The Essence of CP5/26: What Is Changing?

- 3月 23, 2026

The consultation paper CP5/26: Modernising the Liquidity Policy Framework, published by the PRA on 17 March 2026, is intended to redesign the liquidity regulatory framework built since 2008 on the basis of the empirical lessons from the banking turmoil of March 2023 (SVB and Credit Suisse) and the accelerating speed of digital deposit outflows. The consultation deadline is 17 June 2026. It applies to UK banks, building societies, and PRA-designated investment firms.

This paper provides a consistent practical analysis of the contents of that consultation paper from the perspective of bank treasury operations (ALM, funding, collateral management, and repo operations). Rather than a line-by-line explanation of the regulatory text, the focus is on what will change in treasury’s day-to-day work.

1. The Essence of CP5/26: What Is Changing?

1.1 In One Sentence

Holding HQLA and being able to use it in a crisis are not the same thing.

This is the central message running through CP5/26 as a whole. The PRA is seeking to shift the emphasis of liquidity regulation from quantity to usability / monetisation capability.

1.2 The Empirical Facts Behind It

The PRA’s justification for this shift is clear.

SVB (March 2023): 85% of total deposits ran off in just two days.
Credit Suisse (same month): 25% of total deposits ran off in seven days.

With the acceleration of digital banking and information diffusion through social media, the time horizon of liquidity stress has become far shorter than traditional assumptions such as the LCR’s 30-day framework. The PRA is trying to reflect that fact in regulatory design.

1.3 Position Within the Regulatory Structure

CP5/26 does not replace the LCR or NSFR. Pillar 1 (LCR/NSFR) remains in place, while the reform operates on the Pillar 2 side (ILAAP and supervisory expectations), bringing to the forefront monetisation frictions and operational bottlenecks that Pillar 1 does not fully capture.

Specifically, it is a package that revises the following documents together.

PRA Rulebook: Internal Liquidity Adequacy Assessment / Liquidity (CRR) / LCR (CRR) / Regulatory Reporting
SS24/15 (supervisory statement)
SoP1/18 (statement of policy)

This is not merely a supervisory message, but a structure in which the three layers of Rulebook, SS, and SoP are replaced simultaneously.

2. Implementation Timeline and Phased Rollout

2.1 Proposal for Two-Phase Implementation

Phase	Timing	Content
Phase 1	Immediate application at the same time as the final rules are made	Removal of the PRA110 monetisation section reporting requirement (rows 290–303) + new expectations regarding central bank facilities and pre-positioned collateral
Phase 2	12 months after the final rules are made	Full incorporation of monetisation testing including Level 1 assets, full integration of monetisation risk into internal stress testing, and all other proposals

The PRA states that the reason for allowing a transition period before Phase 2 is that banks will need time for SREP cycles and for system and process changes.

2.2 Practical Timeline for Treasury

Immediately: there will no longer be a need to fill in PRA110 monetisation actions. At the same time, there will be an obligation to explain explicitly within the ILAAP the use of BoE facilities and pre-positioned collateral.
After 12 months: monetisation testing of Level 1 assets (including gilts), short-horizon stress test design, and quantification of monetisation risk will be required in earnest.

3. The Structure of the Five Proposals and Their Practical Implications

3.1 Proposal 1: Assessment of the Composition of Liquidity Resources

Regulatory change

The OLAR (Overall Liquidity Adequacy Rule) would be revised to require firms to assess and maintain not only the total amount of liquidity resources but also their composition. The previous concept of marketable asset risk would be replaced with the broader concept of monetisation risk.

Impact on treasury

Until now, management has focused on how much HQLA is being held. Going forward, banks will need to demonstrate quantitatively how much of that HQLA can actually be turned into cash immediately, and whether the balance between cash and non-cash assets can withstand acute stress.

In practice, this means creating an asset-level monetisation map. For each asset, the following must be organised.

Asset type (gilt, UST, covered bond, etc.)
Monetisation route (repo bilateral / repo CCP / outright sale / BoE facility)
Time-to-cash (T+0 / T+1 / T+2)
Assumed haircut (market / central bank)
Execution constraints (market depth / ticket size / counterparty constraints)

This will need to be maintained by currency and by legal entity.

3.2 Proposal 2: Removal of the Monetisation Testing Exemption for Level 1 Assets

Regulatory change

Under the current LCR Operational Requirement, most Level 1 assets (mainly sovereign bonds) are exempt from annual monetisation testing. CP5/26 would remove that exemption.

