PRA Releases PRA110 LMM Tool Under Pillar 2 Liquidity Framework

By Regulatory News

May 31, 2019

Basel Liquidity Compliance

PRA published Version 1 of the PRA110 liquidity metric monitor tool (PRA110 LMM tool), as part of its work on the Pillar 2 liquidity framework. It is for information only and must not be used to submit regulatory returns required by the rules. This tool is designed to demonstrate some of the metrics PRA calculates using the information from PRA110.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

Related Links

Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

The PRA110 LMM tool may be updated after the publication of the final policy, following the finalization of the consultation (CP6/19) on updates to the Pillar 2 liquidity framework, if required, to align with an updated PRA110 reporting template. PRA110 LMM tool is being published to assist firms in the same way as the liquidity metric monitor (LMM) for FSA047 and FSA048.

Implementation of PRA110 and commencement of dual reporting period with FSA047 and FSA048 will begin on July 01, 2019. During the dual reporting period, the LMM tool for FSA047 and FSA048 will continue to apply. Firms are advised to continue to familiarize themselves with the policy, template, and instructions. Firms are also reminded to refer to the most recent questions and answers (Q&As) on the template and instructions and submit any questions that are not covered to their PRA supervisor.

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Keywords: Europe, UK, Banking, Reporting, Pillar 2 Liquidity, PRA 110, Q&A, PRA 110 LMM Tool, FSA047, FSA048, Liquidity Risk, PRA

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PRA Releases PRA110 LMM Tool Under Pillar 2 Liquidity Framework

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