RD News 16March12

• FSA/BoE: Hector Sants to leave the FSA
• Commenting on the announcement, Sir Mervyn King said, “I am sad that Hector Sants has decided to stand down. I am very grateful to him for staying on for longer than he had planned."
• The Bank will work closely with HM Treasury in searching for the first Chief Executive of the Prudential Regulation Authority (PRA) who will also be the Deputy Governor with responsibility for Prudential Regulation. That appointment will be made by the Chancellor. The person appointed will take up the position when the PRA comes into existence in 2013.

• FSA: Lord Turner: Shadow Banking Agenda Should Have “Bias Against Complex Interconnectivity” (Cass Lecture 2012)
• It is the complexity of an interconnected financial system, and not the absolute size of the ‘shadow banking’ system, which are relevant for financial stability.
• Three big risks from shadow banking:
• the procyclicality which results from secured finance and mark-to-market accounting;
• non-transparent maturity transformation in long, complex chains;
• the relationship between funding and market liquidity.
• Recommends a “bias to prudence”, and a “bias against complex interconnectivity”.

• FSB: Encourages further work to enhance the contribution of external audit to financial stability
• Encourages further work to be done to improve the role of external audits in providing information to regulators and supervisors.
• Includes work which will improve the information produced by external audits, as well as work to improve audit regulation to improve the quality of audits.
• Emphasises the importance of audits, and notes its view that greater international consistency in external audit practices will be beneficial for audit quality.

• IOSCO: Consults on Regulatory Principles for ETFs: Media release and Consultation document
• IOSCO have launched a consultation on 15 high level principles for the regulation of exchange traded funds (ETFs), falling into three categories: classification and disclosure; marketing and sales; and structuring of ETFs.
• ETFs have been highlighted by regulators as a potential source of systemic risk for the financial system, due to rapid growth in the size of the market, and the increasing complexity of some products which fall under the name of ETFs.
• IOSCO are inviting comment on whether the principles will address financial stability concerns, and whether further work is required on ETFs and broader subjects relevant to their regulation. The principles outline actions that regulators should both “encourage” and “consider imposing”, ranging from disclosure requirements on the workings of particular ETFs, to compliance functions and potential sources of systemic risk. The deadline for consultation is 27 June 2012.