PRA Consults on Methodologies for Assessing Pillar 2 Liquidity Risk
The PRA published a consultation paper (CP13/17) that sets out proposals on a cash flow mismatch risk (CFMR) framework and other PRA methodologies for assessing liquidity risk of firms, under the Pillar 2 liquidity framework. CP13/17 also proposes updates to the supervisory statements SS24/15 and SS34/15, draft reporting rule changes, and a draft reporting template and instructions related to CFMR. This consultation closes on October 13, 2017.
The PRA proposes to assess CFMR on both a consolidated currency and single currency basis and to introduce a new liquidity reporting template (PRA110) to monitor CFMR. The PRA also proposes:
That firms should survive throughout the granular Liquidity Covering Requirement (LCR) stress scenario on a consolidated currency basis
To collect the new liquidity reporting template on a weekly basis with a one-day remittance period for large firms, and a monthly basis with a fifteen day remittance period for small firms
To assess prime brokerage and matched book risks based on the LCR rates for secured transactions and supervisory judgment
To assess margined derivatives liquidity risks considering the firm’s historical initial margin posted and received, with a stress uplift applied
To assess securities financing margin liquidity risks based on the firm’s historical margin posted, with a stress uplift applied
To assess intragroup liquidity risk on a case-by-case basis, taking into account intragroup interconnectedness
To assess liquidity systems and controls risks based on supervisory judgment of quantitative and qualitative issues
The entry into force of the proposed survival guidance under the granular LCR stress will be linked to the implementation of the new PRA110 report proposed for January 01, 2019. The implementation of the new Pillar 2 methodologies is envisaged to commence in early 2018. This consultation builds on the earlier PRA proposals, particularly those in CP21/16, wherein the PRA had outlined the objectives of the Pillar 2 framework, its scope, and planned future work. PRA also proposed a Statement of Policy on its approach to three Pillar 2 risks: intraday liquidity, debt buyback, and non-margined derivatives. It made proposals on the level of application of Pillar 2 and the PRA’s expectations related to disclosure of Pillar 2. CP13/17 outlines how feedback on CP21/16 was taken into account and seeks early views on aspects of the calibration of overall liquidity requirements, which will be the subject of a third consultation. CP13/17 is relevant to UK banks, building societies, and PRA-designated investment firms.
Related Links
Reporting Template, PRA110 (XLSX)
Reporting Instructions, PRA110 (PDF)
Comment Due Date: October 13, 2017
Keywords: Europe, PRA, United Kingdom, Pillar 2, Liquidity Risk, Banking, Cash Flow Mismatch Risk, PRA110
Previous Article
ECB Publishes Paper on Developing Macro-Prudential Policy for AIFsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.