PRA 110: Liquidity reporting goes up another level …

The build up

First, there was the FSA 047/048. In late 2009, in a prompt response to the downturn, the FSA introduced a tough new liquidity regime including significantly enhanced liquidity reporting requirements, focused on detailed mismatch ladder analysis, which were to be phased in over a period. During 2010 most banks began submitting, amongst others, the 47 and 48 which cover Daily Flows and Enhanced Mismatch Reporting respectively.

Next came the C66, which had its origins in a 2013 Basel Committee paper: “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools”. That paper provided detail on certain ‘Additional Liquidity Monitoring Metrics’ including the contractual maturity mismatch. In the European context the EBA’s response resulted in a series of new COREP ALMM returns including, after some delay, the ALMM C66 (Maturity Ladder) which was eventually introduced earlier this year. Bringing in a variety of new requirements, the C66 took liquidity reporting to a new level of complexity.

But now the UK banking market faces up to the prospect of a whole new dimension…

PRA 110

Banks will generally be required to populate and submit the PRA 110 from July 2019, but some firms will be submitting on an interim basis from November this year. Replacing the FSA 047/048 (save during interim reporting), and built upon the C66 but extending it significantly, the PRA 110 takes the levels of granularity and data requirements to yet another level. Indeed there is criticism from some that the UK regulator is trying to ‘gold plate’ standards already agreed at the European level. Some innovations/key features included within the return include the following:

  • Includes behavioural & contractual cash flows
  • Shows a counter-balancing section with market value of the firms capacity to generate cash through selling securities or using bank facilities, and this includes a line for reporting eligible collateral for that purpose
  • More detailed section on contingent flows
  • Lots of granularity around levels of stable funding and the quality of assets and collateral
  • Details on the implications of derivative positions, including contingent flows in times of market stress
  • Includes impact of monetisation actions
  • Has LCR weights and blended weights, so can be reconciled back to the LCR
  • More frequent reporting

A solution

This level of complexity makes automation of this particular new return look essential and a solution combining liquidity and regulatory reporting increasingly attractive.

At ALMIS International we have many years experience in supporting clients’ compliance with increasingly complex prudential regulatory reporting requirements. Our futureproof assurance means clients will always enjoy the benefit of autopopulated solutions for their prudential reporting requirements. So as before with the FSA 047/048 and then the C66, we will be delivering an autopopulated solution to the PRA 110. Work is already well underway to provide this solution, initially to those clients who will be submitting from November on the interim basis.

If you would like more information on the ALMIS® Regulatory Reporting software, please contact:

Cameron Stephen
Sales & Marketing
0131 452 8898

Colin Johnson joins ALMIS International as Non-Executive Director

ALMIS International is delighted to announce the appointment of Colin Johnson to its board as Non-Executive Director.

Colin is the Head of Prudential Risk for Charter Court Financial Services, a fast-growing challenger bank, with Risk responsibility across Liquidity, Interest Rate and Capital. He was previously the Chairman of UK ALMA, an industry wide association covering the ALM risks across the UK Banking and Building Society sectors. Colin has also worked in senior roles within Santander UK and Lloyds Banking Group, having previously spent 10 years managing Treasury, ALM and liquidity issues within the Building Society Sector.

ALMIS International CEO and Founder Joe Di Rollo commented: “Asset Liability Management remains the core of our offering, so bringing someone like Colin onto our Board is a great step forward for us …”


David Sinclair, Aberdeen Standard Investments, remains on the board as a Non-Executive Director. David is a Chartered Management accountant and MBA. David has broad financial and general management experience in a number of sectors including IT, publishing and financial services. Commercially-focused, recent roles have incorporated finance business partnering and support and board-level reporting.

About ALMIS International

ALMIS International, founded in 1992 by Joe Di Rollo, identified the need for an Asset Liability Management system to calculate total balance sheet interest rate risk. Since then, the ALMIS® system has been developed into a comprehensive, flexible and regulatory compliant software solution covering; Margin Management, Market Risk, Liquidity, Financial Planning, Capital Adequacy, Hedge Accounting and Regulatory Reporting.

For further enquiries please contact

Cameron Stephen by email or call on 0131 452 8898.