Impact on treasury

The desk assumption that government bonds can obviously always be sold immediately will no longer be acceptable. At least for representative samples, banks will have to demonstrate that they can actually monetise them in the market.

Specifically, this means at least once a year carrying out and documenting:

Periodic repo transactions or small-lot sales of Level 1 assets including gilts
Recording the market frictions observed in the process (wider haircuts, settlement delays, market depth constraints)
Analysing the impact of unrealised losses in a rising interest rate environment on monetisation capability

From an ALM portfolio management perspective, the quality of HQLA will effectively come under scrutiny. Even within Level 1, differences in repoability and execution speed will emerge, and those differences will be reflected in the assessment of buffer effectiveness.

3.3 Proposal 3: Clarifying the Role of Central Bank Facilities

Regulatory change

Since February 2022, the BoE has shifted reserve supply to a demand-driven, repo-led framework. In that environment, the PRA positions central bank facilities not as a last-resort emergency measure of last resort, but as something operationally usable within the prudential liquidity framework.

Impact on treasury

Access to the BoE’s SMF (Sterling Monetary Framework) and related facilities will become a more explicit subject of supervisory assessment. It will no longer be enough simply to say that a facility line exists. The following will need to be explained on an operational basis.

Available frequency and hours of use
Time needed to determine collateral eligibility (especially where unstructured loan collateral may take months)
Approval flow and required time for drawdown
Time required for collateral substitution
Weekend and overnight operational capability

In other words, the standard will no longer be this should be usable, but rather when, against what collateral, and for how much funding it can actually be used. Regular dry runs (simulated drawdowns) and documented playbooks will in practice become essential.

3.4 Proposal 4: Management of Pre-positioned Collateral

Regulatory change

The proposal requires firms to assess and monitor, within the ILAAP, collateral that has already been pre-positioned with central banks and the associated drawdown capacity as an additional liquidity resource. However, the line remains that only assets that qualify as HQLA under the LCR can be included in quantitative liquidity guidance (Pillar 2 add-on).

Impact on treasury

The following level of disclosure is expected in the ILAAP.

Classification axis	Content
By entity	ring-fenced entity / branch / subsidiary
By central bank	BoE / ECB / Fed, etc.
By currency	GBP / EUR / USD, etc.
After haircut	post-haircut drawing capacity
HQLA classification	portion qualifying as HQLA under the LCR vs non-HQLA

From a collateral management perspective, the following inventory review will be required.

What is already pre-positioned
Which assets are not yet pre-positioned
Whether there are currency mismatches
How much additional collateral can be mobilised under stress
How much time that mobilisation requires (legal procedures and settlement infrastructure frictions)

3.5 Proposal 5: ILAAP Governance and Rationalisation of Supporting Documents

Regulatory change

To align with Proposals 1 to 4, the expectations in the ILAA rules, SS24/15, and SoP1/18 will be comprehensively revised. The involvement of ALCO, the linkage between the LCP and stress testing, and the consistency between funding plans and strategic planning will be clarified. At the same time, old EBA references and EU-derived wording will be cleaned up and restructured on a UK rulebook basis.

Impact on treasury

The ILAAP will change from a document into an operating manual. The PRA requires the ILAAP to satisfy the following.

It must be prepared and approved under the responsibility of the management body
It must be consistent with risk appetite
Minutes of the governance committee that recommended or approved it must be prepared as supporting material

In other words, the PRA will look even at who held responsibility and which governance body approved it. The effectiveness of the ALM committee / ALCO will be directly tested.

4. The Relationship Between LCR HQLA and the Effective Liquidity Buffer

4.1 Is CP5/26 Saying HQLA Should Be Reduced?

No. The PRA is not calling for a lower LCR requirement or for a reduction in HQLA holdings.

What CP5/26 is saying is that HQLA recognised under the LCR is a theoretical stock, whereas liquidity actually available under short-term stress (a narrow effective LAB) is something different. Therefore, separately from the LCR, firms are being pushed to define, measure, and explain internally usable liquidity.

4.2 Organising the Two Buffer Concepts

	LCR HQLA	Effective LAB in the CP5/26 sense
Horizon	30 days	A few days (especially the initial 1–7 days)
Market assumption	Markets function, to some degree	Markets may distort or evaporate
Repo	Implicitly assumed to be possible	Subject to capacity constraints
Central bank	Basically excluded	Explicitly included
Operational friction	Ignored	A core object of assessment

4.3 Composition of the Effective LAB

The PRA does not itself use the term LAB, but what it is substantively asking for is the following structure.

