Liquidity Risk Challenges: NSFR, Intraday Liquidity, ILAAP and Regulatory Change

Liquidity Risk Challenges: NSFR, Intraday Liquidity, ILAAP and Regulatory Change

The events of the financial crisis highlighted the crucial need to improve risk management procedures across financial institutions. In an attempt to stabilise the industry and prevent another financial downturn a vast array of risk related regulations have been proposed and implemented since 2008. The upcoming 12 months are set to be especially interesting as the industry has a full agenda of pending regulations, implementation, structural reform, and an increasingly uncertain political landscape. With an extremely busy schedule ahead, many industry experts have raised concerns over some of the regulatory requirements and the ability to satisfy the regulators. Below are some of the key topics highlighted through speaking to over 40 senior liquidity risk professionals in advance of the 6th Annual Liquidity Risk Management Forum, June 15, London (

One topic, which received a heightened interest, was around the ambiguities surrounding the NSFR, with a specific focus on interpretation and implementation. The NSFR has been on the horizon and agenda for many years, seeing multiple setbacks and delays, with implementation now expected by January 2018. Although the concept of the NSFR has been in discussion for some time now, industry experts are still raising concerns on how to fully comply; with many unsure what the final rule will look like and how to ensure preparation ahead of going on live day one. In addition, post implementation questions regarding daily management and reporting have still been left unanswered. This is understandably a stumbling block as institutions look to move towards implementation, uncertainty around what is required and on-going management remains a key consideration. As we enter the final few months before full implementation, this will be an interesting time to observe the developments and progress made within the industry in the final push before the project finally goes live.

Another key consideration focused on the requirements for intraday liquidity. Intraday liquidity has been, and remains a topical talking point, however evidence suggests that some financial institutions are still unclear on the requirements. Concerns have been raised around increasing regulatory requirements and the ability to effectively quantify data and successfully report intraday liquidity data under the PRA interim regulatory reports. Financial institutions need to better understand the regulatory vision for intraday liquidity in order to take pre-emptive steps to prepare for changes ahead. The Center for Financial Professionals upcoming 6th Annual Liquidity Risk Management Forum gives attendees the opportunity to hear from senior Risk Specialists from the Bank of England addressing Intraday Liquidity challenges and hurdles ahead; they will explore and discuss the current regulatory environment for Intraday Liquidity, as well as provide the opportunity for questions and answers from delegates.

Another key consideration was the second phase of ILAAP and how to become fully compliant on the second attempt. One of the main questions is how to develop the ILAAP process internally year-on-year and satisfy the regulators? Regulatory expectations for ILAAP continue to evolve and questions have been raised as to whether the industry is fully prepared to comply with the second phase. One suggestion has been that in order to successfully pass the second phase of ILAAP, risk professionals should begin encouraging industry comparison and benchmarking.  As is often the case with other areas, liquidity risk managers remain unclear as to what is expected in order to develop the processes to comply with continually evolving expectations, therefore industry preparedness remains a concern. Many are looking into the level of disclosure required, not wanting to give too much away during this period and expose institutions to competitors, which plays a key role in decision making. Once again the coming months will be crucial to identify if the industry can join forces to prepare for and successfully pass the second phase of ILAAP.

Overall the liquidity risk landscape is facing an exciting period, as they aim to finalise and implement some of the major regulatory requirements, such the NSFR. In addition, we will observe the developments on outstanding projects such as Intraday liquidity and ILAAP. However some concerns have been raised over the regulators evolving demands and if financial institutions are fully prepared for the upcoming regulatory changes. Undoubtedly this is a time to encourage benchmarking throughout the industry to compare planning and approaches.

The Center for Financial Professionals upcoming 6th Annual Liquidity Risk Management forum (15th of June, London, aims to explore some of the current and future opportunities and constraints associated with liquidity risk. The Forum will provide an excellent opportunity for like-minded industry experts to discuss and debate their views and opinions on the liquidity space and what the future holds.