Asset and liability management: suggestions for greater effectiveness

Legacy Supervisory Statement 1/13
Published on 01 April 2013

Background

From its commencement on 1 April 2013, the Prudential Regulation Authority (PRA) has adopted a number of legacy Financial Services Authority (FSA) policy publications relevant to the advancement of its objectives. This document, initially issued by the FSA in the form of a letter to firms on Senior asset and liability management committee practices FG11/03 in November 2010, has been adopted by the PRA as a Supervisory Statement as part of this process. The PRA may choose to review this legacy publication at a later stage.

The material covers risk management requirements in relation to liquidity and funding risk (BIPRU 12.3 and 12.4). Other areas discussed are interest rate risk (BIPRU 2.3) and senior management arrangements, systems and controls (SYSC).

PDF Legacy Supervisory Statement 1/13 

Summary of the key issues

  • The role of the senior ALM committee – drawing out the core purpose of this committee noting that, in many firms the function is also responsible for designing and implementing a funds transfer pricing mechanism.
  • The composition and authority of the senior ALM committee – the most effective senior ALM committees appear to be those that are chaired routinely by the CEO.
  • The forward-looking nature of, and decisions made by, the senior ALM committee – the review highlights a focus on monitoring and commenting on the past rather than proactively anticipating future issues.
  • The degree of challenge observed at the senior ALM committee – this was difficult to identify: we would expect the minutes of ALM meetings to give non-attendees insight into the discussion and challenge which took place.

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