A contingency funding plan sets out a firm's strategies for addressing liquidity shortfalls in emergency situations. A firm must ensure that its contingency funding plan :. In designing a contingency funding plan a firm should ensure that it takes into account:. Contravention of any of 1 a to e may be relied upon as tending to establish contravention of BIPRU A firm should ensure that its contingency funding plan takes into account the terms and conditions of any central bank liquidity facilities to which it has access, including both facilities that form part of normal liquidity management operations and emergency liquidity assistance on a secured basis.
Where a firm includes in its contingency funding plan the use of central bank liquidity facilities it should consider the nature of those facilities, collateral eligibility, haircuts to which its collateral might be subject, terms in its existing or available funding arrangements which might impact its ability to access central bank facilities, operational arrangements for accessing those facilities and the potential reputational consequences for that firm in accessing them.
In formulating its contingency funding plan , a firm should not rely on expectations it may have about future changes to central bank facilities, either in relation to their normal liquidity management operations or in relation to the availability of specific liquidity facilities in exceptional circumstances. These changes could result from either firm -specific or general developments. The appropriate regulator anticipates that different actions in a contingency funding plan would be taken at different stages of a developing situation.
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Find out more about www. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. Status: This chapter was amended on 31 December as a result of Brexit. However, it is subject to the FCA Prudential Transitional Direction, which means that firms should not comply with these provisions yet.
BIPRU In formulating the rules and guidance in these two sections, the appropriate regulator has taken account of the Principles for Sound Liquidity Management and Supervision dated September issued by the Basel Committee on Banking Supervision.
A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk over an appropriate set of time horizons, including intra-day, so as to ensure that it maintains adequate levels of liquidity buffers.
These strategies, policies, processes and systems must be tailored to business lines, currencies, branches 4 and legal 4 entities and must include adequate allocation mechanisms of liquidity costs, benefits and risks. A firm should ensure that its strategies, policies, processes and systems in relation to liquidity risk enable it to identify, measure, manage and monitor its liquidity risk positions for:. A firm should ensure that it has in place early warning indicators to identify immediately the emergence of increased liquidity risk or vulnerabilities, including indicators that signal whether embedded triggers in funding or security arrangements such as warranties, covenants, events of default, conditions precedent or terms having similar effect are likely to, or will, be breached, occur or fail to be satisfied, or contingent risks will or are likely to crystallise, in either case with the result that access to liquidity resources may be impaired.
A firm should ensure that it has in place reliable management information systems to provide its governing body , senior managers and other appropriate personnel with timely and forward-looking information on the liquidity position of the firm. Contravention of any of 3 , 5 and 6 2 may be relied upon as tending to establish contravention of BIPRU That chapter of SUP sets out the applicable data items and the rules governing the frequency of their submission to the appropriate regulator.
Absent a firm-specific liquidity stress or a market liquidity stress , the rules in SUP 16 do not require daily weekly for a low frequency liquidity reporting firm and a simplified ILAS BIPRU firm 3 reporting of data items. An ILAS BIPRU firm should, however, note that those rules do require that it has systems in place to ensure that it is able at all times to meet the requirements for daily or weekly as applicable 3 reporting of applicable data items even if there is no firm-specific liquidity stress or market liquidity stress and none is expected.
As part of the SLRP , the appropriate regulator will assess the appropriateness of the liquidity risk tolerance adopted by an ILAS BIPRU firm to ensure that this risk tolerance is consistent with maintenance by the firm of adequate liquidity resources for the purpose of the overall liquidity adequacy rule. The appropriate regulator will expect a firm to provide it with an adequately reasoned explanation for the level of liquidity risk which that firm's governing body has decided it should assume.
In assessing the appropriateness of the liquidity risk tolerance adopted by a firm , the appropriate regulator will consider whether the tolerance adopted is consistent with the firm's satisfaction of threshold condition 2E, 3D, 4E or 5E as applicable 7. Consistent with the appropriate regulator's statutory objectives under the Act , in assessing the appropriateness of a firm's adopted liquidity risk tolerance the appropriate regulator will also have regard to the role and importance of a firm in the UK 1 financial system.
