CP5/26 – Modernising the liquidity policy framework
Executive Summary
CP5/26 is a PRA consultation paper proposing updates to the liquidity policy framework to address modern risks from digital banking, payments, and technology that can amplify liquidity stresses. It matters because it strengthens firms' resilience by emphasizing liquidity resource composition, monetisation risk, and short-term stress scenarios, ensuring firms can meet outflows in acute crises. #
What Changed
- Composition of liquidity resources: Revise the Overall Liquidity Adequacy Rule (OLAR) to explicitly require adequate composition (not just amount) of liquidity resources, balancing cash, non-cash assets monetisable in private markets, and central bank facilities. - Monetisation risk assessment: Replace 'marketable asset risk' with monetisation risk in ILAA rule 11.5, with detailed expectations in updated SS24/15 on market access, accounting treatment, repo/sale ability, and central bank use; includes illustrative template. - Stress scenario design: New requirement for a business model-specific stress scenario with sudden, severe outflows peaking in the first week (up to 7 days), integrated into ILAAP/ILAA. - Governance and ILAAP updates: Embed governance for ILAAP preparation, OLAR revie
What You Need To Do
- Review and respond to consultation by 17 June 2026, indicating confidentiality and publication consent
- Update internal processes
- Enhance governance
- Stress testing
- Systems check
Key Dates
Compliance Impact
Urgency: High – Firms must engage now as the 17 June 2026 response deadline is ~3 months away (today: 17 March 2026), and changes target evolving digital risks that could amplify outflows. Non-engagement risks supervisory scrutiny on ILAAP adequacy, OLAR compliance, and resilience in stresses; proportionate but requires ILAAP revisions pre-final rules.
Who is Affected
Summary
Consultation paper 5/26