Intra-Group Liquidity Modifications - ILAS BIPRU firms
Here, we explain Intra-Group Liquidity Modifications and how firms should
apply for them.
An Intra-Group Liquidity Modification is our process for granting and maintaining
modifications of the self-sufficiency requirement for UK ILAS BIPRU firms. Such a
modification can result in:
a) the overall liquidity adequacy rule (BIPRU 12.2.1R) being applied at a UK group
level, thereby creating a self-sufficient ILAS Group of UK ILAS BIPRU firms (a
UK Defined Liquidity Group (DLG) by modification, for reporting purposes),
and/or
b) permission being granted to an ILAS BIPRU firm or an ILAS Group (most likely a
UK DLG by modification) to place a degree of reliance on a foreign entity in order to
satisfy the overall liquidity adequacy rule, thereby creating a non-UK DLG by
modification (firm level) or a non-UK DLG by modification (DLG level),
respectively (for reporting purposes).
An Intra-Group Liquidity Modification to allow reliance on another ILAS BIPRU firm
(resulting in a UK DLG by modification) extends the scope of BIPRU 12.3 and BIPRU 12.4
such that each ILAS BIPRU firm in the UK DLG must ensure compliance with their
requirements on a UK DLG group-wide basis as well as on a solo basis.
If your firm is relationship-managed, please contact your PRA supervisor about the
appropriateness of your application before you apply.
Which firms should be included on the application?
UK ILAS BIPRU firms subject to the BIPRU 12 regime can apply for an Intra-Group
Liquidity Modification. Applications to create a self-sufficient ILAS Group (a UK DLG by
modification, for reporting purposes) should be made jointly by all the UK ILAS BIPRU
firms within the group.
An application to rely on support from an overseas entity to create a non-UK DLG by
modification must be made by the ILAS BIPRU firm or firms proposing to rely for support
on that overseas entity.
Does an application for an Intra-Group Liquidity Modification depend on the liquidity
regime to which the overseas entity (if any) providing liquidity support is subject?
BIPRU 12.8.15G sets out a number of factors which we expect to be satisfied for an overseas
regulatory regime before granting an Intra-Group Liquidity Modification to allow an ILAS
BIPRU firm or an ILAS Group to place a degree of reliance on a foreign entity (creating a
non-UK DLG by modification (firm level) or a non-UK DLG by modification (DLG level)).
If you are applying to rely on liquidity support from an entity regulated outside the UK we
will conduct an equivalence assessment of that regulator’s liquidity regime. The equivalence
assessment is one of the factors that we will take into account in considering a modification
application, but on its own it does not determine whether a modification is likely to be
approved or rejected.
During the modification process, we will contact the home state regulator and we will seek to
establish a continuing dialogue about the firm’s liquidity risks.
If you are a UK ILAS BIPRU firm applying to rely on liquidity support from another UK
ILAS BIPRU firm we will apply the approach outlined in BIPRU 12.8.14G to BIPRU
12.8.20G where relevant and by analogy (as indicated in BIPRU 12.8.9G).
What do we need to see when firms apply for an Intra-Group Liquidity Modification?
The following table, based on BIPRU 12.8.18G, sets out the minimum information we would
expect to see in an Intra-Group Liquidity Modification application to allow an ILAS BIPRU
firm or an ILAS Group to place a degree of reliance on a foreign entity, thereby creating a
non-UK DLG by modification (firm level) or a non-UK DLG by modification (DLG level).
Where the application is for an Intra-Group Liquidity Modification to create a self-sufficient
ILAS Group of UK ILAS BIPRU firms (a UK DLG by modification) we will adopt the
approach specified in BIPRU 12.8.9G. The required documentation will be analogous to that
in the categories below, with the exception of (3), which is not applicable.
The column on the right is left blank for your firm to consider and annotate.
NB It is not sufficient merely to state that a condition has been met. Please include an
explanation of how it has been met and list those documents you have provided in
support of your explanation.
BIPRU 12.8.18 G
In relation to an applicant firm wishing to rely on liquidity support from an overseas
parent undertaking, the PRA will, before granting an Intra-Group Liquidity
Modification, ordinarily expect to have reached agreement with that parent
undertaking that:
(1) it will make available liquidity resources
at all times to that applicant firm if needed;
(2) it will enter into an undertaking in a
suitable form with an applicant firm,
committing it to
provide liquidity support to that firm on the
occurrence of certain defined events;
(3) it will ensure that the applicant firm
maintains liquidity resources of appropriate
size and quality in the United Kingdom for
the purposes of meeting the liquidity needs of
that firm;
(4) it will maintain arrangements, including
having adequate liquidity resources, to ensure
that it, the applicant firm and any other
entities in its group to which it provides
liquidity support are able to wind down their
businesses in an orderly and controlled
manner in circumstances where its, or their,
businesses cease to be viable; and
(5) it will make available to the FCA
information in an appropriate format (LMM)
on group liquidity.
In evidencing that the above conditions have been met, we would expect to receive the
following:
A liquidity support undertaking in a suitable form, which would be:
a) For firms within a UK DLG by modification: legally binding, two-way (i.e. crosscommitted), multi-currency loan facilities between the ILAS BIPRU firms within the UK
DLG, such that liquidity can flow freely between all those firms. A detailed prescription as to
the form and content of UK DLG liquidity support undertakings for Intra-Group Liquidity
Modifications is available. Note that, in determining whether a proposed liquidity support
agreement is suitable, we will have regard to whether it ensures that liquidity will remain able
to move freely throughout the UK DLG in the event that any entity fails.
b) Where there is reliance placed on a foreign entity: a legally binding, one-way, multicurrency commitment from the overseas entity to the ILAS subsidiary, for at least the amount
of reliance the firm is permitted by the FCA to place upon the overseas entity in satisfying the
overall liquidity adequacy rule.
