The UK Financial Services Authority’s consultation paper on strengthening liquidity standards may have been launched with little fanfare, but the consequences will be far-reaching. Views are mixed as to whether it will be on the same scale as the markets in financial instruments directive, but there is no doubt that institutions overseen by the regulator will have to rethink their business models.

According to Laurence Mutkin, primary analyst at Morgan Stanley, the proposed liquidity regime is "revolutionary, not evolutionary". It represents one of the most significant shake-ups in banking regulation since the introduction of the Basel Capital Adequacy framework 20 years ago. The FSA proposes to add to existing banking regulations a new regime that will impose minimum liquidity requirements on all banks, building societies, investment firms and UK branches of certain overseas banks.