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 b
- 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 illustrati
- 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 reviews, ALM committees; clarify risk appetite, Liquidity Contingency Plans (LCP), funding plans; streamline SS24/15 content, remove EBA references.
- Central bank facilities: Expectations to assess pre-positioned collateral, drawing capacity, operational readiness for publicly available facilities (excluding emergency assistance); monitor in ILAAP.
- Reporting tweaks: Potential deletion of PRA110 template rows on monetisation assumptions to focus on internal stress testing. Proposals are proportionate to firm size, scale, and complexity.
Suggested Considerations
- Review and respond to consultation by 17 June 2026, indicating confidentiality and publication consent.
- Update internal processes: Revise ILAAP/ILAA to include new stress scenario (sudden/severe outflows in first 7 days), monetisation risk assessments (with template), liquidity composition analysis, central bank facility readiness (pre-positioned collateral monitoring).
- Enhance governance: Strengthen ALM committees, risk appetite statements (covering frictions, survival horizons), LCP/funding plans integration.
- Stress testing: Design firm-specific acute stress with daily granularity, lowest cumulative net cashflows analysis over LCR/survival horizons.
- Systems check: Assess impact on validation processes from PRA110 changes; ensure operational readiness for asset monetisation.
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
References
AI-generated analysis. May contain errors or omissions — verify with the original PRA source before acting. Full disclaimer.
Summary
Consultation paper 5/26