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Home > Prudential Regulation Authority > Pillar 2 liquidity – CP13/17
 

Pillar 2 liquidity – CP13/17

13 July 2017

Background

This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA’s) proposals on a cashflow mismatch risk (CFMR) framework and other PRA methodologies for assessing firms’ liquidity risk, under the Pillar 2 liquidity (‘Pillar 2’) framework.

This CP also proposes updates to Supervisory Statement (SS) 24/15 and SS34/15, draft reporting rule changes, and a draft reporting template and instructions relating to CFMR.

In CP21/16, the PRA outlined the objectives of the Pillar 2 framework, its scope, and planned future work. It proposed a Statement of Policy (SoP) on its approach to three Pillar 2 risks: intraday liquidity, debt buyback, and non-margined derivatives. It also made proposals on the level of application of Pillar 2 and the PRA’s expectations relating to disclosure of Pillar 2.  This CP builds on those proposals.

Additionally, this CP:

  • seeks early views on aspects of the calibration of overall liquidity requirements which will be consulted on in a third CP; and
  • outlines how feedback on CP21/16 was taken into account.

This CP is relevant to UK banks, building societies and PRA-designated investment firms.

Summary of proposals

The PRA proposes:

  • to assess CFMR on both a consolidated currency and single currency basis;
  • that firms should survive throughout the granular LCR stress scenario on a consolidated currency basis;
  • to introduce a new liquidity reporting template (PRA110) to monitor CFMR;
  • 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 judgement;
  • 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; and
  • to assess liquidity systems and controls risks based on supervisory judgement of quantitative and qualitative issues.

Responses and next steps

This consultation closed on Friday 13 October 2017. Please send any comments or enquiries to CP13_17@bankofengland.co.uk.

The entry into force of the proposed survival guidance under the granular Liquidity Covering Requirement (LCR) stress will be linked to the implementation of the new PRA110 report proposed for 1 January 2019. The implementation of the new Pillar 2 methodologies is envisaged to commence in early 2018.

Consultation paper

Pillar 2 liquidity – CP13/17

Appendix 3 – draft reporting template and instructions:

Name
PRA110 Cash flow mismatch
PRA110 Cash flow mismatch (colour coded)
Instructions
 

 

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