BIPRU 12.9 Individual liquidity guidance and regulatory intervention points

Appropriate regulator assessment process

BIPRU 12.9.1G

The appropriate regulator will give individual liquidity guidance to a standard ILAS BIPRU firm. Ordinarily, the appropriate regulator will give individual liquidity guidance after a review of a standard ILAS BIPRU firm's ILAA. The appropriate regulator will, however, issue individual liquidity guidance to such a firm whenever it is considered appropriate.

BIPRU 12.9.2G

In assessing the adequacy of an ILAS BIPRU firm's liquidity resources, the appropriate regulator draws on more than just a review of the submitted ILAA, or in the case of a simplified ILAS BIPRU firm, the submitted ILSA. Use is made of wider supervisory knowledge of a firm and of wider market developments and practices. When forming a view of the individual liquidity guidance to be given to an ILAS BIPRU firm, the appropriate regulator will also consider the regulator’s firm risk assessment and any other issues arising from day-to-day supervision.

BIPRU 12.9.3G

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.

BIPRU 12.9.4G

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 giving individual liquidity guidance, the appropriate regulator will also advise the firm of what it considers to be a prudent funding profile for the firm. In giving the firm individual liquidity guidance as to its funding profile, the appropriate regulator will consider the extent to which the firm's liabilities are adequately matched by assets of appropriate maturities. 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 12.3 and BIPRU 12.4. Individual liquidity guidance will therefore have two components:

  1. (1)

    guidance about the firm's liquid assets buffer; and

  2. (2)

    guidance about the firm's funding profile.

BIPRU 12.9.5G

The appropriate regulator will ordinarily not expect to give individual liquidity guidance to a simplified ILAS BIPRU firm. 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.

BIPRU 12.9.6G

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.

BIPRU 12.9.7G

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. The appropriate regulator will adopt the same process where it chooses to give individual liquidity guidance to a simplified ILAS BIPRU following a review of that firm's ILSA.

BIPRU 12.9.8G

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.

BIPRU 12.9.9G

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 166 (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 196) 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.

Additional guidance for branches

BIPRU 12.9.10G

In relation to an incoming EEA firm or third country BIPRU firm, where the appropriate regulator gives that firm individual liquidity guidance in relation to its UK branch, it will have regard to the liquidity risk profile of the branch. In the absence of a whole-firm liquidity modification, the effect of BIPRU 12.2.1R (2)(b) and BIPRU 12.2.3 R is to require the firm to hold a liquid assets buffer of the amount identified as appropriate in its individual liquidity guidance (or in the case of a simplified ILAS BIPRU firm, the amount of its simplified buffer requirement unless this has been superseded by the appropriate regulator issuing individual liquidity guidance to the firm in question) in the form of a local operational liquidity reserve. Further guidance is given in BIPRU 12.5.39 G in relation to the local operational liquidity reserve. In determining the appropriate size of such a firm's liquid assets buffer the appropriate regulator will have regard to all relevant factors, including the extent to which the appropriate regulator has adequate data to enable it to assess accurately the liquidity risk elsewhere in the firm beyond its UK branch.

Regulatory intervention points for ILAS BIPRU firms

BIPRU 12.9.11G

BIPRU 12.2.9 G records the appropriate regulator's recognition that in periods of stress a firm's liquid assets buffer may be eroded. 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.

BIPRU 12.9.12G

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. BIPRU 12.9.13 R to BIPRU 12.9.18 R set out a number of requirements which apply to an ILAS BIPRU firm that deviates from its individual liquidity guidance, or as the case may be, from the simplified buffer requirement.

BIPRU 12.9.12AG

1The appropriate regulator expects that a firm will respond dynamically to any deterioration in its liquidity position and will take contingent action as set out in its contingency funding plan well in advance of a potential event.

BIPRU 12.9.13R

As soon as a firm becomes aware of the occurrence or expected occurrence1 of the events identified in BIPRU 12.9.14 R, it must immediately provide to the appropriate regulator:1

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  1. (1)

    notification in writing of the event;1

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  2. (2)

    an adequately reasoned explanation for the event; and1

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  3. (3)

    an indication of the management actions the firm has taken to date to address the event, including actions from its contingency funding plan.1

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BIPRU 12.9.14R

For the purpose of BIPRU 12.9.13 R, the events in question are:

  1. (1)

    in the case of a simplified ILAS BIPRU firm only, breach of the simplified buffer requirement unless this has been superseded by individual liquidity guidance that it has accepted;

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  2. (2)

    in the case of a standard ILAS BIPRU firm or a simplified ILAS BIPRU firm, being a firm which in either case has accepted individual liquidity guidance given to it by the appropriate regulator:

    1. (a)

      its liquid assets buffer falling below1 the level advised in the guidance; or

    2. (b)

      its funding profile ceasing

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      to conform to that advised in the guidance.

BIPRU 12.9.15G

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 166 of the Act to assist in such circumstances.

BIPRU 12.9.16G

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 12.9.14R (2)(a) or (b).

BIPRU 12.9.17R

No later than two days after the day on which a firm notifies the appropriate regulator under BIPRU 12.9.13R (1), the firm must submit a liquidity remediation plan to the appropriate regulator.

BIPRU 12.9.18R

For the purposes of BIPRU 12.9.17 R, a firm's liquidity remediation plan must:

  1. (1)

    be communicated in writing;

  2. (2)

    detail the firm's forward estimates of the evolution of the size of the firm's liquid assets buffer and of its funding profile;

  3. (3)

    in relation to any of the events identified in BIPRU 12.9.14 R that has occurred, or is expected to occur,1 detail the actions that the firm intends to take to remedy the event,1 or avoid the expected event, as the case may be,1 including information about:

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    1. (a)

      the amount of funding that it is intended to raise;

    2. (b)

      the intended funding providers; and

    3. (c)

      the maturity profile of the intended funding;

  4. (4)

    identify clear timescales for achieving each of the actions that it details in accordance with BIPRU 12.9.18R (3); and

  5. (5)

    include an adequately reasoned assessment of the likelihood of the timely achievement of the actions that it details in accordance with BIPRU 12.9.18R (3).

BIPRU 12.9.19G

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 12.9.18 R. 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.

BIPRU 12.9.20G

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.

BIPRU 12.9.21G

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 196) 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.

BIPRU 12.9.22G

Although BIPRU 12.9.17 R to BIPRU 12.9.21 G set out the appropriate regulator's likely approach, the appropriate regulator will take whatever action it considers appropriate in the particular circumstances of a given case.

BIPRU 12.9.23G

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.

Monitoring requirement

BIPRU 12.9.24R

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.

Mode of notification

BIPRU 12.9.25R

Notification to the appropriate regulator under BIPRU 12.9.13R (1) and submission to the appropriate regulator under BIPRU 12.9.17 R must be made to the following appropriate regulator email address: data_collection@fca.org.uk.

BIPRU 12.9.26G

Although BIPRU 12.9.25 R requires notification and submission in the way prescribed in that rule, the appropriate regulator expects that a firm would also bring to the attention of its usual supervisory contact at the appropriate regulator the fact that it had made such a notification or submission.

BIPRU 12.9.27G

For the purpose of the notification expected under BIPRU 12.9.26 G, the appropriate regulator would expect any such notification to be made in the way envisaged in BIPRU 12.9.25 R.