UK: FSA discussion paper: the prudential regime for trading activities - a fundamental review

The Financial Services Authority has begun a fundamental review of the regulation of trading activities with the launch of a discussion paper: see here (pdf). By way of background, the discussion paper explains (paras. 1.1 and 1.2):

In July 2009, the Basel Committee on Banking Supervision (BCBS) agreed a range of amendments to the Basel II market risk framework, targeting specific weaknesses highlighted by the financial crisis [see here]. On average, these changes will increase the capital held against trading activities in large banks to more than three times current levels. Trading activities have grown enormously in recent years, and the financial crisis was in part triggered by losses crystallised in the trading books of large banks. It is therefore necessary to build on the changes already in progress with a re-appraisal of the prudential approach to trading activities, dealing with the arbitrages and mis-specifications of risk that continue to exist and complementing the many other areas of financial reform currently under consideration.

We expressed this view in The Turner Review where we called for a ‘Fundamental Review’ of the prudential regime for trading activities. This Discussion Paper (DP) follows up The Turner Review with a detailed discussion of the issues that we think should form part of the Fundamental Review which is now being developed internationally by the BCBS".