PS26/21 | CP19/21 – Domestic Liquidity Sub-Groups

Policy Statement 26/21 | Consultation Paper 19/21

Published on 15 November 2021

Domestic Liquidity Sub-Groups - PS26/21

Overview

This Prudential Regulation Authority (PRA) Policy Statement (PS) provides feedback to responses to Consultation Paper (CP) 19/21 ‘Domestic Liquidity Sub-Groups’ (page 2 of 2). It also contains the PRA’s final policy, as follows:

  • amendments to the Glossary, Liquidity (CRR), and Internal Liquidity Adequacy Assessment Parts of the PRA Rulebook (Appendix 1); and
  • amendments to the Statement of Policy (SoP) ‘Liquidity and Funding Permissions’ (Appendix 2).

Where certain conditions are met on the availability, distribution, management, and monitoring of liquidity, the Capital Requirements Regulation (CRR) allows the PRA to waive the application of liquidity requirements at the level of an individual firm and to permit a firm to form a Domestic Liquidity Sub-Group (DoLSub). Those requirements include the Liquidity Coverage Ratio (LCR), liquidity risk management, monitoring, reporting, and disclosure. Where a DoLSub permission is granted, PRA requirements apply at the level of a DoLSub on the basis of the consolidated situation of its members, rather than applying to member firms individually. This reflects the ability of some firms to manage their liquidity jointly with other entities, as if they were a single entity. HM Treasury will revoke this provision from Saturday 1 January 2022.

This PS is relevant to PRA-authorised UK banks, PRA-designated UK investment firms, and building societies (hereafter known as ‘firms’). It is also relevant to UK financial or mixed financial holding companies that are immediate parent undertakings of firms that may be included in a DoLSub. It is not relevant to credit unions.

The purpose of the rules on DoLSubs is to ensure that liquidity requirements are sufficiently prudent and proportionate when applied at the level of a DoLSub, where certain conditions are met.

The PRA considered the interaction between its primary and secondary objectives and the ‘have regards’, including in relation to international standards, relative standing of the UK, and finance for the real economy. Overall, the PRA considers the final policy to be necessary and appropriate to enhance the proportionality of the PRA’s regulatory regime while maintaining firms’ safety and soundness.

Summary of responses

The PRA received seven responses to the CP. Respondents were generally supportive of the PRA’s proposals, but raised a number of concerns and requests for further clarification, which are set out in Chapter 2 of the PS.

Implementation

The implementation date for the policy changes resulting from this PS will be Saturday 1 January 2022. This policy is intended to take effect at the same time as HM Treasury’s revocation of the relevant parts of the CRR.

HM Treasury did not implement a savings provision for LCR DoLSub permissions that are currently in force or would enter into force before the Net Stable Funding Ratio (NSFR) implementation date of Saturday 1 January 2022. This means that DoLSub permissions in existence before Saturday 1 January 2022 that disapply the LCR requirements at an individual level would not continue to apply after that date. 

The PRA expects firms to apply formally for LCR and NSFR DoLSub permissions at the earliest opportunity under the final revised DoLSub framework included in this PS. All applications will be assessed under the final revised framework, and permissions will take effect from Saturday 1 January 2022. 

References related to the UK’s membership of the EU in the SoP covered by the policy in this PS have been updated as part of this PS to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.

Policy Statement 26/21

Appendix


Published on 28 September 2021

Domestic Liquidity Sub-Groups - CP19/21

Overview

This Consultation Paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposed rules in respect of the application of prudential liquidity requirements to Domestic Liquidity Sub-Groups (DoLSubs). It also includes proposed revisions to the PRA’s approach to granting a DoLSub permission.

Where certain conditions are met on the availability, distribution, management, and monitoring of liquidity, the Capital Requirements Regulation (CRR) allows the PRA to waive the application of liquidity requirements at the level of an individual firm and to permit a firm to form a DoLSub. Those requirements include the liquidity coverage ratio (LCR), and liquidity risk management, monitoring, reporting, and disclosure. Where a DoLSub permission is granted, PRA requirements apply at the level of a DoLSub on the basis of the consolidated situation of its members, rather than applying to member firms individually. This reflects the ability of some firms to manage their liquidity jointly with other entities, as if they were a single entity. HM Treasury will revoke this provision from Saturday 1 January 2022.

This CP sets out the PRA’s proposal following its further consideration of the conditions for DoLSubs. This CP would result in changes to the Liquidity (CRR) Part of the PRA Rulebook (Appendix 1) and the Statement of Policy (SoP) ‘Liquidity and funding permissions’ (Appendix 2).

This consultation is relevant to PRA-authorised UK banks, PRA-designated UK investment firms, and building societies (hereafter known as ‘firms’). It is also relevant to UK financial or mixed financial holding companies that are the immediate parent undertakings of firms that may be included in a DoLSub. It is not relevant to credit unions.

Implementation

The PRA proposes that the implementation date for the changes resulting from this CP would be Saturday 1 January 2022, with finalisation of the rules taking place in November 2021.

Responses and next steps

This consultation closes on Tuesday 12 October 2021. The PRA invites feedback on the proposals set out in this consultation. The PRA would also welcome firms’ views on whether there are any significant practical implications of the proposed approach to DoLSubs that the PRA has not identified. Please address any comments or enquiries to CP19_21@bankofengland.co.uk.

References related to the UK’s membership of the EU in the SoP covered by this CP have been updated as part of these proposals to reflect the UK’s withdrawal from the EU. Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.

Consultation Paper 19/21

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