Prudential Webinar: how to assess liquidity requirements

Date: 11 October 2023

Format: Recorded Webinar

This webinar is now available on demand...

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Webinar Relevant for: FCA-regulated firms (with a focus on MIFIDPRU Investment firms).

On 11th October 2023, Cosegic hosted another helpful webinar for FCA-regulated firms (with a focus on MIFIDPRU Investment firms) which covered the topic of 'how to assess liquidity requirements'. 

Over the past year, liquidity requirements have started to become a pain point for many of our clients. This is largely down to three contributing factors.

  • Increasing FCA focus on liquidity and financial resilience,
  • Lack of clarity over how the rules should be applied, and,
  • The current economic climate

This webinar provided attendees with a practical overview of the liquidity rules, including guidance on how firms can assess their resources, requirements and the approaches that firms can implement for assessing ongoing liquid asset requirements, as well as for wind-down liquidity requirements.

Agenda:

  • Liquidity – Key Principles and FCA Focus
  • Overview of the Liquid Asset Threshold Requirement
  • Approaches to Ongoing Liquid Asset Requirement assessments
  • Wind-down Liquidity Requirements
  • Liquidity Monitoring – good practice
  • Q and A

Hosts:

Harpartap Singh, Managing Director, Prudential Services

Jonathan Aseervatham, Director, Prudential Services

Stefan Babic, Associate Director, Prudential Services

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Background

Over the past year, liquidity requirements have started to become a pain point for many of our clients. This is largely down to three contributing factors.

Over the past year, liquidity requirements have started to become a pain point for many of our clients. This is largely down to three contributing factors.

Firstly, and perhaps not a surprise to many, the FCA’s increasing focus on liquidity and financial resilience. The FCA started issuing financial resilience surveys during Covid, and although conditions have largely returned back to pre-Covid times, the FCA continue to request more financial data – and has even introduced a new FIN073 return for those firms not regularly reporting on their liquidity position. The FCA’s stance is that firms should hold sufficient liquidity not only to meet business-as-usual obligations, but also to consider holding additional liquidity towards mitigating potential harms, periods of stress and also being able to wind-down their business in an orderly manner.

When the FCA writes to firms, liquidity management is often at the top of their agenda. Specifically, where the FCA has reviewed ICARAs they frequently comment on the assessment of additional liquidity requirements and ask firms to revisit their approaches. As a result of this increased scrutiny by the FCA, we are seeing more liquidity breaches being reported to the regulator.

Secondly, there is a lack of clarity over how the rules should be applied. The MIFIDPRU liquidity rules are somewhat theoretical as opposed to practical, so often firms are unclear as to how to effectively model their ongoing liquidity requirements.

Finally, the current economic climate means that firms’ liquidity arrangements have a heightened importance. Firms are increasingly being asked to ringfence liquidity in the case of a wind-down and consequently are not able to fully optimise the use of capital invested in their businesses.

Jonathan

Jonathan Aseervatham

Jonathan is a Director of our Prudential team, where he specialises in helping our clients to assess their regulatory capital and liquidity requirements; to implement IFPR including developing ICARAs and wind down plans; and to assist with their regulatory reporting obligations.

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Harpartap Singh

Harpartap Singh is responsible for the for the development and expansion of Cosegic's prudential services offering and client service delivery. He has substantial experience helping firms manage their prudential regulatory obligations, including investment firms' ICARA and banks' ICAAP and ILAAP reviews; SREP remediation; REGDATA reporting; recovery and resolution plans; wind down planning; regulatory capital restructuring; and M&A due diligence. Whilst he has substantial experience helping firms across all sectors to comply with their prudential regulatory obligations, his particular strength is helping investment firms and credit institutions.

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Jonathan Aseervatham

Jonathan is a Director of our Prudential team, where he specialises in helping our clients to assess their regulatory capital and liquidity requirements; to implement IFPR including developing ICARAs and wind down plans; and to assist with their regulatory reporting obligations. As well as being an experienced compliance professional, Jonathan is also a qualified ACA chartered accountant and a fellow of the Institute of Chartered Accountants in England and Wales (ICAEW).

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Stefan Babic

Stefan is an Associate Director within our Prudential Services team. He specialises in providing technical support to our clients in respect to capital and liquidity requirements, assisting clients with their with financial and non-financial risk management, supporting firms with ICAAP, ICARA and Wind-down planning and providing ongoing support to firms requiring assistance with their prudential obligations.

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