A firm must ensure that its governing body approves the firm's strategies, policies, processes and systems relating to the management of liquidity risk , including those described in BIPRU A firm must ensure that its governing body reviews regularly and not less frequently than annually :.
A firm must ensure that its senior managers :. It is therefore likely that an applicant firm will be asked to provide as part of its application relevant liquidity data items populated by the entities on which the applicant firm proposes to rely. It is also likely that an applicant firm will be asked to ensure as a condition of the modification, if granted, that the entities on which it is given permission to rely for the purpose of meeting the overall liquidity adequacy rule provide completed relevant data items to the appropriate regulator on a continuing basis.
The frequency of data item submission will be determined as part of the appropriate regulator's consideration of the applicant firm's case but is in any event likely to be reflective of the appropriate regulator's assessment of the liquidity risk profile of the entities on which liquidity support is permitted. In addition, the appropriate regulator will also wish to understand in relation to any group entity on which an applicant firm proposes to rely for liquidity support the legal structure of the group and the extent to which that structure, or any relevant legal principles, may restrict the provision of timely liquidity support in appropriate amounts to the applicant firm when required.
The appropriate regulator also anticipates that an intra-group liquidity modification would be made subject to a number of ongoing conditions and requirements.
These are likely to include:. The appropriate regulator will, however, issue individual liquidity guidance to such a firm whenever it is considered appropriate. Use is made of wider supervisory knowledge of a firm and of wider market developments and practices. The appropriate regulator will take a risk-based and proportionate approach to the review of a firm's ILAA or ILSA , focusing where appropriate on that firm's approach to dealing with the risks it faces.
As part of the SLRP , the appropriate regulator will give a standard ILAS BIPRU firm individual liquidity guidance advising it of the amount and quality of liquidity resources which the appropriate regulator considers are appropriate, having regard to the liquidity risk profile of that firm. In both cases, the appropriate regulator will have regard to the adequacy of a firm's systems and controls in relation to liquidity risk when judged against the standard described in the rules and guidance in BIPRU Individual liquidity guidance will therefore have two components:.
However, if after review of such a firm's ILSA , the appropriate regulator is not satisfied that the simplified buffer requirement delivers an adequate amount and quality of liquidity resources for that firm , having regard to its liquidity risk profile, the appropriate regulator will issue the firm with individual liquidity guidance and may also consider revoking the firm's simplified ILAS waiver.
In giving individual liquidity guidance , the appropriate regulator seeks a balance between delivering consistent outcomes across the individual liquidity guidance that it gives to every ILAS BIPRU firm and recognising that such guidance should reflect the individual features of a firm. Comparison with the assumptions used by other firms will be used to trigger further enquiry. Following an internal validation process, the appropriate regulator will write to the standard ILAS BIPRU firm whose ILAA it has reviewed, providing both quantitative and qualitative feedback on the results of the appropriate regulator's assessment.
This letter will notify that firm of the individual liquidity guidance that the appropriate regulator considers appropriate together with its reasons for concluding that such guidance is appropriate.
Where the amount and quality of liquidity resources which the appropriate regulator considers a firm needs having regard to its liquidity risk profile are not the same as the firm's own assessment of those resources under its ILAA , the appropriate regulator expects to discuss any such difference with the firm.
Consistent with Principle 11 Relations with regulators , the appropriate regulator will expect a firm to notify it if the firm does not propose to follow its individual liquidity guidance. The appropriate regulator will expect any such notification to be accompanied by a clear account of the firm's reasons for considering the individual liquidity guidance to be inappropriate.
The appropriate regulator will expect to receive any such notification within one month from the date on which it gives individual liquidity guidance to the firm. If agreement through further analysis and discussion cannot be reached including through use of the appropriate regulator's powers under section Reports by skilled persons of the Act , then the appropriate regulator will consider using its powers under the Act for example, its power under section 55J to vary, on its own initiative, a firm's Part IV permission or its power of intervention under section so as to require a firm to hold such liquidity resources as the appropriate regulator considers are adequate having regard to the liquidity risk profile of the firm.
