Dear Delegate,

Financial regulators and supervisors face an unprecedented workload.

In April this year, the Financial Stability Forum made 67 recommendations for action by regulators and supervisors (as well as market participants) and many of these will have to be addressed at national levels.

Recent events have further made clear that authorities must not only pay attention to systemically important ‘too big to fail’ institutions, but also to those institutions too interconnected to fail.

Yet while the crisis grabs the headlines, financial institutions are busy adopting the new Basel II capital accord and supervisors around the world are struggling to put in place the risk-based supervision framework that is required. Indeed, prompt implementation of Basel II has emerged as a key regulatory response to the crisis.

In addition, the continued proliferation of highly-levered hedge funds in global capital markets, the dramatic growth of international remittance flows and the promises and challenges of Islamic finance all pose new regulatory questions.

For some this will mean asking uncomfortable questions about the regulatory framework and how it is implemented. Demands and pressures on financial regulators and supervisors have rarely been greater.

This makes it all the more important to take a moment to pause, meet together in a unique informal and confidential roundtable format and discuss how some of the common challenges being thrown up by this evolving environment can be met.

The 2008 financial regulation seminar is designed to help supervisors to do just this. It brings together a world-class panel of regulators, academics and practitioners to evaluate the changing demands on financial-market authorities and asks how those charged with regulating can rise to meet them.

This is the tenth year in which Central Banking Publications Ltd, publisher of The Financial Regulator journal, has hosted a seminar series in Cambridge. Already, more than 1,500 public sector officials from over 110 countries have benefited these meetings at this and other venues. I look forward to welcoming you to Cambridge on 26 August.

Yours sincerely,

Robert Pringle
Managing Director, Central Banking Publications Ltd

Crisis response
Led by the chairman Kern Alexander

Regulatory lessons from Northern Rock
Simon Morris
Partner, Financial Services, CMS Cameron McKenna

A lack of effective and timely communication between the Financial Services Authority, Bank of England and UK government was one of the key causes of the Northern Rock collapse. In this session, the speaker will consider why this failure of the tripartite system occurred and will look at what lessons regulators can learn. Discussion will focus on the specific steps regulators can take to improve controls and tackle resource shortages in their institutions.

Basel II and capital adequacy requirements for complex structured credit products and off-balance-sheet activities
Olivier Prato
Head of International Affairs Department, Commission Bancaire (invited)

That the credit crunch will have profound implications for regulation is beyond doubt. Already, the Basel Committee has announced enhancements to Basel II, establishing higher capital requirements for certain complex structured credit products. The committee also plans to strengthen the capital treatment of liquidity facilities extended by banks to support off-balance-sheet vehicles. This session will look at what these changes will mean in practice for regulators and discuss the direction reforms may take.

Designing a framework for deposit insurance
Thorvald Grung Moe
Senior Economist, Norges Bank (invited)

In the UK, the run on Northern Rock highlighted the problems with the country’s deposit insurance scheme. For regulators, the focus must be on how to design a regime which protects consumers but does not lead to moral hazard. Here, a critical element is the regime for dealing with insolvent institutions and this session, led by a speaker from America’s FDIC, will discuss questions of who should administer the scheme, its funding and coverage.

Transparency, disclosure, accounting and valuation rules for banks
John Tattersall
Special Advisor for Policy, Federal Deposit Insurance Corporation (invited)

Partner and Chairman, Financial Services Regulatory Practice, PricewaterhouseCoopers LLP Could greater transparency and disclosure of structured products have prevented the credit crunch? Did mark-to-market (or fair value) accounting help fuel the credit bubble and then catalyse its collapse? This session considers how authorities can improve the accounting and disclosure standards for off-balance-sheet vehicles and improve the valuation of complex or illiquid securities. Discussion will also touch upon issues of pro-cyclicality in accounting standards and how regulators can tackle this challenge.

