Asset encumbrance

Policy Statement 18/20 | Consultation Paper 24/19

Published on 27 July 2020

Asset encumbrance – PS18/20

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 24/19 ‘Asset encumbrance’. It also contains updated versions of:

This PS is relevant to all PRA-regulated firms, except credit unions and insurance firms.

Summary of responses

The PRA received two responses to the CP. Respondents generally welcomed the PRA’s proposals, and requested that the PRA clarifies its proposed expectations and concepts in the CP. The PRA addresses these points in Chapter 2.

Having considered the responses, the PRA has made the following changes to the draft policy in SS20/15:

  • paragraph 4.163 to reflect that ‘market counterparties’ does not refer to central banks; and
  • paragraph 4.91 to reflect that the PRA will expect that building societies have an ‘appropriate’ forward view of collateral available; not a ‘comprehensive’ one.

The PRA considers that these changes are not significant, and remove the potential for ambiguity.

Implementation

The policy presented in this PS will become effective from the date of publication on Monday 27 July 2020.

The policy set out in this PS has been designed in the context of the UK’s withdrawal from the European Union and entry into the transition period, during which time the UK remains subject to European law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect.

The PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details.

PDFPolicy Statement 18/20 

Appendices


Published on 30 September 2019

Asset encumbrance - CP24/19

Overview

In this consultation paper (CP), the Prudential Regulation Authority (PRA) sets out its proposed expectations of firms when managing the key prudential risks associated with asset encumbrance, specifically in the contexts of managing liquidity and funding risks, recovery planning, and resolution. The PRA’s proposed expectations relate both to firms’ internal monitoring and management of these risks, and to the information that firms are expected to provide to the PRA through their periodic regulatory submissions, eg Internal Liquidity Adequacy Assessment Process (ILAAP) documents and recovery plans.

This CP is relevant to all PRA-authorised firms, except credit unions and insurance firms.

The proposals relate to expectations on firms’ compliance with specific aspects of existing PRA rules, namely those in the Internal Liquidity Adequacy Assessment (ILAA), Recovery Planning, and Resolution Pack Parts of the PRA Rulebook. The PRA would give effect to the expectations proposed in this CP by way of amendments to the following Supervisory Statements:

Responses and next steps

This consultation closes on Friday 17 January 2020. The PRA invites feedback on the proposals set out in this consultation. Please send any comments or enquiries to CP24_19@bankofengland.co.uk.

The PRA will keep its proposed approach and policy under review to assess whether any adjustments are required, including in light of the planned introduction of the Net Stable Funding Ratio (NSFR) standard. In particular, the PRA will monitor the quality of information provided by firms in their ILAAP documents, recovery plans and, for applicable firms, as part of their assessments of their preparations for resolution, to ensure it is sufficient to meet the expectations set out in these proposals.

The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place. In the event that the UK leaves the EU with no implementation period in place, the PRA has assessed that the proposals would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). 

Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details. The draft amendments to SSs attached to this CP should also be read in conjunction with SS1/19 ‘Non-binding PRA materials: The PRA’s approach after the UK’s withdrawal from the EU'.

PDFConsultation Paper 24/19

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