FSA Guidance consultation: Liquidity swaps (GC11/18)

The FSA has opened a guidance consultation on liquidity swaps. The consultation arose in response to the increasing trend of banks seeking to access liquidity embedded within asset portfolios held by insurers by entering into various transactions which the FSA collectively refers to as "liquidity swaps".

The proposed guidance addresses the following key issues:

(i) Wrong-way risk: use of own-issued or own-originated securities as collateral;

(ii) Limit structures: interdependencies between micro-prudential and macro-prudential risks;

(iii) Intra-group transactions: conflicts of interest; and

(iv) Pillar 2 considerations and capital.

The consultation period closes on 21 September 2011.