Waivers: Whole-firm liquidity modifications

Find out about Whole-firm Liquidity Modifications and how firms should apply for them.

A Whole-firm Liquidity Modification modifies BIPRU 12, so that the vast majority of BIPRU 12 is waived including 12.3 and 12.4. The exception is BIPRU 12.2.1R (1) (the overall liquidity adequacy rule) which will be modified to allow unlimited liquidity from anywhere within the firm. The reporting requirements for branches are likely to be modified so that the whole-firm is required to submit data items FSA 047 and FSA 048 at a frequency no greater than quarterly, with a one month submission deadline.

If your firm is relationship-managed, please contact your supervisor about the appropriateness of your application before you apply.

If your firm does not have a Whole-firm Liquidity Modification, when we set ILAS quantitative requirements for its branch we will take into account the uncertainty arising from having to assess liquidity risks at the whole-firm level without relevant information.

Firms included on the application

Overseas firms whose UK branches are subject to the full BIPRU 12 regime can apply for a Whole-firm Liquidity Modification. We would expect to receive one application per firm, even where a firm has more than one branch.

Home state liquidity regime

BIPRU 12.8.26G sets out a number of factors which we expect to be satisfied before granting a Whole-firm Liquidity Modification. We will conduct an equivalence assessment of the liquidity regime of the home state regulator of the applicant firm. The equivalence assessment is one of the factors we will consider for a modification application, but on its own it does not determine whether a modification is likely to be approved or rejected.

During the modifications process, we will contact the home state regulator and will seek to establish continuing dialogue about the firm’s liquidity risks.

What we look for

The following table sets out the minimum information we would expect to see in a Whole-firm Liquidity Modification application.

BIPRU 12.8.28 G
In relation to an applicant firm, the FSA, before granting a Whole-firm Liquidity Modification will ordinarily expect to have reached an agreement with that firm that:

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.

(1) it will make available liquidity resources at all times to its UK branch if needed;

 

(2) it will make available to the FSA information in an appropriate format on firm-wide liquidity.  

 

(3) it will notify the FSA at the same time as it notifies the Home State regulator or third-country competent authority of any relevant issues concerning the liquidity position of its UK branch or compliance with the rules to which it is subject in respect of its liquidity (including with the terms of its Whole-firm Liquidity Modification);

 

(4) its UK branch will continue to be fully integrated with the rest of the firm for liquidity risk-management purposes; and

 

(5) it will participate in the FSA’s thematic supervisory work in relation to liquidity when requested to do so by the FSA.

 

In evidencing that the above conditions have been met, we would expect to receive the following

A detailed business plan for the branch covering a minimum of three years, describing how the branch integrates with the rest of the firm in terms of liquidity management both in a “business as usual” context and in times of liquidity stress events. The business plan should detail any significant expected changes to the business of the UK branch. Your business plan should give a suitably detailed qualitative account of the future of the UK business as well as a quantitative account of these activities. The quantitative account should include the branch’s current UK total balance sheet size broken-down by business lines and any percentage change expected over the next three years.

An appropriate account of the level and nature of the activities of the firm’s operations in the UK over the previous year.

Full details and explanation (including procedural documentation) of how the branch's liquidity risks are managed, this should include:

  • internal liquidity policy on a wholefirm basis (UK branch as well as head office);
  • details of the systems used to manage and monitor liquidity risk, Including whether the branch’s management is able to use this to monitor the branch’s individual risks; and
  • details of any internal limits set regarding liquidity risk.

A copy of the stress-testing procedures applicable to the whole-firm, and the results of carrying out those procedures

A copy of the contingency funding plans.

An LMM return completed on a whole firm basis. The data items should be completed as at a date with three months of the date of submit a Whole-firm Liquidity Modification application. If this timeframe causes you difficulties, please speak to your usual supervisory contact.

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.

For firms applying for a Whole-firm Liquidity Modification that are incorporated in a jurisdiction where the local currency is non-convertible, we request two FSA047 and FSA048, completed on a whole-firm basis: one in convertible currencies and another in the non-convertible/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.

Written confirmation from the applicant firm’s head office that:

a) it will make available liquidity resources at all times to its UK branch if needed;

b) it will make information on liquidity available to the FSA by completing and submitting data items FSA047 and FSA048, on a whole-firm, all-currency combined basis reported in any of the seven Gabriel reporting currencies (as prescribed in SUP 16.12.5R), and at a frequency to be specified by the FSA. If the domestic currency is non-convertible, the firm must also complete an additional FSA047 and FSA048 (at a frequency to be specified by the FSA) in convertible currencies, including a list of the currencies assumed to be convertible;

c) it will notify the FSA at the same time as it notifies its home state regulator of any issues relevant to its liquidity position or that of its UK branch or of its compliance with the rules to which it is subject in respect of its liquidity (including with the terms of its Whole-firm Liquidity Modification);

d) its UK branch will continue to be fully integrated with the rest of the firm for liquidity risk management purposes;

e) it will participate in the FSA’s thematic supervisory work in relation to liquidity when requested to do so by the FSA;

f) it will confirm annually to the FSA, on or before the anniversary of the granting of the Whole-firm Liquidity Modification, in a communication approved by its governing body, that it remains in full compliance with the terms of its Whole-firm Liquidity Modification and that it will provide a copy of this confirmation to its home state regulator;

g) it will provide to the FSA, at the first anniversary of the granting of the Whole-firm Liquidity Modification and on each anniversary thereafter, a suitably detailed qualitative and quantitative account of activities conducted by its UK branch over the previous year and a copy of the firm’s latest business plan where this differs from that previously sent to the FSA after the granting of the Whole-firm Liquidity Modification;

h) it will confirm to the FSA, at least two months prior to the first anniversary of this Whole-firm Liquidity Modification and at least two months prior to each anniversary thereafter, whether there have been any changes to the conditions or factual circumstances under which the waiver was originally granted; and

i) it will promptly notify the FSA where any legal, regulatory or other constraints on the provision of liquidity by it to its UK branch are imposed in the future.

Guidance on the form and content of the written confirmations.

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 three months from the date of the 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 within your modification application.

Apply for this modification

Please apply for Whole-firm Liquidity Modifications using the usual modification application procedures and email it to the [email protected].

Renew an existing Whole-firm Liquidity Modification

Firms with existing Whole-firm 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 FSA 047 and FSA 048 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 outlined above) if an FSA 047 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 FSA is able to determine the decision for the renewal application.