Effective Liquidity Buffer
= Assets that can be sold immediately
+ Repoable assets (including capacity constraints)
+ Central bank drawdown capacity (post-haircut)
− Execution friction (decision lag + settlement lag + collateral movement lag)

4.4 Implications for Portfolio Strategy

This is not a direct requirement to reduce HQLA, but it indirectly changes the optimal composition of the buffer.

Repoability becomes the most important KPI. Repo market depth, CCP access, and haircut stability become part of the asset selection criteria.
Assets that are merely held become less valued. The relative value of central bank-usable collateral rises.
Even for gilts, the message is that liquidity cannot be taken for granted. Stressed repo capacity becomes critical.

5. Design of Short-Term Stress Testing

5.1 Is It Saying Create a 7-Day Stress Test?

It is not saying that a new statutory 7-day test must be introduced uniformly for all banks. However, it strongly requires that internal stress testing (LST) should incorporate scenarios that capture severe funding outflows in the initial few days.

5.2 The Structural Changes Required

It is no longer enough simply to assess cumulative outflows over 30 days. Banks need to construct non-linear scenarios in which outflows are heavily front-loaded immediately after stress begins (the initial 1–7 days).
They must be able to show a daily detailed path from Day 0 to Day 5, including cumulative outflow, monetisation actions, and the buffer depletion path.
In particular, the intraday liquidity gap on Day 1 is critical.
The realism of management actions will be scrutinised closely. It is not enough to say we will sell assets. Firms will need to specify which assets, in which market, in what size, on which day, and under whose approval.

5.3 Redesign of Survival Horizon

The PRA’s examples suggest a format showing the following in tables and charts.

Initial balance of the liquid asset buffer
Haircuts applied each day
Cumulative outflows / inflows
Balance after reflecting management actions
The interim low point and cliff risk

The key point is that this becomes a framework for visualising how many days the bank can survive, where the low point occurs, and whether it remains resilient even after management actions are taken.

6. Reducing Dependence on PRA110 and Shifting to Internal Metrics

6.1 The Current Problem Structure

Many banks are currently in the following position.

PRA110 (currency-specific maturity ladder, contractual/behavioural cashflow, monetisation rows) is functioning as the de facto management metric.
The result is a state where filling in PRA110 is treated as if it means liquidity is being managed properly.

From the PRA’s perspective, this is clearly inadequate. PRA110 is too coarse in granularity (not asset-level), does not show time-to-cash, treats monetisation only as an assumption, does not capture central bank capacity, and ignores operational constraints.

6.2 Design Philosophy After CP5/26

The shift in direction can be expressed in one line.

Before: Reporting → Management (reporting determines management)
After: Management → Reporting (management determines reporting)

The real liquidity capability managed internally should be what is explained through the ILAAP and SREP. PRA110 becomes only the final output.

6.3 Specific Change in Phase 1

The reporting requirement for the PRA110 monetisation actions section (rows 290–303) will be removed. This will apply immediately when the final rules are made. The background is that PRA110 was rigid for measuring practical monetisation capability, including because central bank facilities were excluded as a monetisation channel.

6.4 The Three-Layer Structure of Internal Metrics That Must Be Built

What is needed is not a replacement for PRA110, but an internal metrics framework that is a superior version of it.

Layer 1: Stock (quantity) — the layer closest to the traditional LCR

HQLA balance, currency-specific buffers, legal-entity liquidity
Still necessary, but not sufficient on their own

Layer 2: Monetisation (conversion capability) — the new core of CP5/26

For each asset, the following should be managed.

Monetisation method (repo / sale / BoE facility)
Time-to-cash (hours to days)
Haircut (market / central bank)
Capacity (how much can actually be raised)

Layer 3: Execution (execution capability)

Operational readiness
Decision latency (time needed for approvals)
Market access (counterparty / CCP)

6.5 Specific Metrics That Should Be Built

(1) Liquidity Conversion Table (core metric)

For each asset, the following should be organised. This is a complete superior version of the PRA110 maturity ladder.

Item	Content
Asset type	Gilt, UST, covered bond, etc.
Currency	GBP, EUR, USD
Entity	Ring-fenced, branch, subsidiary
Market value	Market value
Post-haircut value	By market / central bank
Monetisation route	Repo / Sale / BoE / ECB
Time bucket	0–1 day / 1–3 days / 3–5 days

(2) Time-to-Cash metrics

T0 liquidity (amount movable on the same day)
T1 liquidity
T3 liquidity

The important point is not 30 days, but the first few days.

