‘One size does not fit all' when it comes to operational risk, according to the chairman of the UK's Financial Services Authority Howard Davies.
Speaking at the International Conference Grimaldi Forum, Monte Carlo, about the inclusion of a separate charge for operational risk, Davies said that banking proposals in the Basel accord needed to be amended for investment firms to avoid “outlandish” tolls:
“A simple extrapolation of the Basel model to investment firms produced percentage increases for fund managers which, in some cases, were quite outlandish.”
He added: We must recognise that not all firms are alike. ...It may be necessary to consider a further breakdown into business lines which would allow for a more risk- sensitive operational risk charge based on different scaling factors for different categories of business.”
Currently, the European Commission is conducting a European impact study to assess the effect of the Basel proposals, particularly on investment firms
Over the next year, the Basel committee is expected to make changes helpful to banks and non-banks. But these will need to be based on “proportionality”, said Davies.
By Madhu Kalia
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