Liquidity transition and provisions
New Liquidity Regime
Following our paper on the subject New Liquidity Regime dated March 2009, the below is an update and summary of the requirements that have been amended since that earlier paper.
1. Systems and controls requirements
Shall apply to all firms within the scope of the new liquidity regime from the fourth quarter of 2009.
UK branches of overseas banks that currently benefit from a Global Liquidity Concession (GLC) will not be subject to the BIPRU 12.3 and 12.4 systems and controls requirements until September 2010.
2. Quantitative requirements
UK incorporated banks currently using the Sterling Stock Liquidity approach:
From April 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to refer to IPRU Bank Chapter LS for their quantitative requirements.
FSA intend to provide ‘low level backstop’ ILG to sterling stock banks in the fourth quarter of 2009. This guidance will take effect in the first quarter of 2010. FSA do not intend to introduce a wholesale tightening of liquidity requirements at that time.
Instead, they we will, on a case-by-case basis, seek a strengthening of firms’ liquidity over a number of years, taking note of the economic context.
UK incorporated banks currently using the Mismatch Liquidity approach :
From June 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to refer to IPRU Bank Chapter LM for their quantitative requirements.
FSA are still considering the appropriate schedule for issuance of ILG to mismatch banks and how to determine the order in which FSA assess mismatch banks for the purpose of issuing ILG. They would inform the mismatch banks the timeline.
UK incorporated banks that select simplified ILAS :
From June 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to refer to IPRU Bank Chapter LM for their quantitative requirements.
However, rather than requiring the firms to hold the full liquid buffer required by BIPRU 12.6 from June 2010, the firms will progress towards the full requirement over a period of three years. A transitional rule will be provided that will require simplified banks to maintain the higher of the amount that would be required by IPRU Bank Chapter LM and the amount of the liquidity required by applying a sliding scalar to the requirement in BIPRU 12.6.7 R - 30% of the new requirement in year 1(from June 2010); 50% in year 2; 70% in year 3, and 100% in year 4.
Building societies not within the simplified ILAS regime :
From April 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to refer to IPRU BSOC Chapter 5.
FSA intend to provide ‘low level backstop’ ILG to non-simplified building societies in the fourth quarter of 2009. This guidance will take effect in the first quarter of 2010. FSA do not intend to introduce a wholesale tightening of liquidity requirements at that time.
Instead, they we will, on a case-by-case basis, seek a strengthening of firms’ liquidity over a number of years, taking note of the economic context.
Building societies within the simplified ILAS regime :
From June 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to refer to IPRU BSOC Chapter 5.
However, rather than requiring the firms to hold the full liquid buffer required by BIPRU 12.6 from June 2010, the firms will progress towards the full requirement over a period of three years. A transitional rule will be provided that will require simplified building societies to maintain the higher of the amount that would be required by IPRU BSOC Chapter 5 and the amount of the liquidity required by applying a sliding scalar to the requirement in BIPRU 12.6.7 R - 30% of the new requirement in year 1(from June 2010); 50% in year 2; 70% in year 3, and 100% in year 4.
UK branches of overseas firms (without a GLC):
From September 2010. During the transitional period (fourth quarter of 2009 to end August 2010) firms will continue to refer to IPRU Bank Chapter LM for their quantitative requirements.
FSA would issue ILG to the firm in readiness for September 2010. FSA do not intend to introduce a wholesale tightening of liquidity requirements at that time. Instead they we will, on a case-by-case basis, seek a strengthening of firms’ liquidity over a number of years, taking note of the economic pathway.
UK branches of overseas firms (with a GLC)
UK branches of overseas banks that currently benefit from a Global Liquidity Concession (GLC) will not be subject to the BIPRU 12.3 and 12.4 systems and controls requirements until September 2010.
BIPRU 12 quantitative requirements for firms that currently have a GLC will be deferred until September 2010. During the transitional period from the fourth quarter of 2009 until end August 2010, FSA will consider applications to renew GLC arrangements and will continue to assess the applications against the usual criteria for GLCs and follow normal procedures. (There is no automatic extension of GLCs.) The maximum life of a
GLC would be until end August 2010. From September 2010, these firms must either have obtained a modification or waiver under BIPRU 12.8 or the quantitative components of BIPRU 12 (including self-sufficiency) will apply to the branch from September 2010.
Full scope BIPRU investment firms:
From September 2010. The FSA Handbook does not provide quantitative liquidity requirements at present and FSA does not propose to introduce any during the transitional period.
Non-ILAS firms:
No quantitative requirements. FSA will develop develop industry guidance on the systems and controls in consultation with trade associations.
3. Reporting Requirements
UK incorporated banks currently using the Sterling Stock Liquidity approach:
From April 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to using their current reporting requirements.
UK incorporated banks currently using the Mismatch Liquidity approach:
Once a mismatch bank has been issued with ILG. So mismatch banks will continue to report using their current regulatory reporting arrangements during the transitional period from the fourth quarter of 2009 until issued with ILG (this could potentially be beyond June 2010).
UK incorporated banks that select simplified ILAS :
From June 2010. During the transitional period (fourth quarter of 2009 to end May 2010) firms will continue to use their current reporting requirements.
Building societies not within the simplified ILAS regime :
From April 2010. During the transitional period (fourth quarter of 2009 to end March 2010) firms will continue to using their current reporting requirements.
Building societies within the simplified ILAS regime :
From June 2010. During the transitional period (fourth quarter of 2009 to end May 2010) firms will continue to use their current reporting requirements.
UK branches of overseas firms (without a GLC):
From September 2010. During the transitional period (fourth quarter of 2009 to end August 2010) firms will continue to use their current reporting requirements.
UK branches of overseas firms (with a GLC):
From September 2010. During the transitional period (fourth quarter of 2009 to end August 2010) firms will continue to use their current reporting requirements.
Full scope BIPRU investment firms: From September 2010.
Non-ILAS firms: From December 2010.
Transitional provisions for Liquidity Requirements:
|
|
Systems & Controls Requirements |
Quantitative Requirements |
Reporting Requirements |
|
UK incorporated banks currently using Sterling Stock Liquidity approach
|
Fourth quarter of 2009.
|
April 2010 |
April 2010 |
|
UK incorporated banks using the Mismatch Liquidity approach |
Fourth quarter of 2009. |
June 2010 |
Once issued ILG |
|
UK incorporated banks that select simplified ILAS |
Fourth quarter of 2009. |
April 2010 |
June 2010 |
|
Building societies not within the simplified ILAS regime
|
Fourth quarter of 2009. |
April 2010 |
April 2010 |
|
Building societies within the simplified ILAS regime |
Fourth quarter of 2009. |
April 2010 |
June 2010 |
|
UK branches of overseas firms (without a GLC) |
Fourth quarter of 2009. |
September 2010 |
September 2010 |
|
UK branches of overseas firms (with a GLC) |
September 2010 |
September 2010 |
September 2010 |
|
Full scope BIPRU investment firms |
Fourth quarter of 2009. |
September 2010 |
September 2010 |
|
Non-ILAS firms |
Fourth quarter of 2009. |
No quantitative requirements |
December 2010
|
September 29 2009
