On July 21, the FSA issued proposed guidance on liquidity swaps, requiring firms participating in such transactions to inform the FSA before execution under PRIN 11.  The proposed guidance also provides the basis of the FSA's Pillar 2 assessment of liquidity swap transactions, including: (i) assessing the risk management systems of the firms engaging in the transaction; (ii) the exit strategy of a firm in the event of a counterparty default; and (iii) the level of asset encumbrance resulting from the liquidity swap.  Comments must be submitted by September 21.  FSA ReleaseFSA Proposed Guidance.