Route C66: another leg of the journey

Liquidity: the increasing reporting burden
UK banks’ travels on the liquidity reporting journey continue with the imminent official start, after a few false starts, of the maturity ladder Additional Liquidity Monitoring Metric (C66) and the PRA 110 looming over the horizon …..
It was in January 2013 the BCBS issued a paper entitled ‘ Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools‘. That was an early regulatory step on the journey towards today’s C66. It provided some detail on the various Additional Liquidity Monitoring Metrics including the contractual maturity mismatch; and looking back now that initial guidance looks reasonably concise
and manageable. The finalised C66, required monthly or (depending on the relevant bank satisfying certain tests) quarterly from 31 March, is a long way from that original BCBS paper: much more granularity is required. And of course the PRA 110, the introduction of which is now delayed till 1 July 2019, will continue the trend by expanding the data requirements yet again…..

C66: significant in two ways
The C66 is significant in itself as a complex new return. For example some new/key points include the following: –
– unlike the FSA 047/48 the C66 requires the inclusion of contractual interest cash flows
– behavioural cash flows are included (as a Memorandum Item)
– a requirement to calculate the maturity profile of lending which is eligible collateral (in order to include the appropriate amount of collateral in the Counterbalancing Capacity section)

The C66 is also significant as the basic building block on which the proposed PRA 110 is built. That PRA return takes nothing away from the C66 but adds to it. So for example the PRA 110 includes more time periods, more rows (requirements for example for more granularity on retail deposits), some more sections etc.

Webinar feedback
At ALMIS International we are familiar with this sort of complex and onerous regulation, and are committed to developing and delivering appropriate solutions. One of our current priorities is therefore working with clients to help achieve autopopulation of the C66. Against that backdrop we recently held a webinar in which we discussed how to populate the return, discussed some opinions over interpretation of the relevant standards , and asked if the report will assist firms with their day to day liquidity management. The industry focus on the topic was well illustrated by the very high participation from banks and building societies (140 registered delegates). A poll conducted amongst participants during the webinar revealed that just over 80% of participants felt the C66 maturity ladder is at least to some extent a useful report to help a Bank/Building Society monitor and manage liquidity requirements (23% indicated very useful).

Founder and CEO of ALMIS International Joe Di Rollo commented: “… the C66 is the most complex liquidity report so far, and the delay on the PRA 110 is helpful. But whilst the data requirements are quite painful our webinar poll tends to confirm the view that if that data is properly interpreted it should help with the practicalities of managing and optimising bank liquidity positions both short and longer term…”
Several other new reporting requirements also now start to apply: many banks are required to report FINREP for the first time, new requirements as regards the reporting of information on sovereign exposures are introduced and the requirements as regards reporting on operational risk are changing. Whatever your organisation’s view of the C66 and the other new returns may be, the journey continues ….

UK banking prudential regulatory reporting: the relentless grind…

The financial crisis which broke in 2007/08 generated an unprecedented explosion of banking regulation. Some commentators and politicians (esp US) are now arguing its time to deregulate again. Whatever the merits of that debate, there’s little respite yet here in the UK for the banking sector. Amongst other things the flow of new regulatory reporting requirements continues and the volume of data reported increases relentlessly. The typical UK bank today has the following new reporting developments to contend with over the near future:

Additional Liquidity Monitoring Metrics : the Liquidity Coverage Ratio (LCR) formed a core part of the post crisis regulatory response on liquidity. The ALMMs are a series of regulatory tools introduced in April 2016 and designed to complement the supervision of an institution’s liquidity risk by means of the LCR. Each ALMM takes the form of a detailed return on aspects of the bank’s liquidity position the bank is required to populate with data and submit to the regulator on a periodic basis. One particular return – the maturity ladder – which was originally considered but excluded from banks’ reporting requirements when the ALMMs were introduced is now being introduced in an adjusted form (designed to align with the LCR). Banks will be required to submit this new return (the C66) from March 2018.

Pillar 2 Liquidity Framework: the prudential banking regulatory framework divides into three Pillars. In the liquidity context the LCR is one of the cornerstone regulatory requirements and currently forms Pillar 1. The Pillar 2 framework is intended to complement the Pillar 1 regime by considering liquidity risks not captured, or not fully captured, under Pillar 1. The UK’s domestic prudential banking regulator the PRA is currently putting the UK Pillar 2 liquidity framework in place, using a series of consultation papers to drive the debate. In the latest, CP 13/17, the PRA has focused on cashflow mismatch risk and proposed it monitors this risk by means of a new reporting requirement- the PRA110. The proposal is that this return will build on the C66, requiring certain additional liquidity data on a daily basis over a 92 day period. The PRA is targeting 1 January 2019 for implementation of this new reporting requirement.

