The FSA’s focus on outstanding confirmations and the involvement of senior management in risk management in the credit derivatives market is more than just scratching the surface of a substantial challenge. It’s a good example of a regulator modifying wider behaviour by targeting the straightforward issues first. The Joint Forum’s recommendations will provide a more wideranging test for the industry.

An uneducated reader of the FSA’s February 2005 letter to Chief Executive Officers, in respect of the risks inherent in the credit derivatives market, might be forgiven for thinking that the FSA had become fixated on cleaning the "pipework", or the operational processes which support these complex derivative transactions, while ignoring the real market risks which underlie them. Nothing could be further from the truth.

The growth of the credit derivatives market is truly phenomenal....

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