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FSA: Market conditions could expose criminals

29 January, 2008

Focusing on the events of 2007, the Outlook (FRO) outlined the risks heralded by today's ailing markets, centring on those the regulator thinks could well take on greater importance during the next 18 months.

One such area for concern is financial crime.

In its statement, the FSA highlighted that tighter conditions in the wider economy could spark a rise in financial criminals after firms experiencing financial problems were forced to divert resources away from tackling the problem.

However the regulator did stress that the opposite was also possible, with renewed awareness seeing firms strive towards exposing criminals.

Other priority risks cited by the FSA included:

• Existing business models of some financial institutions being put under strain as a result of adverse market conditions
• Increased financial pressures possibly leading to financial firms shifting their efforts away from focusing on conduct of business requirements, and from maintaining and strengthening business-as-usual processes
• Market participants and consumers losing confidence in financial institutions and in the authorities’ ability to safeguard the financial system
• A significant minority of consumers experiencing financial problems because of their high levels of borrowing

"Firms and consumers need to recognise there are both short and long term risks and should think about the implications," advised FSA chairman Callum McCarthy.

He reiterated that these were not firm predictions, but instead were "a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy."

McCarthy added: "Firms are clearly more aware of these risks now and should continue to consider how they would respond to a crystallisation of these risks particularly those relating to capital and liquidity."