FSA issues capital adequacy framework

Amanda Jarvis

May 10, 2002

The framework offers guidance on how to align the amount of capital that a firm is required to hold more closely to the specific risks it faces.

Clive Briault, director of prudential standards at the FSA, said: “The purpose of the proposed framework is to reduce the likelihood that consumers will suffer loss or that markets will be disrupted as a result of the financial failure of a firm, although the possibility of failure can never be removed altogether.

“The main benefits of this proposed framework are that it meets our overall aim of reducing the probability of prudential failure, in a cost efficient way that creates greater transparency in the arrangements for setting regulatory capital levels, while at the same time promoting a strong culture of risk management.

“We have included within this paper proposals for the setting of an enhanced risk-based capital regime for insurance and for major securities firms. It also includes proposals on how we intend to meet our supervisory responsibilities under the new Basel Capital Accord.”

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