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    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    October 17, 2019

    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.

     

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    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

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