Regulation of credit rating agencies
Lord John Eatwell
Director of the Centre for Financial Analysis and Policy, Judge Business School, University of Cambridge

Credit ratings and rating agencies’ business models and practices have been heavily criticised as a result of the recent market turmoil. Charges that they failed to warn investors about the risks of investing in complex securities have led many to call for increased scrutiny and supervision. Regulators are now considering the design of rules to address potential conflicts of interest, to step up the competition among agencies and to clearly differentiate between structured products and corporate bonds ratings. This session will examine how a regulatory framework for credit rating agencies might be developed and implemented in practice.

Adapting Basel II to national circumstances
Daniel Sigrist
Head of Risk Management Group, Swiss Federal Banking Commission

Should banking supervisors tailor implementation to national conditions? Like other members of the Basel committee, Switzerland is not incorporating all the approaches suggested in Basel II into its regulation. Approaches for IRB and operational and market risks are adopted from Basel II in unmodified form. However, Switzerland is additionally planning to give banks more flexibility while preventing distortions of competition at national level. The speaker will discuss the preparations and processes that the Swiss authorities have made for the Basel II accord and the rationale for banking supervisors to adjust implementation to national circumstances.

Risk measurement and Basel II
Georg Junge
Managing Director, Credit & Country Risk Controlling, UBS AG

The current turmoil has underscored the significance of risk management. With Basel II becoming effective in 2008, most international banks have adopted their risk models and capital calculation programmes, but unresolved questions and challenges remain. National supervisors must ensure that risk management is sufficiently forward-looking and take careful account of uncertainties associated with credit risk models. They must also make certain that institutions apply firm-wide stress tests. This session highlights Basel II implementation challenges for both banks and supervisors.

Focus on Pillars II and III
Charles Freeland
Former Deputy Secretary General of the Basel Committee

How can supervisory response and market discipline most effectively be operationalised with Basel II implementation? Each jurisdiction faces a variety of challenges in linking corporate governance or risk management standards to the Basel II criteria. Yet it is far from straightforward for supervisors to implement this in practice. In this session, a specialist in Basel II requirements will identify key issues for supervisors.

Workshop on Basel II implementation
Kern Alexander
Charles Freeland

This session will take a look at the stages of Basel II implementation in delegates’ home countries. Drawing on case studies presented by participants, this session will explore the critical issues now coming to the fore regarding supervisory coordination, as well as questions of data needs.

Hedge funds, trusts and corporate vehicles
Richard Pratt
Richard Pratt & Partners and former Director General, Jersey Financial Services Commission

The regulation of hedge funds, trusts and corporate vehicles poses particular challenges for financial supervisors. However, there is little consensus on the best regulatory approach. This process must begin with a careful analysis of the risks which these entities pose. Offshore centres like Jersey have been at the forefront of tackling this kind of issue, and Richard Pratt (who until recently led Jersey’s regulatory commission) here details how UK offshore centres have approached the problem.

Supervisory challenges of Islamic finance
Hamid Yunis
Partner, Finance & Projects Department, TaylorWessing

Recent years have seen an upsurge in the issuance of and interest in Islamic financial products in markets around globe – the UK government plans to issue its own government Islamic bond in the near future, for instance. For regulators, the challenge is that compliance has to be shared by the law of the jurisdiction in question and sharia. Some compliance criteria that conventional supervision prescribes are shared by sharia, including risk management, disclosure and competitive pricing. Yet supervisors need to agree on the standardisation of models used, terminology, supervisory response, and a code of good practice. In this session, an expert on Islamic finance discusses the latest developments in this area.

Remittances and mobile payments
Dominic Peachey
Senior Policy Advisor, Financial Services Authority

Officially recorded remittances to developing countries exceed $200 billion annually. Unrecorded transfers through informal channels dwarf this figure. The remittance industry has recently seen the introduction of cell phone-based remittances that have large potential to extend services to millions of people in remote rural areas. There is however a striking lack of clarity on key regulations. The challenge for financial authorities is to design regulatory regimes that minimise money laundering, terrorist financing, and general financial abuse, without increasing remittance costs. This session considers a range of practical approaches to tackling this.

Course round-up
Led by the chairman Kern Alexander

This final session provides the group with an opportunity to pull together key themes and issues from the course. Delegates will be asked to review the week’s discussions and encouraged to formulate conclusions into an action plan to take back to their home institutions.