1.1 This Consultation Paper (CP) sets out the Prudential Regulation Authority's (PRA) proposals to update the PRA's supervisory expectations for firms undertaking an Internal Capital Adequacy Assessment Process (ICAAP) in relation to the risks from contingent leverage, and to introduce a new data reporting requirement for collecting data on trading exposures where these risks may most likely arise. The proposals build on work done by the PRA, and the Bank of England more generally, in recent years to explore these risks.

1.2 Contingent leverage risks may arise from the use of certain forms of financing. Firms hold capital against these forms of financing under the leverage ratio framework, but there may be circumstances under which these trades are no longer or less available to firms, and firms have to replace them with trades that attract greater leverage ratio requirements. The proposals in this CP would help the PRA and firms better understand the significance of these risks, and better manage them should they materialise.

1.3 The proposals in this CP would result in changes to the PRA's Supervisory Statement (SS) 31/15 'The Internal Capital Adequacy Assessment Process (ICAAP)' (Appendix 1), the Reporting (CRR) Part of the Rulebook (Appendix 2), and the 'Instructions for reporting on leverage' (Appendix 4).

1.4 The policy proposals in this CP are:

- updates to the PRA's expectations of firms undertaking ICAAPs to introduce guidance on assessing risks from contingent leverage as part of their assessment of risks of excessive leverage; and