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The BCBS248 Spring – new regulatory guidance on intraday liquidity

Global regulators have been quiet over the last few months in terms of intraday liquidity guidance, perhaps in hibernation. But, with the onset of spring, the UK PRA has begun to stir and has updated its intraday liquidity guidance with immediate effect.

This is important, as the UK PRA is generally seen as the bellwether for intraday matters – where it leads, others will follow. I’ll summarise the guidance itself in a moment, but it’s worth reflecting on why this update is important in and of itself.

Regulators are going beyond plain reporting

The UK PRA has had public guidance on intraday and BCBS248 for a number of years now. What is becoming clear is that it want firms to take the guidance more seriously. Firms must provide data in their returns that can be re-used by the PRA when assessing intraday risk during the regular supervisory review process. This is why it is pushing for each firm’s intraday returns to be accurate and comparable to peer returns.

When the PRA is reviewing a firm’s activity it will be digging deeper into interesting pointers in the returns – what caused that spike in credit usage? Show me the transactions? What action did you take as a result?

So it is vital that a firm’s BCBS 248 returns are sourced from the same data and system that is used to manage the business on an intraday basis. I have many anecdotes of a firm being embarrassed when unable to justify, or even replicate, the formal returns when being quizzed by a regulator.

Global regulators continue to engage

This isn’t stated anywhere formally, but the reason the UK PRA is continuing to gently push its own process is due to the problems of working across Europe at the moment.

Remember that the original intention was for the European Banking Authority (EBA) to roll out an intraday regime across Europe, with the UK a key part of this. The EBA has been sluggish on this. Due to budget constraints, it had to delay introducing the regime in 2016 which is why the UK decided to proceed cautiously on its own. But the EBA will proceed and there is still a lot of good sense being talked about building on the UK’s experience and expertise when formulating the EBA regime.

(By the way, Brexit throws up extra confusion– will the UK always need to follow the EBA guidelines? That will depend on any post-Brexit financial services deal within the UK / Europe divorce settlement, potentially only a couple of years away. Watch this space!)

In the US, the Fed is really starting to bare its teeth on intraday. Although it is publicly quiet on implementing a BCBS248 regime, it is more challenging in private. In its discussions with banks, it has shown an increasing understanding of intraday and is forcing banks to step up to the plate on intraday capability. This is evident in the RRP processes, where intraday risk is seen as a key element of a bank’s resolution plans, and in the special attention being given to the FBOs (Foreign Banking Organizations). Expect similar intraday questioning to spread more widely across firms in the US in 2017.

Updated guidance removes hiding places

The new PRA guidance can be seen here. It’s not very long, but straight into the technical detail. There are a few pointers to a tighter regime:

  1. Firms can’t ‘hide’ intraday usage by avoiding the appearance of overdrafts through some form of pre-funding.
  2. Firms can’t fudge intraday usage by using alternative, non-reported accounts to ‘store’ negative balances while the reported accounts look healthier.
  3. There is a movement towards increasing the scope of reporting, rather than the firm being able to simply claim they don’t need to report on certain currencies due to theoretical materiality thresholds.

By the way, the updated guidance hasn’t fixed a problem in the original template, with some confusion over when to use minimum or maximum…

What do you have to do next?

If you are already part of the UK regime, then:

  • get ready for deeper dives into the detail on supervisory visits; make sure the system you manage your intraday business is the same one you use to generate data for the returns.
  • make sure your current systems and processes meet the new guidance and are calculating correctly.

The Planixs Realiti system already meets the new guidance (it always did, and resolved the minimum/maximum issue) and we continue to commit that we will update Realiti to fit the evolving intraday agenda.

If you want to talk, then please give me a shout on pete.mcintyre@planixs.com

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