8.1 General considerations

Competent authorities should assess and score the risks to liquidity that have been identified as material for the investment firm, and the management and controls of these risks by the investment firm.

The formality and granularity of the assessment should depend on the investment firm’s size, the structure and the internal organisation of the investment firm and the nature, scope and complexity of its activities as well as its risk to clients, risk to market and risk to the investment firm. For the investment firms that do not deal on own account the assessment should be less comprehensive, whereas for investment firms that deal on own account the assessment should be granular and more comprehensive.

Investment firms which deal on own account should conduct liquidity assessment, including intra-day, in accordance with Article 29(1), point (d) of Directive (EU) 2019/2034. Competent authorities should therefore assess investment firms which engage into market making activity as defined in Article 2(1), point (k) of Regulation (EU) No 236/2012 comprehensively and assess whether such investment firms cover elements that are relevant for them, such as the assessment of intraday liquidity risk and adequacy of available liquid resources.

Competent authorities should verify the investment firm’s compliance with the minimum liquidity requirements specified in Regulation (EU) 2019/2033 and Directive (EU) 2019/2034. Competent authorities should extend the scope of the assessment in order to form a comprehensive view on the liquidity risk.

In conducting the assessment of risk to liquidity, competent authorities should consider all of the following sources of information, where available:

• a. outcomes from the analysis of the services and activities provided by the investment firm and information from the monitoring of key indicators’ particularly where that may help with understanding the key sources of risk to liquidity;
• b. supervisory reporting, and particularly the information provided by the investment firm in its reporting pursuant to Article 54 of Regulation (EU) 2019/2033;
• c. any investment firm’s periodic report, quantitative report, financial statement report, internal reports such as the management reports on liquidity and any other information requested from the investment firm by the competent authority;
• d. any information from the investment firm’s parent if the investment firm is a subsidiary and is included in the supervision on a consolidated basis, and in particular information on liquidity risk of investment firms that are part of a banking group;
• e. outcomes of any supervisory activities;
• f. any information from the investment firm’s ILAAP;
• g. findings and observations from internal or external audit reports;
• h. recommendations and guidelines issued by the EBA or ESMA as well as warnings and recommendations issued by macro-prudential authorities or the ESRB; and
• i. risk identified in other investment firms operating a similar business model.

The assessment of liquidity risk should be based on reliable and up-to-date information, and the results should be taken into account when performing the assessment of the liquidity risk management process.

Competent authorities should reflect the outcome of the assessment of liquidity risk in a summary of findings that provides an explanation of the main risk drivers and a score.