Collateral upgrade transactions and asset encumbrance: expectations in relation to firms' risk management practices

Legacy Supervisory Statement 2/13
Published on 01 April 2013

Update 24 September 2019: This Legacy Supervisory Statement (LSS) has been superseded. Insurers should refer to SS5/19 ‘Liquidity risk management for insurers’ . For all banks, building societies and PRA-designated investment firms, since publication of this LSS, the PRA has developed other frameworks which provide information akin to that received through this LSS, including its approach to Pillar 2 liquidity (see PS2/18 ‘Pillar 2 liquidity’ for more information).


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 , 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.

PDF Legacy Supervisory Statement 2/13 

Summary of the key issues

  • We expect firms to have adequate risk management process and controls to consider the following (non-exhaustive) list of risks and ensure appropriate mitigants are put in place: asset encumbrance; liquidity; collateral; operational (including legal); intra-group; and scale and concentration.
  • Any proposed significant transactions that are within scope should be notified to us well in advance of the execution date so the risks inherent in the proposed transactions can be assessed. We consider a transaction to be significant if it materially poses one or more of the risks.

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