Capital+ : the PRA is proposing the formal introduction into the regulatory framework of a regulatory return providing forecast capital data, the ‘Capital+’. This return will collect ‘actual data’ ie estimates of capital data for the most recent reference period and also firms’ own forecasts. The data definitions in this return are aligned with various COREP templates eg Own Funds CA1. There are three different versions of this return, PRA 101,102 and 103. A firm will only submit one of these three returns, which one is decided by rules intended to apply some proportionality into the framework. So for example the largest deposit takers would report actual and forecast data on a monthly or quarterly basis using the PRA101, whereas the smallest firms would report forecasts only on an annual basis using the PRA103. This particular requirement started to apply on 1 October this year.

Forecast Balance Sheet and P&L: the PRA has issued new proposals on reporting forecast balance sheet and P&L. The proposal is to require firms to provide business plan forecasts for their current financial year-end and the following year-end in four new regulatory reports: PRA104 – PRA107. These new reporting requirements apply from 1 January next year, reporting to be on a half yearly basis.

FINREP: in 2013 the CRDIV EU legislative package introduced a new EU-wide supervisory reporting framework for Financial Reporting (FINREP) and Common Reporting (COREP). All PRA authorised banks and building societies are required to comply with COREP reporting obligations. Many firms have however to date avoided the need to comply with FINREP reporting (which is extensive). From 1 January next year that is about to change:-

  • All firms which have not previously been required to complete FINREP reports will now have to report at least a minimum suite of 5 FINREP returns providing data on the firm’s balance sheet, its P&L and Statement of Comprehensive Income. This data will be collected quarterly, at both individual and consolidated group level.
  • Some additional FINREP reporting requirements will result from the introduction of IFRS 9 on 1 January next year. These proposals will apply both to firms that apply IFRS generally and also to those which apply IFRS 9 as part of UK GAAP. Depending on the firm’s circumstances a firm in scope will require to submit a further 12 or 6 FINREP returns providing data on credit quality (including arrears and impairments).

Several of these new returns replace old/outgoing returns, so they are not all completely additional. Nevertheless, the pace of change is demanding on reporting firms, autopopulated software solutions look increasingly essential, and of course the cost of compliance continues to rise inexorably. Meanwhile for the beleaguered regulatory reporting officer in that typical UK bank the grind continues…

Portfolio Hedge Accounting: continuing to grapple with IAS 39

The financial markets have their fair share of obscure and confusing concepts and jargon. The topic of portfolio macro hedge accounting is a good example. Essentially an accounting technique intended to eliminate volatility in financial statements, it is not an easy topic. But the basics can be illustrated by taking a simple example:

  • A bank has advanced a portfolio of fixed rate loans
  • A rise in interest rates is a risk to the bank: it will reduce the value of the loans
  • The bank protects against this interest rate risk by entering into an interest rate swap(s)
  • This swap is a deal the bank enters with a third party to eliminate the interest rate risk
  • The bank may or may not adopt the portfolio macro hedge accounting technique
  • If it does not its accounts will treat the swap(s) in a manner which results in an accounting gain or loss, despite being an economic hedge
  • By adopting the technique the bank mitigates this mismatch between accounting treatment and economic reality in its accounts

Many banks do adopt macro hedge accounting, but applying the current accounting standard (IAS 39) in this area is difficult: many issues are unclear or require interpretation. A 2014 initiative by the IASB to develop a new approach appears to have been quietly shelved. The market is therefore left grappling with the application of IAS 39 . One specific scenario which can arise in practice – the swap(s) in question are cancelled – throws up a variety of considerations. Different methodologies and approaches to this scenario will result in quite different outcomes, some unwelcome: extraordinary adjustments to accounts due to overstatements in previous accounts can even be required. Our ALMIS Hedge Accounting provides an efficient solution which avoids the pitfalls. For a more detailed article on the swap cancellation scenario click here.

NSFR – A reality check


The Basel Committee indicated several years ago that it wants the NSFR to become “a minimum standard by 1 January 2018 ”. With that apparent deadline looming, now seems a good time to assess where matters stand on this key post crisis reform to the banking sector.

