The Financial Services Authority (FSA) has published a new discussion paper which addresses some of the changes to the regulation of trading activities.
It has been released following recommendations in the Turner Review after major material trading losses incurred during the financial crisis.
According to the regulator, a "robust, long-term approach" to prudential requirements for trading activities is a key area of regulatory reform, with the outcome of the BCBS's fundamental review the key to this.
Paul Sharma, FSA director of prudential policy, said there are "clear benefits" to be gained by those taking risks to facilitate a more efficient allocation of resources across the economy, as long as the risks are controlled.
However, he pointed out that the financial crisis demonstrated that an "over-reliance" on the principles of efficient financial markets can lead to severe consequences when risks are misunderstood.
"The balance needs to be redressed to ensure that risks posed to the system as a whole are more adequately reflected in the structure of prudential regulation," Mr Sharma added.
Posted by Tony Miller