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
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs Publish Reporting Templates for Financial Conglomerates
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA Publishes Report on Asset Encumbrance of Banks in EU
EBA published the annual report on asset encumbrance of banks in EU.
MAS Revises Guidelines on Technology Risk Management
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA Proposes Guidelines for Establishing Intermediate Parent Entities
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HMT Updates List of Post-Brexit Equivalence Decisions in UK
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