The story so far

At the international level it was in 2010 The Basel Committee published its Consultative Document on the NSFR, describing it as “one of the….Committee’s key reforms to promote a more resilient banking sector”. The Document explained the underlying objective: to reduce funding risk over a longer time horizon (contrast LCR) by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress. The NSFR would limit overreliance on short-term wholesale funding, encourage better assessment of funding risk across the balance sheet, and promote funding stability. Designed as complementary to the LCR, the NSFR was described by the Committee as a “significant component of the Basel III reforms”. The January 2018 timetable was set…

At the European level regulatory work on the NSFR progressed alongside the Committee’s consultation process. The CRR, introduced in 2013 as part of CRDIV, did several things: it imposed the NSFR COREP reporting obligation; imposed a very general requirement that long-term assets have to be adequately met with a diversity of stable funding instruments; set a timetable for the introduction of a legislative proposal on a European NSFR; and it recognised that domestic regulators could apply interim stable funding requirements in the meantime.
The story continued when the European Commission issued a draft Regulation in Nov 2016 . Amongst other things that draft Regulation introduces detailed rules on a binding harmonised EU NSFR; but envisages the ratio applying from two years after the Regulation itself comes into force (whenever that will be).

Meanwhile at the domestic UK level the PRA has not to date published anything specific on the NSFR, with more of a current focus on PILLAR 2.

An immediate observation: timing

Relevant institutions continue to submit COREP NSFR returns, and remain subject to the general CRR stable funding requirement.  But what’s the significance of the Basel Committee’s Jan ’18 timetable ? Whatever the Committee envisaged happening at that time it is looking increasingly unlikely UK institutions will become subject to any binding new NSFR. At the European level the draft Regulation issued last November in its current form clearly works to a much more extended timetable. So in the absence of some immediate burst of European or domestic regulatory activity nothing much in this space will change on 1 January 2018…

Getting more granular…

But there is also a very much more real world dimension: the COREP template returns do not contain any statement of the reporting institution’s ratio, and careful review reveals those templates are insufficiently granular to enable an accurate calculation of the ratio per the standard’s rules. For example:

  • the standard applies various specific rules in relation to the treatment of encumbered assets; the COREP templates however are insufficiently granular to show the data required to apply these rules – for example, the proportion of 35% RWA which are encumbered.
  • initial margin in relation to a derivative transaction receives a certain treatment under the ratio calculation however the COREP template does not accommodate any data specifically on initial margin, so again does not permit accurate calculation of this component within the ratio.

So until the reporting requirements are amended the regulator is receiving neither a statement of the submitting institution’s ratio nor the data required to calculate it in accordance with the standard. (The Commission has stated the EBA will develop draft implementing standards “to harmonise NSFR reporting requirements”.)

An ALMIS solution

Having considered these deficiencies in the COREP templates we have devised a solution within the ALMIS system to assist clients. We have enhanced the ALMIS NSFR Report to permit the inclusion of the more granular data required to calculate the ratio correctly; and that greater granularity introduced into the ALMIS NSFR Report permits the user also, using a new template tool in our Report Writer, to calculate the ratio accurately in accordance with the standard. This tool is wholly configurable by the client, allowing for example the selection of chosen RSF and ASF factors in relation to asset or liability categories. Where a client is already fully utilising the ALMIS Capital Adequacy, Liquidity and Regulatory Reporting functionality, no additional data will be required. It is intended that this new template, underpinned by the same single source of data used across the ALMIS system, will become a robust and practical MI tool to support decisions by ALCOs until the regulatory regime eventually settles reporting procedures which demonstrate compliance with the applicable ratio. (The ALMIS functionality will of course continue also to autopopulate the existing COREP NSFR template; and will be developed in line with the new template when it is finally published.)


The NSFR is an important part of banking reform following the banking crisis. It favours stable retail and wholesale funding over short term wholesale. The key principles have been established and a deadline has been set. However the reporting detail and EU regulation has not yet been finalised and therefore it looks almost certain the 1 January 2018 deadline will be missed. Firms can however still calculate and therefore monitor and prepare for the introduction of the NSFR as a minimum standard sometime after 1 January 2018.

Supervising building societies’ treasury and lending activities

Joe Di Rollo reviews practical aspects of product pricing & FTP at BSA Seminar with PRA speakers helping building societies understand key changes in SS 20 / 15.

ALMIS International’s founder & CEO, Joe Di Rollo, will be sharing the platform with the PRA’s Head of Building Societies at the BSA’s half day seminar on 21 February 2017 in London. Designed to provide building society executives an opportunity to understand the impact of the PRA’s revised Supervisory Statement SS 20/15 (formerly known as the Specialist Sourcebook for Building Societies) from experts.