It may also be the case that in such periods a firm's funding profile deteriorates such that it no longer conforms to the prudent liquidity profile described in the individual liquidity guidance given to the firm. Deviation by a firm from the terms of the individual liquidity guidance given to it by the appropriate regulator or, as the case may be, from the simplified buffer requirement , does not automatically mean that the appropriate regulator will consider that the firm is in breach of, or likely to breach, threshold conditions.
The appropriate regulator will examine any deviation on its own facts and will always want to understand clearly the reasons for that deviation and the firm's plans for remedying it.
Deviation is, however, likely to prompt a re-examination by the appropriate regulator of the firm's compliance, and likely future compliance, with threshold conditions. The appropriate regulator will have regard to the information provided by the firm and to any other relevant factors in assessing the firm's continuing ability to satisfy threshold conditions.
As soon as a firm becomes aware of the occurrence or expected occurrence 1 of the events identified in BIPRU As part of the appropriate regulator's enquiry into the reasons for a firm's deviation, or expected deviation, from its individual liquidity guidance or, as the case may be, its simplified buffer requirement , the appropriate regulator may ask for further assessments and analyses of a firm's liquidity resources and the risks faced by the firm. The appropriate regulator may consider the use of its powers under section of the Act to assist in such circumstances.
Consistent with Principle 11 of the appropriate regulator's Principles for Businesses Relations with regulators , if a firm has not accepted individual liquidity guidance given by the appropriate regulator it should, nevertheless, notify the appropriate regulator as soon as it becomes aware of either of the events identified in BIPRU No later than two days after the day on which a firm notifies the appropriate regulator under BIPRU The appropriate regulator will assess the adequacy of the liquidity remediation plan submitted by a firm , including the likelihood of its success.
A firm should expect that the appropriate regulator will want to discuss the terms of the liquidity remediation plan submitted to it under BIPRU In its re-examination of the firm's compliance, and likely future compliance, with threshold conditions taken as a whole, the appropriate regulator will have regard to the adequacy of the firm's liquidity remediation plan.
Other things being equal, the appropriate regulator will expect a firm which is not experiencing a period of stress to restore its liquidity resources more rapidly than one which is under stress at the time that it deviates from its individual liquidity guidance or, as the case may be, from its simplified buffer requirement.
If agreement through discussion with the appropriate regulator cannot be reached as to the necessary actions and timescales to remedy deviation from that guidance , the appropriate regulator will consider using its powers under the Act for example, its power under section 55J to vary, on its own initiative, a firm's Part 4A permission or its power of intervention under section so as to require the firm to take such actions as the appropriate regulator considers are necessary to return the firm to conformity with the terms of its individual liquidity guidance or, as the case may be, with its simplified buffer requirement.
A firm that deviates from current individual liquidity guidance that it has accepted or, as the case may be, from its simplified buffer requirement , will be experiencing a firm-specific liquidity stress for the purpose of the reporting rules in SUP 16 Reporting requirements. Those rules require the firm to report specified data items more frequently than would otherwise be the case. Additionally, a firm that is implementing a liquidity remediation plan should expect that the appropriate regulator will wish to monitor its implementation of that plan.
The firm's progress in achieving the remedial actions identified in its plan is a matter to which the appropriate regulator will have regard in considering the firm's compliance, and likely future compliance, with threshold conditions.
An ILAS BIPRU firm must monitor on each business day whether it is in conformity with individual liquidity guidance that it has accepted or, as the case may be, with the simplified buffer requirement. Login We use necessary cookies to make our site work for example, to manage your usage journey on the site. We also use some non-essential cookies including third-party cookies to help us improve the site functionality and user experience.
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External link Consultation papers, Discussion papers, Policy statements. Therefore, for the purposes of that rule , a firm should ensure that: 1 it holds sufficient assets which are marketable, or otherwise realisable; 2 it is able to generate funds from those assets in a timely manner; 3 it maintains a prudent funding profile in which its assets are of appropriate maturities, taking account of the expected timing of that firm's liabilities; and 4 it is able to generate unsecured funding of appropriate tenor in a timely manner.
