The Bank of England’s Prudential Regulation Authority (PRA) has launched consultation CP5/26 on targeted changes to the UK prudential liquidity framework, centred on Pillar 2 requirements and supervisory expectations under the Internal Liquidity Adequacy Assessment (ILAA). The package is intended to strengthen firms’ ability to withstand rapid liquidity outflows by tightening expectations on monetisation of liquid assets and clarifying how regularly available central bank facilities fit into liquidity risk management. Key proposals include requiring firms to assess the composition, not just the amount, of liquidity resources under the Overall Liquidity Adequacy Rule (OLAR), introduce a firm-designed stress scenario with sudden and severe outflows focused on the first week, and explicitly assess frictions to monetisation including internal governance delays and the impact of unrealised losses on capital ratios. The PRA would replace “marketable asset risk” with a broader “monetisation risk” concept in ILAA stress testing, remove the requirement to complete the monetisation assumptions section of the PRA110 template, and remove the exemption for Level 1 Assets, including sovereign bonds, from the Liquidity Coverage Ratio operational requirement for monetisation testing. The proposals would also allow drawings from central bank facilities that are regularly available at published terms to be included in OLAR and internal stress testing, while continuing to exclude emergency liquidity assistance, and would add requirements to monitor and assess central bank drawing capacity against pre-positioned collateral and calculate the liquidity available from fully drawing against it. The PRA estimates direct one-off compliance costs of around GBP 7.2 million across all firms and ongoing costs of roughly GBP 0.6 million per year. Responses are requested by 17 June 2026. Implementation is proposed in two phases, with changes on PRA110 monetisation reporting and the central bank facilities and collateral package applying immediately once final rules are made, and remaining requirements taking effect 12 months after the final rules are made.
Bank of England 2026-03-17
Bank of England consults on Prudential Regulation Authority reforms to modernise the liquidity framework and embed central bank facility readiness
The Bank of England's Prudential Regulation Authority has initiated consultation CP5/26 on revisions to the UK prudential liquidity framework, focusing on Pillar 2 requirements and the Internal Liquidity Adequacy Assessment. Key proposals include assessing liquidity resource composition, introducing a firm-designed stress scenario, and redefining "monetisation risk" in stress testing. The changes aim to enhance firms' resilience to liquidity outflows, with estimated initial compliance costs of GBP 7.2 million and GBP 0.6 million annually.