FSA to review Clearing houses

risk management governance and organisational structure, as the UK financial regulator seeks to cut the risks they pose to the financial system, reports Bloomberg.

The UK Financial Services Authority (FSA) is looking into the model that central counter parties use to calculate the funds traders must give them as a buffer, the regulator said on its Web site.

The FSA, which previously said it will adopt “a more intrusive approach” is reviewing credit risk management practices at central counterparties as their use grows. Scrutiny of clearinghouses has mounted even as European and US regulators promote greater transparency in the over-the-counter derivatives market.

The FSA said that the review will focus on risk management governance and control framework, initial margin models, variation margin calculation, default funds, wrong way risk and concentration risk, collateral and validation and back testing, states Financial Times Advisor.

As part of the consultation the FSA said it is seeking views on whether the areas identified are the key areas for consideration in the management of counterparty credit risk.

It added that it was seeking to establish whether respondents agree that the issues that the FSA has outlined are important components of counterparty credit risk management and therefore that they support an assessment of compliance.