PRA Consults on Approach to Supervising Liquidity and Funding Risks
In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk. The updated SS24/15 will reflect relevant updates to the Market Operations Guide of BoE and to reiterate the relevant expectations set out in SS9/17 on recovery planning. The consultation closes on November 17, 2019, with PRA proposing to apply the draft amendments to SS24/15 from the date of final publication.
The updates to SS24/15 propose that there should be no presumptive order in which firms should use the BoE liquidity facilities, including the Discount Window Facility, or draw down their own liquid asset buffers to meet a liquidity need. Firms would be expected to use their own judgment in applying for and using the BoE liquidity facilities. The proposals align the view of the appropriate usage of BoE facilities in SS24/15 with the Market Operations Guide. The proposed updates to SS24/15 would also reiterate that where firms view central bank liquidity facilities, including at BoE, as part of the their liquidity risk management strategy, PRA would expect this to be included as part of the credible recovery options outlined in the firms’ recovery plans.
BoE also published its Market Operations Guide, which outlines the BoE framework for its operations in sterling money markets and updates the Sterling Market Framework (formally known as the Red Book). The Market Operations Guide reiterates that there is a presumption that banks and building societies that meet the PRA Threshold Conditions for authorization may sign up to the Sterling Market Framework and gain access to borrowing under the Sterling Market Framework against eligible collateral. It also notes that BoE does not consider that there is a presumptive order of usage between the Sterling Market Framework and a firm’s liquid asset buffers. CP27/19 proposes to update SS24/15 so that it aligns with the updated Sterling Market Framework as set out in the Market Operations Guide. CP27/19 is relevant to PRA-authorized UK banks, building societies, and PRA-designated UK investment firms, referred to collectively as firms. The proposals have been designed in the context of the current UK and EU regulatory framework. PRA has assessed that the proposals will not be affected in the event that UK leaves EU with no implementation period in place.
Related Links
Comment Due Date: November 17, 2019
Effective Date: Publication Date of Final Policy (Proposed)
Keywords: Europe, UK, Banking, Liquidity Risk, Market Operations Gide, Recovery Planning, CP 27/19, SS 24/15, PRA, BoE
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Related Articles
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA Finalizes Standards on Methods of Prudential Consolidation
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA Updates List of Other Systemically Important Institutions in EU
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities Welcome FSB Review of their Remuneration Regime
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA Letter on Addressing Risks from Use of Deposit Aggregators
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA to Amend Banking Act and Rules in Coming Months to Transpose CRD5
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC Delegated Regulation on Specialized Lending Exposures Under CRR
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI Proposes to Enhance Assurance Expectations for Basel Returns
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB Issues Results of Benchmarking Analysis of Recovery Plans of Banks
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.
