UK Prudential Regulator Launches Consultation on Supervision of Liquidity and Funding Risk

The U.K. Prudential Regulation Authority has launched a consultation on proposed amendments to its Supervisory Statement, “The PRA’s approach to supervising liquidity and funding risk”. The amendments are intended to clarify the appropriate use of the Bank of England’s liquidity facilities and the credibility of recovery plans that rely on such facilities.  The amendments are intended to reflect updates to the Bank of England’s Market Operations Guide relating to the Bank’s Sterling Monetary Framework and to reiterate expectations about the use of central bank liquidity facilities described in the PRA’s Supervisory Statement, “Recovery planning”. The consultation is relevant to PRA-authorized U.K. banks and building societies and PRA-designated U.K. investment firms. Responses to the consultation should be submitted by November 17, 2019. The PRA does not believe the proposals will be affected by a no-deal Brexit.

The BoE’s Sterling Monetary Framework determines how the Bank operates in the sterling money markets, and includes the terms governing the Bank’s Discount Window Facility, which allows firms to borrow highly liquid assets from the Bank in return for other assets to be held as collateral. The PRA intends to clarify its view of the appropriate use of such facilities in its Supervisory Statement, in particular that the PRA does not consider there is a presumptive order in which firms should use any such funds as opposed to drawing down on their liquidity buffers. The PRA also proposes to stress that firms should adopt credible recovery plans, including where those involve the use of central bank facilities, and should consider the operational aspects of their plan for accessing such facilities.

View the PRA's consultation paper.

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