Commission Delegated Regulation (EU) 2023/1651 of 17 May 2023 supplementing Directive (EU) 2019/2034 of the European Parliament and of the Council with regard to regulatory technical standards for the specific liquidity measurement of investment firms under Article 42(6) of that Directive (Text with EEA relevance)

New Commission Delegated Regulation (EU) 2023/1651 specifying the liquidity risk assessment procedure of national competent authorities (NCAs) to determine whether or not any additional liquidity requirements need to be imposed on investment firms beyond the minimum requirements set out in Part V of the Investment Firms Regulation (IFR) was published in the Official Journal (OJ) of the EU. The key objective of the new regulatory technical standards (RTS) is to harmonize the approach of NCAs in their assessment of investment firms and thus to create a level EU playing field for investment firms subsequently subject to additional liquidity requirements.
The RTS thereby specify:
(1) The types of liquidity risks that shall be assessed:
NCA’s shall consider various sources of potential liquidity risk and perform an assessment of each single one of them, including the following, among others:
– liquidity risk stemming from trading activities or from loss in income from portfolio management;
– liquidity risk stemming from funding (arrangements) of investment firms (e.g. availability of emergency funding; current funding arrangements such as credit lines, the availability of unencumbered assets that may be pledged, etc.);
– liquidity risk stemming from the operations of a firm, such as risks resulting from a disruption of IT-services or from litigations due to execution errors;
– liquidity risk stemming from „external events“, external events thereby being deteriorating market situations or increasing geopolitical tensions; and
– liquidity risk stemming from inadequate management and controls of liquidity risks.
(2) Factors that shall additionally be taken into account when assessing these liquidity risks:
In their assessment of such risks, NCAs are required to take several other factors into account such as the size, complexity, and business model of a firm, the existence of netting arrangements, the interconnection between any of the above noted liquidity risk types, and the interconnections that may exist within a group structure.
Additionally, it shall be noted that only some of the above noted liquidity risks need to be assessed for small, non-interconnected firms, namely liquidity risks stemming from trading and investment activities, from funding (arrangements), and from interrelationships within a group.
(3) Data sources and quality requirements for the assessment:
The new RTS require NCAs to look at the historical liquidity capacity of firms and the variation of liquidity needs and available liquidity in the past. NCAs shall also ensure that the basis for their assessments is reliable, up-to-date, and accurate.