After the failure of its principles-based, light-touch approach to regulation, the Financial Services Authority is getting tough. By becoming the first major regulator to draw up liquidity rules early last month, the U.K. financial industry cop set a standard that until now had remained undefined — and placed itself directly in the firing line of the banking community.

"The anticipated costs of the new rules are continuing to rise and will clearly have an effect on overall business models," avers Steve Husk, who runs FRSGlobal, a Belgium-based risk management consulting firm. "We may need to ask at what point the illness is better than the medicine." ....

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