PRA Consults on Modernising the Liquidity Policy Framework

Why It Matters

The changes aim to tighten liquidity risk management and improve firms’ ability to access central bank funding, enhancing financial stability and aligning UK standards with evolving market practices.

Summary

On 17 March 2026 the Prudential Regulation Authority released consultation paper CP5/26 to modernise the UK liquidity policy framework. The PRA proposes that firms must assess liquidity composition and monetisation risk, conduct weekly stress tests, and remove the exemption for sovereign and other level‑1 assets in Liquidity Coverage Ratio testing. It also seeks to ensure firms are operationally ready to use central bank facilities and to monitor pre‑positioned collateral as a liquidity source. Responses to the proposals are due by 17 June 2026.