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July 13, 2017

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

CP13/17 (PDF)

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

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