Join Mailing List

For latest news and information about Treasury and Financial Markets, enter your details below:

Preparing your ILAA

Print Preview Send to a Friend Share

Published: 12th January 2011 by William Webster

Not all banks have teams of people who can prepare an Individual Liquidity Adequacy Assessment ILAA. For small banks in particular the fear is that your ILAA doesn't live up to expectations and the regulator makes this clear in the SLRP. Read how one bank found a solution.


Like all Standard ILAS BIPRU firms this bank had to prepare an ILAA. The FSA had provided an indication of what was expected. The preparatory work was going to be undertaken by treasury and finance. This was where the day-to-day control of liquidity resided. The board would then need to make its assessment.

The Risk

In theory the ILAA was easy to write. But as soon as pen went to paper it all got a lot harder, there were questions about the meaning of BIPRU 12, what the ILAA should contain, why the FSA submission template repeated itself, how the FSA would play the buffer number and how much board input was warranted.

The risk was that the whole process would take a lot longer than necessary, the board would waste its time and the finished result would be compromised.

This was Barbican Consulting's solution:

The proposal

There were five stages:

1. The skeleton of risk. This involved identifying the main liquidity drivers, stress testing and the provision of quantitative information. This was not a mechanical process. It involved discussion and deliberation about how the buffer would be determined.

2. Assembling the case. This took the information and prepared it in accordance with the submission template. The result was a basic ILAA document that could now be used to lead discussion.

3. Preparing the board. This involved presentations about the liquidity regime, their responsibility and the inherent liquidity risks in the balance sheet.

4. Draft ILAA submission to the board. This prompted debate and review. The ILAA was revised in accordance with the board's judgment.

5. Approval. Subsequent to revision the board approved the ILAA.

The Outcome

The ILAA was developed in a logical order and it was completed on time. The bank retained control over the quantitative and qualitative aspects of the ILAA taking advice on the preparation and methodology as deemed necessary.

External expertise was used as required. It kept costs down but speeded up the process. It also meant a critical and objective third party opinion supported the drafting process.

Thorough preparation by the board regarding its understanding of BIPRU 12 and the risks the bank faced improved the debate and facilitated changes that were considered necessary given its risk appetite.

Displaying 1 to 6 of 6 results in total.

Related Documents

Free to ViewIs it in your your ILAA? 100% relevant

6th January 2011

The FSA's proposed Dear CEO letter (Review of implementation of systems and controls requirements in liquidity regime dated December 2010) tells you that if it's not in writing it doesn't exist.

Free to ViewImproving Your ILAA 95% relevant

18th December 2012

Sometimes you have done all the necessary work for your ILAA but later on you need a thorough review in order to tighten things up. Why? Because eighteen months ago when you prepared things it took up a lot of time and resources and you knew that it would require a bit of TLC at a later date. Now things have moved on and regulation, as far as it can be, has become a little clearer. It's time to get some independent advice and expertise in order to feel comfortable that you can deal with any regulatory scrutiny.

Free to ViewPreparing your ILSA 72% relevant

9th January 2011

An Individual Liquidity Systems Assessment (ILSA) is something that Simplified ILAS BIPRU Firms must prepare. It explains how liquidity risk is managed. For some firms it's a shock and time and resources can get stretched. Read how one client found the answer.

Payment RequiredLiquidity 60% relevant

31st March 2014

Liquidity "Markets can remain irrational longer than you can remain solvent." JM Keynes • Definition • Risk drivers • Stress testing • Board responsibility • Days of survival • Buffers • Funds transfer pricing • Outcome

Payment RequiredRegulation > Policy Statement 09/16 Stengthening liquidity standards October 2009 55% relevant

7th November 2009

Policy Statement 09/16 Strengthening liquidity standards refers to earlier consultation papers CP08/22, CP09/13 and CP09/14 and the comments received. In general whilst the FSA acknowledges many of the issues raised little has altered in the final policy. Firms will be expected to be self sufficient for liquidity purposes. Senior management is responsible for reviewing the level of liquidity, compliance and reporting to the Board. The FSA highlights that many firms have been unable to identify and report contractual cash flows on a regular basis. This will be unacceptable. Non compliance will be treated with regulatory sanction. How a firm is subject to Individual Liquidity Adequacy Standards (ILAS) depends on the size of the firm and the risks it presents. The ILAS framework comprises an Individual Liquidity Adequacy Assessment (ILAA), a Supervisory Liquidity Review Process (SLRP) and Individual Liquidity Guidance (ILG). Firms are obliged in the ILAA to undertake robust stress testing. The purpose of this is to show that the firm fully understands its liquidity risk. ILAS firms will need to report the stress test results in their ILAA. Liquidity management systems, controls and stress testing are all board responsibilities. The ILG is the amount of liquid resources the FSA expects a firm to hold. This will contain "guidance" on the amount of the liquid asset buffer and the firm's funding profile. As an incentive for firms to improve their systems and controls, the FSA will increase the amount of liquidity the firm must hold. Deposits at the central bank and tradable securities issued by the central bank will count towards the buffer. Holding currency denominated bonds should take into account potential problems in the FX market. For this reason a domestic bank with mainly sterling liabilities must hold its buffer in gilts. The FSA now require firms to price the cost of liquidity into products. This should mean that the cost of holding the liquidity buffer is passed on to those customers that create a stressed outflow requirement. The new regime will be phased in. The scope and application of the new rules will depend on the importance of the firm and its ability to create systemic risk.

Registration RequiredRegulation > Consultation Paper 08/22 Strengthening liquidity standards December 2008 53% relevant

31st January 2009

This CP sets out the FSA's plans to reform the liquidity regime. It requires firms to undertake a much more rigorous analysis of their liquidity position. This includes the effect of stressed conditions on their business. The firm will submit what it considers to be an appropriate liquidity buffer to the regulator. The FSA will then decide whether it is sufficient. In determining the buffer the FSA will also assess the firm's systems and management. If these are considered weak the buffer will be increased accordingly. The liquidity buffer can only be held in liquid assets. The FSA's view is that this primarily means Gilts, sovereign debt or central bank deposits. The FSA makes it clear, "The responsibility of adopting a sound approach to liquidity risk management is on firms and their senior management".