For the purposes of the overall liquidity adequacy rule , an ILAS BIPRU firm must also ensure that: 1 its liquidity resources contain an adequate buffer of high quality, unencumbered assets; and 2 it maintains a prudent funding profile.
As part of its SLRP , the appropriate regulator will, having regard to the liquidity risk profile of the firm , consider: 1 the adequacy, both as to amount and quality, of the liquidity resources including the liquid assets buffer held by the firm ; and 2 the degree of prudence reflected in the firm's funding profile.
A firm must ensure that: 1 its governing body establishes that firm's liquidity risk tolerance and that this is appropriately documented; 2 2 its liquidity risk tolerance is appropriate for its business strategy and reflects its financial condition and funding capacity; and 2 3 its liquidity risk tolerance is communicated to all relevant business lines.
A firm must ensure that its governing body reviews regularly and not less frequently than annually : 1 the continued adequacy of any strategies, policies, processes and systems approved in accordance with BIPRU A firm must ensure that its senior managers : 1 continuously review that firm's liquidity position, including its compliance with the overall liquidity adequacy rule ; and 2 report to its governing body on a regular basis adequate information as to that firm's liquidity position and its compliance with the overall liquidity adequacy rule and with BIPRU A firm must ensure that its governing body : 1 is aware of the composition, characteristics and degree of diversification of its assets and funding sources; and 2 regularly reviews its funding strategy in the light of any changes in the environment in which it operates.
A firm must ensure that: 1 it regularly carries out an ILAA ; 2 it makes a written record of its ILAA ; 3 its ILAA is proportionate to the nature, scale and complexity of its activities; 4 its ILAA takes into account whole- firm and group -wide liquidity resources only to the extent that reliance on these is permitted by the appropriate regulator ; 5 its ILAA includes an assessment of the results of the stress tests required by BIPRU In assessing its wholesale funding risk, a firm must: 1 identify its wholesale liabilities; 2 determine how those liabilities behave under normal financial conditions; 3 assess how they will behave under the stresses required by BIPRU For the purpose of assessing its retail funding risk, a firm must: 1 estimate the gross retail outflows that could occur under the liquidity stresses required by BIPRU In its ILAA submission to the appropriate regulator , a firm should include an analysis of: 1 its retail funding profile as at the date of its ILAA ; 2 its retail funding profile over the twelve months preceding its ILAA ; 3 its projected retail funding profile over the twelve months following the date of its ILAA ; and 4 its approach to assessing which of its retail funding it has classed as Type A retail funding and which as Type B retail funding.
For the purpose of assessing its intra-day liquidity risk arising from its direct participation in a payment or settlement system, a firm must in relation to each such system in which it participates: 1 calculate on an intra-day basis the net amounts of collateral and cash required by that firm to fund participation in that system; and 2 estimate how the amounts in 1 could change under the liquidity stresses required by BIPRU A firm must, as part of its ILAA submission to the appropriate regulator : 1 identify those payment and settlement systems in which it is a direct participant; and 2 provide details of the intra-day credit policies that it applies, including the criteria against which it sets credit limits, when extending credit to a customer which is not a direct participant in the payment or settlement system in question.
For the purpose of assessing its cross-currency liquidity risk , a firm must: 1 in relation to each currency in which it has significant positions, calculate its gross outflows and gross inflows having regard to their respective maturities; 2 where it identifies a net outflow in 1 , assess how it will fund that outflow; and 3 estimate how the amounts in 1 and the assessment in 2 could change under the liquidity stresses required by BIPRU A firm must, as part of its ILAA submission to the appropriate regulator , in relation to each currency in which it has significant positions: 1 identify the type of financial instruments which that firm uses to raise funding in that currency; 2 identify the main counterparties which provide funding to that firm in that currency; and 3 describe the arrangements that it has in place to fund net outflows in that currency on a timely basis.
