New CRD IV Liquidity rules are going to be a challenge for both small and large banks

New CRD IV Liquidity rules are going to be a challenge for both small and large banks

We are beginning to see some clarity for liquidity under CRD IV. The PRA have recently published a consultation paper CP27/14 and this is based on the EU Delegated ACT published on 10th October 2014.

So what does all this mean for Banks and Building Societies?

  • LCR reporting – the detail of COREP LC is an intricate reporting requirement and differs in complexity from the FSA 047 and 048. All banks need to produce BOTH and the PRA look like demanding the capability to report the LC daily. Firms will need to maintain reporting of FSA 047 and FSA 048 for up to two years after the introduction of the full suite of COREP liquidity returns in 2015.

  • LCR reporting is to become mandatory also for UK Branches of third country firms and UK designated investment firms.

  • Revoke BIPRU 12. This includes revoking the simplified ILAS regime and the requirement on firms to undertake standardised stress testing. Chapter 1.14 says the PRA recognises that the removal of the simplified ILAS modification will increase the compliance costs for those firms that previously benefited from it. Simplified ILAS firms such as small banks and building societies will also need to apply the same stress testing approach as other firms.

  • Carry forward the broad principles established in BIPRU 12 into the new regime.

  • Apply a transition to 100% LCR on 1 January 2018 in the following steps: an 80% requirement from 1 October 2015, rising to 90% on 1 January 2017. Table A at chapter 2.7 shows the PRA is applying higher percentages than the minimum path set down by Article 460 of the CRR.

  • Carry forward existing add-ons not covered in the LCR as the new Pillar 2 add-ons, until each firm’s next liquidity review.

  • Require that firms integrate fully the operational requirements outlined in Delegated Act Article 8.

  • Propose that if pre-positioned assets are not eligible for inclusion in the HQLA buffer, they cannot be used to meet the PRA’s quantitative liquidity guidance.

ALMIS is particularly well placed to assist firms meet these regulations. We have a completely automated approach to producing the LCR and NSFR from source data and this will be particularly valuable in helping firms meet the daily requirement. Our sticky rules table is highly configurable and can be set up to meet the exact requirements of the Delegated ACT. Also from the same source data firms can set up and run a whole series of idiosyncratic and market-wide stress test. All this can also be forward looking to firms can see what their LCR is in say 7 days’ time or what the stress tests might look like as a result of its business and financial plans.

For further information please visit or contact Jenna Haston to arrange a demonstration.

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