The seminar will include a presentation on the topic of product pricing, which has been given much greater prominence in the revised SS. To finish off there will be an open session for questions to the speakers and discussion from the floor.

To find out more and to book your place click here.

Treasury Management integrated with ALMIS

In 2017 we will be introducing our Treasury Management System, currently being developed in collaboration with clients, to ensure we are offering as comprehensive a solution as possible working off a single source of data. Our current core offering spanning Regulatory Reporting, ALM and Hedge Accounting is already unique in the UK.

Clients benefit from key advantages of our single platform including:

  • Reduced cost and resource requirements.
  • Consistency across all outputs with one dataset driving all ALM, Regulatory Reporting and other needs.
  • Synergy of a holistic view, with the regulatory matrix integral to ALM & business planning.

Fair value accounting: an open and shut case

For the first time this year many financial institutions will have included derivatives at their fair value on balance sheets and, in many cases, this will have been a major headache.

Although fair value accounting became mandatory for larger banks and building societies in 2005, it has only become a requirement for smaller firms recently and must now be evident in their accounts. There is also a lot of evidence that all ‘big 4’ accounting firms are tightening up their procedure for auditing hedge accounting for both new FRS 102 transition clients and established IFRS clients.

Fluctuation in interest rates from one period to another causes the fair value of interest rate swaps to change materially and, as a result, there is potential for large volatility in reported earnings and profits. The numbers are often material and so the accounting is very important.

The accounting standard IAS 39 was amended back in March 2004 to specifically allow a portfolio approach to hedge account for a fair value portfolio of derivatives used to hedge interest rate risk. This was particularly helpful to banks who hedge interest rate risk in the banking book (IRRBB) on a portfolio basis. IFRS 9 (IAS 39 replacement) has not yet replaced portfolio or macro hedge accounting and so currently the only way to account for a portfolio of derivatives rather than individually is to adopt IAS 39.

However, in order to follow the relevant guidelines (AG114 – AG132) many banks have adopted this portfolio hedge accounting approach where constant, eg monthly, amortisation adjustments for de and re designation are required.

The complex guidance requires that the hedge item amount is fully tracked between the prospective and retrospective stage, the only way to keep track is to amortise off all the hedge adjustments and amortise on all the hedge adjustments every month, and that way you know you have it right.

If your portfolio has 60 time periods, this means 60 new adjustments every month, leading to many thousands after a few years. These adjustments are often made on large spreadsheets, introducing the risk of human error. Importantly the adjustments can cause the value on the balance sheet to become distorted from the true economic fair value and the accounts can also distort what is actually happening between the hedge and the hedged item.

The example below shows the treatment for a simple theoretically perfectly hedged bullet loan with no expected pre-payments. The example shows how the carrying amount is amortised out each period and we can compares this to its true economic value. In this simple example, the balance sheet value and the true economic value are materially different, and even a theoretically perfectly hedged scenario shows material P/L volatility. Surely this is not the best way to perform hedge accounting.

Fair Value Accounting Figure

It is however difficult but perfectly feasible to adopt open portfolio hedge accounting, allowing a firm to take an open portfolio of interest rate swaps and apply the concept of dynamic hedging without the need for constant adjustments.

With this in mind, the ideal software will properly calculate the value of the designated hedged item while following the very specific rules laid out in AG126 and AG 127.  It will include the individual loans and have the ability to calculate their fair value based on expected cash flows and can track actual pre-pre-payments between the prospective and retrospective stages.  If it can’t then we go back to the headache of de designating every month and amortising the fair value out.

Surely adopting a cleaner approach to hedge accounting, that doesn’t require all of these adjustments, is essential, where the hedged item amount reported always reflects the economic value of that hedged item without any distortion?

For more information on ALMIS International and our solution go to Hedge Accounting or contact us T: +44 131 452 8898

IRRBB to remain PILLAR 2

Basel Committee on Banking Supervision have published its latest paper on Interest Rate Risk (IRRBB). This paper details Interest Rate Risk principals updated since the consultation paper was published last year. The Committee has concluded that the heterogeneous nature of IRRBB would be more appropriately captured in Pillar 2.

Nevertheless IRRBB is set to become an increasing priority for regulators and risk managers as the Committee is recommending an enhanced Pillar 2 approach.

Banks are expected to implement the standard by 2018.