Liquidity: The PRA's approach to supervising liquidity and funding risks

Policy Statement 4/20 | Consultation Paper 27/19

Published on 2 March 2020

Liquidity: The PRA’s approach to supervising liquidity and funding risks - PS4/20

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 27/19 ‘Liquidity: The PRA’s approach to supervising liquidity and funding risks’ (page 2 of 2).

This PS also contains the PRA’s final policy, the updated Supervisory Statement (SS) 24/15 ‘The PRA’s approach to supervising liquidity and funding risks’ (Appendix 1). 

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

In October 2019, the Bank of England (Bank) published the Bank of England Market Operations Guide (Market Operations Guide), outlining the Bank’s framework for operations in sterling money markets (under related links). To reflect the Market Operations Guide and reiterate the relevant expectations set out in SS9/17 ‘Recovery Planning’, the PRA consulted on changes to SS24/15. As a result, the CP was published alongside the Market Operations Guide and the consultation closed on Sunday 17 November 2019.

In the CP, the PRA proposed that:

  • there should be no presumptive order in which firms should use the Bank’s liquidity facilities, including the Discount Window Facility (DWF), or draw down their own liquid asset buffers to meet a liquidity need. Firms would be expected to use their own judgement in applying for and using the Bank’s liquidity facilities. These proposals would align the view of the appropriate usage of Bank facilities in SS24/15 with the Market Operations Guide; and
  • the PRA’s expectations of firms set out in SS9/17 ‘Recovery Planning’ also apply with regards to the use of central bank facilities outlined in SS24/15. In particular, the proposals reiterated that recovery options should be credible, including where these involve use of central bank facilities.

Summary of responses

The PRA received three responses to the CP. Respondents generally welcomed the PRA’s proposals, while also requesting some clarifications and suggesting limited changes to the proposals. The details of these responses and the PRA’s feedback and final decisions are set out in Chapter 2.

Implementation

This policy comes into effect on publication of this PS. 

The policy set out in this PS has been designed in the context of the UK’s withdrawal from the European Union and entry into the transition period, during which time the UK remains subject to European law. The PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework at the end of the transition period, including those arising once any new arrangements with the European Union take effect.

The PRA has assessed that the policy would not need to be amended under the EU (Withdrawal) Act 2018 (EUWA). Please see PS5/19 ‘The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018’ for further details.

PDFPolicy Statement 4/20

Appendices

Appendix 1: Update to Supervisory Statement SS24/15 15 ‘The PRA’s approach to supervising liquidity and funding risks’


Published on 17 October 2019

Liquidity: The PRA's approach to supervising liquidity and funding risks - CP27/19

Overview

In this Consultation Paper (CP), the Prudential Regulation Authority (PRA) sets out proposals to update Supervisory Statement (SS) 24/15 ‘The PRA’s approach to supervising liquidity and funding risk’  (see Appendix) to reflect relevant updates to the Bank of England’s Market Operations Guide (Market Operations Guide) and to reiterate relevant expectations set out in SS9/17 ‘Recovery Planning’ . 

This CP is relevant to PRA-authorised UK banks, building societies, and PRA-designated UK investment firms, referred to collectively as ‘firms’.

Responses and next steps

This consultation closes on Sunday 17 November 2019. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to: CP27_19@bankofengland.co.uk

The PRA considers that a consultation period of one month is justified given the relatively minor impact of the proposed updates and the benefit of providing clarity to firms by aligning SS24/15 with the Market Operations Guide as soon as possible.

The proposals set out in this CP have been designed in the context of the current UK and EU regulatory framework. The PRA has assessed that the proposals will not be affected in the event that the UK leaves the EU with no implementation period in place.

Implementation

The PRA proposes that the draft amendments to SS24/15 (see Appendix) will apply from the date of final publication.

PDFConsultation Paper 27/19

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