The ALMM: Are you ready for more granular liquidity reporting?

November 2, 2015 – By Wissam El Zeenni, Senior Regulatory Analyst, EMEA

The industry is awaiting publication of the final Additional Liquidity Monitoring Metrics (ALMM) rules in the Official Journal of the European Union (EU). However, with the European Commission (EC) and European Banking Authority (EBA) in agreement that the new liquidity reports should come into use in January 2016, now is the time for banks to finalize their implementations of the requirements.

AxiomSL | Inside View - LCRThe ALMM has been designed to supplement the information about banks’ liquidity that is already captured by the Liquidity Coverage Ratio (LCR). There is an overlap between the data that is needed to produce both reports. However, the ALMM also requires a lot of granular data that is not needed for the LCR, including information about a bank’s top ten counterparties and top ten types of funding across a multitude of maturity buckets.

Given the close relationship between the LCR and ALMM, banks should use a single platform to manage both requirements. This will allow them to avoid processing a lot of the same data twice when producing the LCR and ALMM. It will also ensure consistency and cross-validation between the data in both reports.

Banks should also ensure that the platform they intend to use for the ALMM will support the new level of granularity that will be required. If they do not prepare carefully, some banks may attempt to produce the ALMM using data that is not sufficiently granular. This will lead to the regulator asking them to rerun and resubmit their ALMM reports, and it will involve complex, time-consuming data sourcing work.

To prevent this happening, banks should check that the regulatory calculation and reporting platform they plan to use for the ALMM includes robust data management functionality, which can source data from multiple databases and decompose it to the necessary level of granularity. This type of capability will pay dividends in the future by enabling banks to use the same platform to support other reporting requirements that involve data at different levels of granularity.

One outstanding issue in relation to the ALMM is the alignment of its definitions and classifications with those prescribed by the LCR Delegated Act. The EBA is expected to address this issue and to fully align the ALMM and LCR. However, if this does not happen before the ALMM comes into use, banks will need to decide themselves how they are going to manage the inconsistencies. In particular, they will need to ensure they can justify their treatment and classification of collective investment undertakings (CIUs) and non-interest-bearing assets. This will be much easier if banks use a regulatory calculation and reporting platform that will maintain a record of the decisions they take and their interpretations of the requirements.Although they have had many months to prepare for the ALMM (the draft implementing technical standards were published in July 2014 and the requirements were originally due to come into force in July 2015), some banks have been prevented from taking advantage of this long lead-in time because they have not received the final report templates and guidance they need. By taking the time now to carefully analyze the functionality of the regulatory platform they intend to use, banks can avoid further unnecessary barriers to their compliance with the ALMM.

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