• Responsibilities of Governing Body

    • PRU 7.4.2 PRU 7.4.2

      (1) An Authorised Person must ensure that its Governing Body is responsible for monitoring the nature and level of Non-Trading Book interest rate risk assumed by the Authorised Person and the process used to manage that risk.
      (2) Without limiting the operation of (1), the responsibilities of an Authorised Person's Governing Body in respect of the risk include:
      (a) approving the Authorised Person's Non-Trading Book interest rate risk policy, including its strategy and management framework;
      (b) establishing and maintaining a senior management structure for the management of the risk and for ensuring compliance with the Authorised Person's risk strategy;
      (c) monitoring the Authorised Person's overall Non-Trading Book interest rate risk profile on a regular basis and being aware of any material changes in the Authorised Person's current or prospective profile; and
      (d) ensuring that Non-Trading Book interest rate risk is adequately identified, assessed, mitigated, controlled and monitored.

      • Guidance

        1. The Governing Body of the Authorised Person may delegate responsibility for establishing Non-Trading Book interest rate risk policies and strategies to the Asset and Liability Committee (ALCO) or an equivalent committee, which is the designated senior management committee for managing balance sheet structure and interest rate risk associated with it.
        2. An Authorised Person involved in banking activities or complex principal dealing activities should have a designated committee for design and implementation of Non-Trading Book interest rate risk management.
        3. An Authorised Person should establish and enforce operating limits and other practices that maintain Exposures within levels consistent with their internal policies and that accord with their approach to measuring the risk. In particular, Authorised Persons should set a limit on the extent to which floating rate Exposures are funded by fixed rate sources and vice versa to limit the risk. In floating rate lending, Authorised Persons should limit the extent to which they run any basis risk that may arise if lending and funding are not based on precisely the same market interest rate.