Modernising the Liquidity Policy Framework - Post-SVB Lessons Applied
Context:
The 2023 global banking stress events, particularly the rapid collapse of Silicon Valley Bank, where 85% of deposits fled within two days, exposed material weaknesses in how firms model liquidity outflows and access central bank facilities under stress. The PRA has reviewed its existing liquidity framework, supervised by the liquidity supervisory risk evaluation process (L-SREP), and identified areas where the UK approach needs to modernise.
CP5/26 was introduced by Phil Evans, who explained the PRA's intent to strengthen firms' ability to monetise assets and improve operational readiness. The reforms are positioned as strengthening the Internal Liquidity Adequacy Assessment Process (ILAAP) integration with supervisory review, and updating the treatment of central bank facilities within the Liquidity Coverage Ratio (LCR).
The consultation closes on 17 June 2026. The proposed implementation date is set to allow firms sufficient time to prepare new assessments and integrate changes into their ILAAP cycle before the L-SREP review process picks up the reforms. The PRA is seeking specific feedback on whether the proposed implementation date achieves the right balance.
Rules and Guidelines:
Updated PRA Rulebook: CRR Firms, Non-CRR Firms: Liquidity Instrument [2026] — amendments to core liquidity rules
Central bank facilities: revised treatment of eligibility and monetisation capabilities within the LCR framework
Enhanced ILAAP requirements: firms must provide improved information and assessments on their liquidity stress positions ahead of L-SREP reviews
Proportionate implementation: changes take effect at a point that aligns with firms' ILAAP cycle to minimise disruption
Amendments to SS24/15: The PRA's approach to supervising liquidity and funding risks, issued alongside the consultation
Compliance question Q1 in the CP specifically asks firms whether the proposed timetable is workable
Businesses Affected:
All PRA-regulated banks and building societies subject to LCR and ILAAP requirements (CRR and Non-CRR firms)
Treasury, ALM (Asset-Liability Management), and liquidity risk teams
ILAAP process owners and senior managers accountable for liquidity adequacy
Smaller and simpler firms subject to the simplified liquidity regime who need to assess proportionality impacts
Legal and regulatory affairs teams advising on compliance timetables and the definition of central bank-eligible assets
Next Steps:
Begin a preliminary assessment of how the proposed changes to central bank facilities treatment affect your firm's LCR composition
Map the new ILAAP requirements against your current liquidity risk framework and identify enhancement needs
Engage liquidity risk, treasury, and ILAAP teams to model the impact of SVB-style rapid outflow scenarios against proposed framework updates
Consider engaging with the PRA through a formal consultation response or direct supervisory dialogue if the proposals raise significant operational concerns
Factor the anticipated rule changes into your next ILAAP cycle planning and L-SREP preparation timeline
