UK Prudential Regulation Authority Publishes Second Consultation on Pillar 2 Liquidity

The UK Prudential Regulation Authority has published a consultation setting out its proposals on a cashflow mismatch risk (CFMR) framework and other methodologies it will use to assess firms' liquidity risk under the Pillar 2 liquidity framework.  CFMR is the risk that a firm has insufficient liquidity from liquid assets and other liquidity inflows to cover liquidity outflows on a daily basis.

The Capital Requirements Directive gives national regulators discretion to set additional Pillar 2 liquidity requirements. The Pillar 2 framework complements the Pillar 1 Liquidity Coverage Ratio requirements by capturing those liquidity risks that are either not captured or not fully captured under Pillar 1. The PRA has previously set out, in a consultation in May 2016, a non-exhaustive list of Pillar 2 risks. This consultation builds on the proposals in, and feedback received on, the May 2016 consultation and proposes updates to the Supervisory Statements "The PRA's approach to supervising liquidity and funding risks" and "Guidelines for completing regulatory returns".

A draft liquidity reporting template for CFMR, to be numbered PRA110, is included as part of the consultation. Feedback is requested on an amended version of the PRA's Statement of Policy "Pillar 2 Liquidity". This builds on the European Banking Authority's maturity ladder reporting template, which will apply from March 2018, by including additional columns and rows to capture additional information. The new PRA110 report will be implemented on January 1, 2019. The PRA proposes to terminate the old FSA047 and FSA048 returns at the same time as the PRA110 is implemented. There will be a period of overlap between the introduction of the EBA's ML template in March 2018 and the termination of FSA047 and FSA048 returns in January 2019. Any delay in implementation of PRA110 will also delay the termination of FSA047 and FSA048.

The consultation also seeks early views on the calibration of overall liquidity requirements, on which the PRA proposes to issue a third consultation early in 2018. Responses to the consultation are requested by October 13, 2017.

View the consultation paper (PRA CP13/17).

View the PRA's May 2016 consultation.