LONDON, Nov 2 (Reuters) - Clashes between banks and supervisors over the drafting of "living wills" appear inevitable, Britain's top market watchdog said on Monday.
Regulators are introducing a raft of new capital, liquidity and accounting rules between now and the end of 2012 to make the financial system safer and lessen the need for more huge government bailouts in future as seen in Britain.
Financial Services Authority Chief Executive, Hector Sants, said not all systemically important firms recognise they need to consider a root and branch review of their business models.
Banks will have to draw up contingency plans or living wills so they can be wound down quickly if they get into trouble to minimise disruption to markets.
"We recognise that a firm's planning for its own demise will be a challenge," Sants told an FSA conference.
Later this year the watchdog will publish its policy on the stress testing that will be required to draw up living wills. The FSA has said that if a contingency plan is unworkable, it would mandate simplifying a bank's structure.
"Nevertheless, my forecast is that at least initially, there may well be a mismatch between firms' views as to the details and substance required compared to the view of supervisors," Sants said.
"My expectation is thus that the sign off process will involve a significant degree of challenge from both parties," Sants said.
Josef Akermann, chairman of Deutsche Bank's management board, said living wills will be very theoretical and lead to inefficient structures.
Sants said a small number of big UK banks will be participating in a pilot scheme for living wills with first drafts at the turn of the year. (Reporting by Huw Jones, editing by Ron Askew)