discussion of the possible design of living wills and their implementation at both national and global level.

• Cumulative impact of capital and liquidity reforms – There is a need for a comprehensive analysis of the combined impact of the different elements of regulatory reform, such as stronger overall capital and liquidity requirements, changes to trading book capital, countercyclical capital and alternative possible approaches to systemically important firms. In total these changes will have a significant impact on leverage and maturity transformation in the banking system: trade-offs may have to be made between costs of intermediation and financial stability. The discussion paper will consider methodologies for making these trade-offs.

The new DP will be published ahead of the second Turner Review conference which is being held on 2 November 2009.

Notes for editors

1. The Turner Review feedback statement can be found on the FSA website.
2. The Turner Review can be found on the FSA website.
3. The discussion paper that accompanied the Turner Review can be found on the FSA website.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.