The UK’s Financial Services Authority is urging lenders to protect themselves against a possible worsening of liquidity and credit risks.

Speaking at the Council of Mortgage Lenders Annual Conference, Clive Briault, retail managing director of the FSA, said, “There is a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks.”

“Firms should therefore be assessing their funding and liquidity positions; undertaking robust stress testing to reflect current and prospective market conditions; reviewing and assessing their medium and longer term strategies and the options open to them; and considering contingency plans against the worst outcomes,” he added.

In his speech Clive Briault also announced that the FSA is to take an urgent look at whether lenders are complying with FSA rules and treating customers fairly in their practices for the handling of mortgage arrears and possessions.