Liquidity risk: Regulation, markets and technology

Liquidity risk: Regulation, markets and technology

By Shannon Harris, Senior Research Executive, CeFPro.

Liquidity risk management continues to be a vitally important area to ensure the stability of the financial industry. The financial crisis highlighted how poor liquidity risk practices can quickly lead to the downfall of institutions and have a systemic impact across the industry. Since then, increased regulatory requirements and improved practices have contributed to many institutions strengthening their liquidity risk function, and the drive to enhance liquidity risk management continues as we are seeing more time and resources being dedicated.

Since the events of the crisis the financial landscape has dramatically changed in the past ten years. We are now experiencing new challenges in the form of markets, technology and regulatory demand. It is the task of many industry professionals to stay ahead of the curve and effectively monitor new risks. Being informed and adaptable in this current environment is key to success. Additionally many professionals and firms actively seek guidance from the industry to identify the top opportunities and challenges facing liquidity risk.

To explore this further The Center for Financial Professionals conducted extensive research with multiple industry professionals. The aim of this primary research was to identify the main topics and themes being address by liquidity professionals over the coming six to twelve months. The results from this analysis provided a rare glimpse into multiple institutions and their thoughts and concerns. Just some of the main topics produced from research have been highlighted below;


As always regulation continues to be a top area of debate and discussion. Research suggested that many are concerned with uncertainty around regulation and the ability to keep up with demand. Many commented on how since the financial crisis regulatory obligations have increased, and it is unsure at this stage which regulations are going to be in focus for 2019/2020. So how are FIs expected to manage current requirements, whilst preparing for upcoming regulatory regimes? This is reflected in some of the comments below;

“The regulators are constantly fine tuning and improving current regulation. So you need to keep up to speed, whilst making sure you are ready for the next big requirement.”
“It’s important to have a good view of what’s coming next. Regulatory demands can often be costly, time consuming and generally difficult. So you need to think about what changes you can make over the next few years so you can be prepared.”
“A lot of the rules are being put on hold with the trump administration, with a possibility of repealing some areas. So with them trying to pull them back we are sitting in limbo waiting for a decision to be made. So how do you manage this? Is it worth preparing and wasting time and resources on a rule which might never be finalized?”

Another one of the top areas highlighted by multiple sources was forecasting, in particular how to enhance forecasting capabilities. Undoubtedly new technologies have revolutionized the financial industry and aided in risk identification practices. So now the question remains of how FIs can incorporate new forms of technology into forecasting to improve firm oversight. Just some of the comments mentioned include;

“A big challenge is forecasting liquidity, you have new elements like machine learning coming into play. This area is really improving, and you will get a much more accurate forecast than what are done now. It’s an exciting time to see how it might progress and improve operations”
“You’re starting to hear more and more about areas like machine learning and artificial intelligence. But from a liquidity perspective how can you really use this to improve decision making. Having this technology is great, but how do you use it?”


“If you have information real time then you can make better decisions. This could really benefit planning and giving people like myself a better view of what’s going on in the organization”
Rising rate

And lastly unsurprisingly there is a strong focus on the rising rate environment. This is of course an area which is concerning multiple parties, however in particular questions have been raised over the possible implications on liquidity. At this stage its unknown how the rising rate environment might impact the financial sector, only time will tell. Below are just some points mentioned on this topic;


“We don’t know how badly or how quickly the rate environment is changing but we know it’s changing. Are people panicking too much and this will only be a small change? Or is this a serious issue which needs more attention?”
“Places like the U.K. have started to see rate rises for the first time in 10 years. When you start to get rates increasing your shareholders might start looking a bit twitchy if they are not making enough return on investment. And that’s when the role of the treasurer starts to become more difficult.”
“A big concern at the moment is the rising rate environment. Nobody really know what the impact of this will be, and what’s the impact on your liquidity? I’m hearing from a lot of people that this is causing some tension.”

In conclusion there are several issues which were presented as top challenges for the coming year. Although all of these areas are unique they all pose unique challenges and opportunities for liquidity risk professionals. Keeping an eye on the horizon and what might cause problems in the future is common practice for risk management, whilst also looking ahead at technological advances and further advancing the practice.

To support this The Center for Financial Professionals will be addressing these issues and more at our upcoming 3rdAnnual Liquidity Risk Management Congress, taking place on October 23-24 in New York. The two day event will bring together the industries finest to review the latest updates within liquidity risk including regulation, markets and technology. For more information on the event including the latest agenda and speakers please visit –

Additionally please feel free to contact me for more information. I can be reached via phone on +1 888 677 7007 or via email at