(3) Central Bank Capacity metrics

Drawing capacity at the BoE / ECB / Fed respectively
Pre-positioned vs non-pre-positioned
HQLA-eligible vs non-HQLA collateral

(4) Executable Liquidity Buffer

Not merely HQLA, but liquidity that can actually be used.

HQLA
+ repoable amount
+ amount drawable from the BoE
− execution constraint
= Executable Liquidity Buffer

(5) Liquidity Execution Lag

Decision lag (for example, 2 hours for approval)
Settlement lag (T+0 / T+1)
Collateral movement lag

→ This is a metric that does not exist in PRA110.

(6) Stress-adjusted Monetisation Capacity

Stressed haircut
Stressed repo capacity
Market depth constraints

6.6 The Process of Moving Away from PRA110

Step	Content
Step 1	Downgrade PRA110 to an output generated automatically at the end. The source should be internal data
Step 2	Redesign the data model at asset-level / legal-entity / currency granularity. Integrate collateral data
Step 3	Build dashboards (intraday liquidity / time-to-cash / central bank capacity)
Step 4	Connect it to the ILAAP. PRA110 becomes attachment-level material

7. Cross-Functional Agenda for LCP Revision Led by Treasury

Under CP5/26, the objective is no longer to prove the existence of a paper LCP, but to prove an executable LCP. Below is an organised set of workstreams that treasury would need to drive across the bank.

7.1 Overall Structure

Owner: Treasury (Head of ALM / Liquidity)
Governance: Liquidity Steering Group under ALCO
Timeline: 8–12 weeks for initial mobilisation

7.2 Workstream 1: Monetisation Capability

Owner: Treasury (ALM + Repo desk)
Relevant functions: Front Office (execution), Risk (assumptions and haircuts), Operations (settlement)

Create asset monetisation mapping (the Liquidity Conversion Table above)
Validate execution capability (repo capacity / counterparty / CCP / ticket size / market depth)
Plan and carry out monetisation tests (actual transactions, small size acceptable, quarterly as a guide)
Expand the test perimeter to include Level 1 assets (gilts)

Deliverables: Monetisation matrix (for the ILAAP), execution test results

7.3 Workstream 2: Central Bank & Collateral

Owner: Collateral Management / Treasury
Relevant functions: Legal (collateral agreements), Operations (pledging process), Risk (haircuts)

Inventory review of pre-positioning (already pledged / not yet pledged / currency mismatch)
Calculate drawing capacity (BoE / ECB / Fed × currency × entity, post-haircut, HQLA vs non-HQLA)
Test operational readiness (draw procedures, approval flow time, collateral substitution time, weekend and overnight capability)
Carry out dry runs (simulated drawdowns)

Deliverables: Drawing capacity table (for the ILAAP), facility playbook

7.4 Workstream 3: Stress Testing / LCP Redesign

Owner: Risk (Liquidity Risk) + Treasury
Relevant functions: ALM, Front Office

Redesign scenarios (focused on a 1–5 day horizon, deposit runs in a digital environment)
Rebuild the survival horizon (day-by-day cash flow, balance after reflecting monetisation, visualisation of low point and cliff risk)
Specify management actions in detail (asset identified / market / size / timing / approver)
Make constraints explicit (trapped liquidity / currency mismatch / funding transfer restrictions between legal entities)
Recalibrate behavioural models, especially tightening runoff speed parameters for non-maturity deposits (NMDs) in a digital environment

Deliverables: Survival profile (ILAAP chart), updated LCP actions

7.5 Workstream 4: Governance / Decision Framework

Owner: Treasury + CRO Office

Define triggers (early warning / recovery / escalation levels)
Decision flow (who decides what / delegated authority / pre-approved actions)
Emergency ALCO framework (define frequency / quorum / decision timeline in hours)
Communication plan (regulator / market / internal escalation)

Deliverables: LCP governance map, decision tree

7.6 Workstream 5: Data / Infrastructure

Owner: IT + Treasury

Define data requirements (asset-level liquidity / collateral availability / repo capacity / central bank capacity)
Real-time visibility (daily / intraday dashboard)
Reduce dependence on PRA110 — make internal metrics the primary source, with PRA110 auto-generated
Organise data lineage

Deliverables: Liquidity dashboard, data lineage document

7.7 Workstream 6: ILAAP Integration

Owner: Risk + Treasury

Redesign the ILAAP structure (chapters on monetisation risk / facility usage / collateral)
Raise the level of narrative detail (numbers + process + governance minutes)
Connect it with the LCP (a consistent explanatory structure from stress → actions → survival)

Deliverables: New ILAAP chapter structure, regulatory response package

8. The Overall Picture of What Banks Need to Tell the BoE/PRA

The centre of gravity of reporting is shifting from standardised PRA110 inputs to explanatory material within the ILAAP and internal stress testing. Instead of filling in rows 290–303 for monetisation actions in PRA110, firms will need to explain the following systematically within the ILAAP.

