FCA Handbook - COREPRU 6 Basic liquid assets requirement

You are viewing COREPRU 6 Basic liquid assets requirement as it appeared on 25/10/2027. The current version of COREPRU 6 Basic liquid assets requirement was last updated on 25/10/2027.

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Rules

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COREPRU 6.1 Purpose

This chapter contains rules and guidance about a firm’s liquidity. It contains:

(1) a basic liquid assets requirement for a firm (COREPRU 6.2);
(2) rules and guidance on which assets count as core liquid assets for the purposes of the basic liquid assets requirement (COREPRU 6.3); and
(3) a rule excluding double counting of core liquid assets (COREPRU 6.3.7R).

A firm’s basic liquid assets requirement provides a minimum level of core liquid assets that the firm must maintain at all times. The purpose of the basic liquid assets requirement is to ensure that the firm always has a minimum stock of liquid assets to fund the initial stages of its wind-down process if wind-down becomes necessary. The firm cannot, therefore, use the value of the core liquid assets that it holds to meet the basic liquid assets requirement as liquid assets for any supplementary sectoral liquidity requirement or the liquidity needs of its ongoing business.

A firm should also refer to the rules and guidance on any supplementary sectoral liquidity requirement that applies to it.

The relevant sectoral prudential sourcebook may contain requirements relating to a firm’s systems and controls for identifying, monitoring and reducing liquidity risks that may cause material harm.

The basic liquid assets requirement in this chapter is based on a proportion of a firm’s fixed overheads requirement and any guarantees provided to clients. A firm may need to hold more liquid assets to comply with its liquid assets threshold requirement.

COREPRU 6.2 Basic liquid assets requirement

A firm must hold an amount of core liquid assets equal to the sum of:

(1) one-third of the amount of its fixed overheads requirement; and
(2) 1.6% of the total amount of any guarantees provided to clients.

Where a firm calculates a total amount for guarantees under COREPRU 6.2.1R(2), it must calculate:

(1) the total value of guarantees that the firm has outstanding at the end of each business day; or
(2) an average value for the guarantees that the firm has had outstanding over an appropriate time period, which must be updated at regular, appropriate intervals.

(1) COREPRU 6.2.2R(2) is intended to allow a firm to smooth out its liquidity requirement for guarantees, where the value of its outstanding guarantees fluctuates on a daily basis.
(2) An appropriate time period for calculating and updating this amount is likely to be a period that produces an average value that is representative of the overall liquidity risk arising out of the provision of guarantees to clients.

COREPRU 6.3 Core liquid assets

Subject to COREPRU 6.3.3R to COREPRU 6.3.5R, a core liquid asset means any of the following, when denominated in pound sterling:

(1) coins and banknotes;
(2) short-term deposits at a UK-authorised credit institution;
(3) assets representing claims on, or guaranteed by, the UK government or the Bank of England;
(4) units or shares in a short-term MMF; and
(5) units or shares in a third country fund that is comparable to a short-term MMF.

When assessing whether a third country fund is comparable to a short-term MMF, a firm should consider factors such as:

(1) whether the restrictions on instruments eligible for inclusion in the fund are comparable to the restrictions on instruments in article 10(1) of the Money Market Funds Regulation; and
(2) whether the fund is subject to requirements concerning portfolio diversification and risk management which are comparable to the requirements applicable to short-term MMFs in the Money Market Funds Regulation.

(1) If a firm’s relevant expenditure is incurred in a currency other than pound sterling, the firm may also treat the following assets as liquid assets, when denominated in that currency:
1. (a) coins and banknotes;
2. (b) short-term deposits at a credit institution;
3. (c) assets representing claims on, or guaranteed by, a central bank or government in a third country;
4. (d) units or shares in a short-term MMF; and
5. (e) units or shares in a third country fund that is comparable to a short-term MMF.
(2) The proportion of core liquid assets denominated in any currency other than pound sterling that a firm can rely upon to meet its basic liquid assets requirement must be no greater than:
1. (a) for the requirement in COREPRU 6.2.1R(1), the proportion of relevant expenditure incurred in that currency; and
2. (b) for the requirement in COREPRU 6.2.1R(2), the proportion of guarantees provided in that currency.
(3) This rule is subject to COREPRU 6.3.5R.

The effect of COREPRU 6.3.3R(2) is illustrated by the following example:

(1) A firm has relevant expenditure with a value of £1,200,000, of which:
1. (a) 20%, equivalent to £240,000, is incurred in US dollars (USD); and
2. (b) 5%, equivalent to £60,000, is incurred in Swiss francs (CHF).
(2) In addition, the firm has provided total guarantees to clients with a value of £10m of which 50%, equivalent to £5m, is denominated in USD.
(3) The firm’s fixed overheads requirement (one quarter of its relevant expenditure calculated in accordance with COREPRU 4.3) is £300,000.
(4) Under COREPRU 6.2.1R, the firm’s basic liquid assets requirement is £260,000, which reflects:
1. (a) £100,000 in respect of the requirement in COREPRU 6.2.1R(1) (one-third of the amount of its fixed overheads requirement); and
2. (b) £160,000 in respect of the requirement in COREPRU 6.2.1R(2) (1.6% of the total amount of any guarantees provided to clients).
(5) To meet its requirement in COREPRU 6.2.1R, a firm may choose to use liquid assets listed in COREPRU 6.3.3R denominated in a currency other than pound sterling, up to a maximum equivalent to £105,000 in accordance with COREPRU 6.3.3R(2), as follows:
1. (a) for the requirement in COREPRU 6.2.1R(1), up to the equivalent of:
  1. (i) £20,000 may be held in USD-denominated liquid assets (20% of 100,000 = 20,000); and
  2. (ii) £5,000 may be held in CHF-denominated liquid assets (5% of 100,000 = 5,000); and
2. (b) for the requirement in COREPRU 6.2.1R(2), up to the equivalent of £80,000 (50% of 160,000 = 80,000) may be held in USD-denominated liquid assets.

A firm must not treat any of the following as a core liquid asset:

(1) any asset that belongs to a client; and
(2) any other asset that is encumbered.

(1) For the purposes of COREPRU 6.3.5R(1), an asset may belong to a client even if the asset is held in the firm’s own name. Examples of assets belonging to a client include money or other assets held under the FCA’s client asset rules.
(2) For the purposes of COREPRU 6.3.5R(2), an asset may be encumbered if it is pledged as security or collateral, or subject to some other legal restriction (for example, due to regulatory or contractual requirements) which affects the firm’s ability to liquidate, sell, transfer or assign the asset.

Requirement to exclude double counting of core liquid assets

A firm must not use the same core liquid assets to meet the basic liquid assets requirement in COREPRU 6.2.1R and any supplementary sectoral liquidity requirement.

Interaction between COREPRU and MIFIDPRU

Where a firm is subject to the Core Prudential Sourcebook (COREPRU) and the Prudential Sourcebook for MiFID Investment Firms (MIFIDPRU), a firm can use the same core liquid assets to meet the basic liquid assets requirement in COREPRU 6.2.1R and MIFIDPRU 6.2.1R.

Point In Time

25/10/2027