A detailed prescription as to the form and content of the liquidity support undertaking
between a UK firm and the foreign entity on which it relies for liquidity support is available.
The foreign entity must also provide certain confirmations to the FCA – see point 9 below.
1. Full details and explanation (including procedural documentation) of how the group
liquidity risks are managed. This should include:
a) internal liquidity policy;
b) details of the limits, methods and systems used to manage and monitor liquidity
risk, including whether each entity’s management is able to use this to monitor the
branch’s (if applicable) individual risks; and
c) details of any internal limits set regarding liquidity risk
2. A copy of the stress-testing procedures and the results of carrying out those procedures.
3. A copy of the contingency funding plans.
4. If your application includes a request to modify the self-sufficiency principle to create a
UK DLG (i.e. a UK liquidity group) without liquidity support from an overseas entity you
will need to provide a completed LMM return on a sterling equivalent basis for the solo UK
BIPRU entities (where unlimited guarantees or unlimited commitments exist between firms
within the proposed ILAS group you are not required to provide the above data items).
Guidance notes for completing the Main Details (FSA048) and Daily Flows (FSA 047)
sections of the LMM are available in SUP 16 Annex 25G. MI output will be automatically
generated under the tab GAP results. If your application includes a request to modify the selfsufficiency principle to allow liquidity support from an overseas entity you will need to
provide a completed LMM return on a sterling equivalent basis for the solo UK BIPRU
entities and Defined Liquidity Group (Non-UK DLG) (as approved by the FSA). Guidance
notes for completing the Main Details (FSA048) and Daily Flows (FSA 047) sections of
LMM are available in SUP 16 Annex 25G. MI output will be automatically generated under
the tab GAP results.
a) If the DLG has not yet been approved, please calculate point 6 above based on
what your proposed DLG would be under the modification (the definition of DLG
should follow the Handbook definition). Your proposed DLG will form part of the
discussion during the modification application process and the final agreed form will
be set out in the modification direction.
b) Please also provide a list of all material affiliates not included in your proposed
DLG, with the firm’s assessment of the liquidity risks posed to the DLG.
5. For firms applying for Intra-Group Liquidity Modifications to rely on an overseas entity
operating in a regime where the local currency is non-convertible, we expect two FSA047
and FSA048 for the non-UK DLG: one in convertible currencies and another in the nonconvertible/restricted currencies. For both sets of data, firms should also set out the list of
currencies included in each of the data items. This will be required as part of the modification
application and as an on-going modification condition.
A “non-convertible” currency is a currency of a regime where exchange controls and/or other
laws or regulations prevent or restrict the ability of an on-shore entity or person to convert
(through a deliverable FX transaction) the currency in question into any of the currencies
listed in BIPRU 12.7.4R (2)(b), such as by requiring specific approvals from authorities or by
limiting the amount that can be converted in any single transaction.
6. The submitted data items required under points 5, 6 and 7 above should be completed as at
a date no earlier than two weeks before you submit your application for new applications.
If your application includes a request to modify the self-sufficiency principle to allow
liquidity support from an overseas entity, the FSA expects to receive written confirmation
from the overseas entity that:
a) it will make liquidity resources available at all times to the applicant firm if
needed;
b) it will ensure that the liquidity support undertaking (see above) put in place as a
condition of the FSA granting the Intra-Group Liquidity Modification is maintained
and not varied without obtaining the prior consent of the FSA;
c) it will ensure that the applicant firm will maintain liquidity resources of an
appropriate size and quality for the purposes of meeting its liquidity needs;
d) it will maintain arrangements to ensure that it, the applicant firm, and any other
entities in its group to which it provides liquidity support, are able to wind down their
businesses in an orderly and controlled manner in circumstances where its, or their,
businesses cease to be viable;
e) it will make information on group liquidity available to the FSA by completing data
items at a frequency and in a format to be determined by the FSA; and
f) it will promptly notify the FSA where any legal, regulatory or other constraints on
the provision of liquidity from it to the applicant firm are imposed in the future.
(Guidance as to the form and content of the written confirmation to be provided is available)
The information requested above is not an exhaustive list. You should expect to be asked to
provide further clarifications and information throughout the application process.
We will process your application within 3 months from the date of receipt of a complete
application (including all of the details outlined above). In doing so we will aim to meet any
relevant dates you notify us of where possible.
If the modification is granted we will issue a Direction, which in most cases we expect to
publish on our website. Should you wish to apply for your direction to not be published, you
must show that the tests in SUP 8.6 are met.
How should firms apply for this modification?
Please apply for Intra-Group Liquidity Modifications using the normal PRA Waiver
Application Form and submit your application to:
Assessment and Monitoring
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA
[email protected]
How should firms apply to renew their existing Intra-Group Liquidity modification?
Firms with existing Intra-Group Liquidity Modifications will be required to submit a new
waiver application no later than 3 months before the expiry date of their existing
modification. This application should include all of the details outlined above. LMM returns
will not be required for firms that report the FSA047 and FSA048 data items on a daily,
weekly, monthly or quarterly frequency. For firms reporting on a semi-annual or annual
frequency, an LMM return will be required (as outline above) if an FSA047 and FSA 048
return has not been submitted within the three months prior to the date of application.
NB: Failure to submit a renewal application in a timely manner may result in the expiry of
the existing direction and the requirement to comply with the unmodified rules, before the
PRA is able to determine the decision for the renewal application.