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The Actuary The magazine of the Institute & Faculty of Actuaries

FSA highlights risks of tougher environment

In January, the Financial Services Authority published its Financial Risk Outlook (FRO) warning firms and consumers of the risks inherent in a significantly less benign economic environment. Its central scenario identifies the following five priority risks:

1 Existing business models of some financial institutions are under strain as a result of adverse market conditions

2 Increased financial pressures may lead to financial firms shifting their efforts away from focusing on conduct of business requirements and from maintaining and strengthening business-as-usual processes

3 Market participants and consumers may lose confidence in financial institutions and in the authorities’ ability to safeguard the financial system

4 A significant minority of consumers could experience financial problems because of their high levels of borrowing

5 Tighter economic conditions could increase the incidence or discovery of some types of financial crime or lead to firms’ resources being diverted away from tackling financial crime.

The FRO focuses on the risks arising from the events of the second half of 2007 and the less benign economic outlook expected over the next 18 months.