For the purpose of assessing its off-balance sheet liquidity risk , a firm must: 1 identify all off-balance sheet activities that might affect its cash flows; 2 calculate the effect on its cash flows of those activities in normal financial conditions; and 3 estimate the effect on its cash flows of those activities under the liquidity stresses required by BIPRU In relation to its contingent liabilities, a firm should: 1 calculate the impact on its cash flows of those of its contingent obligations that will be triggered in normal financial conditions; and 2 estimate the impact on its cash flows of those of its contingent obligations that may be triggered under the liquidity stresses required by BIPRU In relation to its commitments other than liquidity facilities to support securitisation programmes , a firm should: 1 calculate its maximum contractual exposure arising from those commitments; 2 calculate the effect on its cash flows of the drawing of those commitments in normal financial conditions; and 3 estimate the effect on its cash flows of the drawing of those commitments under the liquidity stresses required by BIPRU In relation to liquidity facilities to support securitisation programmes, a firm should: 1 assess the extent of its contractual obligations to provide liquidity support to sponsored and third-party structured vehicles; 2 identify the circumstances in which support will, or is likely to, be called; and 3 assess the impact on that firm's cash flows of such support being called: a in normal financial conditions; and b under the liquidity stresses required by BIPRU For the purpose of assessing its exposure to marketable assets risk, a firm must assess how the marketable assets comprised in its liquidity resources will behave: 1 under normal financial conditions; and 2 under the liquidity stresses identified in BIPRU The behaviour of a firm's marketable assets under conditions of stress is likely to depend on a number of different factors, including: 1 the depth and competitiveness of the market for the marketable asset in question, the size of the bid-offer spread, the presence of committed market-makers, the nature of the information available to potential counterparties, the degree of structural complexity of the assets in question and the assets eligibility in central bank market operations and liquidity facilities; and 2 that firm's operational capability to generate funding from those assets in a timely manner.
In considering its operational capability to generate funding from assets, a firm should be aware that its capability in this regard is likely to depend on: 1 whether it has in place arrangements for repo ; 2 the extent to which that firm already holds a significant proportion of the market for the marketable asset in question; 3 the extent to which that firm periodically realises some or all of its holdings of that asset; and 4 that firm's accounting treatment and valuation of that asset.
For the purpose of its ILAA submission to the appropriate regulator , a firm must provide the appropriate regulator with an analysis of the profile of its marketable assets as at the date of submission in a way that: 1 separately identifies its marketable assets according to asset class, maturity, currency, their eligibility for use in central bank monetary operations and liquidity facilities and any other characteristic that it uses in its liquidity management; and 2 assesses the degree of diversification achieved across its marketable assets.
For the purpose of assessing its exposure to non-marketable assets risk, a firm must assess how the non-marketable assets in its liquidity resources will behave: 1 under normal financial conditions; and 2 under the liquidity stresses required by BIPRU Different forms of non-marketable assets risk arise, particularly in relation to: 1 retail loans; and 2 unsecured wholesale assets.
A firm should be aware that the degree of diversification in its liquidity resources can be compromised, particularly in periods of stress, by a number of factors, including: 1 reduced or terminated funding provision from some counterparties as a result of that firm's credit-rating being downgraded or its financial condition deteriorating; 2 disputes over the terms of legally binding commitments to lend which delay the provision of funding; 3 markets previously used by the firm for raising funding ceasing to be open or operating but at reduced capacity; 4 reliance on a small number of brokers to access funding sources; and 5 positive correlations in the behaviour of different instruments and products.
In this section: 3 2 1 a retail deposit is a deposit accepted from a consumer ; and 3 2 2 2 SME deposits are deposits accepted from, and account balances where the account holders are, small and medium-sized enterprises or partnerships or sole traders or charities 5 which would be small and medium-sized enterprises if they were companies.
As a general principle, the appropriate regulator is likely to wish to ensure that, having regard to the results of an applicant firm's ILAA : 1 once modified, the overall liquidity adequacy rule still requires the firm to have adequate liquidity resources to enable it to wind down its business in an orderly and controlled manner in circumstances in which its business ceases to be viable; and 2 the amount of liquidity support permitted in the modification is a reasonable one having regard to the total liquidity resources of the group entity on which it is proposed that reliance should be placed.
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