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Managing, monitoring and reporting Liquidity Risk - UK

The Financial Services Authority (FSA) was the first regulator to go into print on how it intends to move forward on liquidity risk with the issuance of CP 08/22 "Strengthening liquidity standards" in December 2008. This follows the principles laid out in the June 2008 BIS paper and widens the reporting population for liquidity beyond the traditional banks, to incorporate the likes of investment firms, building societies and UK branches of overseas banks.

In April 2009, the FSA published a second liquidity consultation paper CP 09/13 "Strengthening liquidity standards 2" which focuses on new liquidity reporting requirements, and in June 2009 a third consultation paper CP 09/14 "Strengthening liquidity standards 3" was published detailing transitional provisions, including the proposed timetable for switching from the existing regime to the new requirements.

In October 2009 the FSA published the final version of the new liquidity requirements and implementation timetable in Policy Statement 09/16: Strengthening liquidity standards, including feedback on CP08/22, CP09/13 and CP09/14.

Register here to receive a comprehensive summary of the PS09/16 written by our business expert, Selwyn Blair-Ford.

The FSA has developed a set of proposals that will require liquidity management to be integrated into business planning and management processes. It also requires a comprehensive stress testing strategy, measurement and management against a documented liquidity appetite, a liquidity buffer and a liquidity contingency plan. Overall the amount of resource held against liquidity risk will increase, as will the burden on management.

For some institutions, this will be the first time they have had to address the issues around liquidity, including:

• capturing cashflows
• creating an Individual Liquidity Adequacy Assessment (ILAA) process and the associated Contingency Funding Plan
• developing appropriate stress tests
• daily monitoring and weekly reporting - with only a three-day window between close of business on the Friday and the reporting deadline on the following Monday evening

 

Read the Comment Pieces:

FSA strengthening liquidity standards transitional measures consultation paper
      (CP 09/14) »
FSA strengthening liquidity standards reporting consultation paper (CP 09/13) »
FSA strengthening liquidity standards consultation paper (CP 08/22) »

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