CP4/23 – The Strong and Simple Framework: Liquidity and Disclosure requirements for Simpler-regime Firms

The Prudential Regulation Authority (PRA) has launched a first consultation on putting the currently proposed Strong and Simple Framework to work for smaller, non-systemic banks, building societies, and investment firms (please see consultation paper CP5/22 and EventID 15882 for more information on the proposed framework). The PRA thereby seeks to simplify its prudential regulation requirements for firms that qualify for the framework so as to reduce their (financial) burdens and reduce barriers to growth.
In this first consultation, the PRA proposes to, among other things,
(1) exempt small firms from having to fulfill the net stable funding ratio (NSFR) requirements provided that they meet certain conditions on the structure of their funding. To test whether or not they qualify for the exemption, institutions would have to apply a new „Retail Deposit Ratio (RDR)“ which would be measured as total retail deposits (including SME deposits) over total funding (latter of which consists of all retail deposits and wholesale funding (liabilities not qualifying for retail deposits). In order to qualify for the disapplication of the net stable funding ratio requirements, firm’s would have to have an RDR of 50% or greater.
(2) reduce the liquidity assessment procedures in smaller non-systemic banks, building societies, and investment firms by generally disapplying the Pillar 2 Liquidity Adequacy Assessment (ILAA) which includes a liquidity risk analysis for cashflow mismatch risks, intraday liquidity risks, franchise viability risks, and other risks related to liquidity. Instead, smaller institutions would have to analyze those risks that are prevalent in their business operations and use this assessment to determine the level of high-quality liquid assets (HQLA). In this context, the PRA proposes to furnish a new Internal Liquidity Adequacy Assessment Process (ILAAP) template to help smaller firms to assess their risks.
(3) reduce the reporting requirements of smaller firms by no longer requiring them to file the following reports – as quoted:
– C67 – Concentration of funding by counterparty;
– C69 – Prices for various lengths of funding;
– C70 – Roll-over of funding; and
– C71 – Concentration of counterbalancing capacity.
As these reports are primarily aimed at institutions and firms relying upon wholesale funding, the PRA does not deem those reports to be necessary.
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As these are only the key proposed measures outlined in the consultation, please review the entire document for more detailed, comprehensive information.