8.1 Pre-positioned Collateral and Drawing Capacity

The level of pre-positioned collateral
Drawing capacity (by legal entity × central bank × currency × post-haircut)
Split between HQLA-qualifying and non-HQLA portions
Operational readiness (including regular test results)

8.2 Monetisation Risk Assessment

The PRA expects at least the following level of granularity (with examples shown in Appendix 3).

Market value / accounting treatment / post-haircut value by asset type
Monetisation method (repo / outright sale / central bank)
Timing until cash is raised
Assumptions and frictions

This should be organised by currency, asset, and issuer.

8.3 Stress Horizon and Survival Horizon

Initial balance of the liquid asset buffer
Haircut
Cumulative outflows / inflows
Balance after reflecting management actions
Low point and cliff risk
Daily path through to the survival horizon

8.4 Governance

Minutes of the governance committee that approved the ILAAP
Explanation of consistency with risk appetite
Clear statement of management body responsibility

9. Cost Estimates and Market Impact

The PRA’s estimate of the impact on the industry as a whole is as follows.

Item	Amount
One-off cost (industry-wide)	Approximately £7.2 million
Ongoing cost (annual, industry-wide)	Approximately £0.59 million
One-off per firm (small firms)	Central estimate £31k
One-off per firm (medium firms)	Central estimate £70k
One-off per firm (large firms)	Central estimate £112k

The PRA views the aggregate impact on interbank, gilt, repo, and money markets as minimal, and frames this not as a major market-structure regulation, but as a supervisory recalibration designed to make existing liquidity holdings usable in a more realistic way.

10. The Shortest Practical Action List

Immediate response (1–2 months)

Create an asset-level monetisation map
Review the inventory of BoE pre-positioning
Calculate drawing capacity (post-haircut, entity × currency × central bank)
Create a gap list between the current LCP and CP5/26 requirements

Medium term (3–6 months)

Carry out monetisation tests (repo / sale, including Level 1 assets)
Redesign the stress test for a short horizon (daily path for Day 0–5)
Create a facility utilisation playbook
Introduce time-to-cash metrics
Visualise central bank capacity

Long term (6–12 months)

Fully rebuild the ILAAP
Strengthen ALCO governance (shorten decision latency in emergencies)
Build a liquidity dashboard (with PRA110 auto-generated)
Recalibrate behavioural models (such as NMD runoff speed)

11. Points Where Banks Will Definitely Get Stuck in Practice

The following are likely obstacles that banks will commonly face in responding to CP5/26.

Insufficient coordination between the repo desk and ALM — monetisation capability is an ALM management metric, but execution sits in the Front Office. Data and decision-making easily become fragmented between the two.
Fragmented collateral data — in many cases, the full picture of pre-positioned collateral is not centrally visible across entities.
Lack of visibility by legal entity — trapped liquidity and constraints on fund transfers between ring-fenced entities, branches, and subsidiaries are often not fully understood.
It is written that assets will be sold, but no one has ever actually executed it — there are widespread cases where management actions in the LCP have never in fact been tested.
Trying to respond by only slightly modifying PRA110 — because the structure is fundamentally different, this cannot be handled on an extension of PRA110.
Remaining Excel-based — data updates are too slow, making intraday response impossible.
Managing central bank capacity separately — drawing capacity is not integrated into the bank’s overall liquidity management framework.

12. Summary

If the essence of CP5/26 is summarised in one line, it is this:

LCR = static stock regulation → CP5/26 = dynamic operational regulation

That is the point.

The question is no longer whether liquidity is held, but whether it can be used. Even if a bank holds a large volume of sovereign bonds, that is not enough if repo operational capacity, pre-positioning, governance, and time-to-cash are weak. The PRA is trying to shift the axis from quantity-based regulation to implementable liquidity regulation incorporating composition, monetisation, and central bank usability.

For treasury, this means a structural shift from managing the LCR buffer to proving liquidity execution capability. Preparation for that should begin now, during the consultation period. If work only starts after the final rules are published, there is a real risk that banks will not be ready within the 12-month transition period for Phase 2.