Finalised FSA guidance for CEO’s on Asset Liability and Management

Financial Services Authority

The FSA have published a letter to CEOs setting out 'good practices' they observed during their asset and liability management ("ALM") examinations over the last year. In the letter, the FSA expand on those observed practices and set out some suggestions.

4 key themes of the letter are:

1. The role of the senior ALM committee. The FSA review draws out the core purpose of this committee, noting that, in many firms, the committee is also responsible for designing and implementing a funds-transfer pricing mechanism.

2. The composition and authority of the senior ALM committee. The FSA's view is that most effective senior ALM committees appear to be those that are routinely attended by the CEO and chaired by either the CEO or the CFO.

3. The forward-looking nature of, and decisions made by, the senior ALM committee. The FSA review highlights a focus on monitoring and commenting on the past rather than proactive management of the future.

4. The degree of challenge observed at the senior ALM committee. The FSA have found this hard to identify: they expect the minutes of ALM meetings to give non-attendees insight into the discussion and challenge that took place.

Date

January 2011