Summary of stakeholder comments on the Internal Liquidity Adequacy Assessment Process (ILAAP) Discussion Paper

Stakeholders recognized the potential benefits of a structured Pillar 2 liquidity framework but noted that existing guidance covered in Guideline B-6 – Liquidity Principles, the Liquidity Adequacy Requirements (LAR) Guideline, and the Assurance on Capital, Leverage and Liquidity Returns Guideline already provide expectations for robust liquidity management, reporting, and controls. While the draft ILAAP Guideline could support documentation centralization and supervisory dialogue, its incremental value is likely limited relative to the additional resources and operational effort required.

We acknowledge stakeholder feedback. In response, we included paragraphs throughout the draft ILAAP Guideline to clarify the interaction with our other guidelines and regulatory exercises. The purpose of the ILAAP Guideline is to formalize internal assessment, strengthen documentation, and enhance supervisory dialogue, not to duplicate or overwrite existing processes.

Stakeholders generally considered the four Basel Pillar 2 principles to have been inherently adopted through adherence to our existing liquidity guidelines and requirements. While stakeholders support the principles, there is concern that explicit Pillar 2 add-ons could unintentionally overstate liquidity needs if applied as separate buffers for each risk.

Stakeholders emphasize that internal liquidity risk assessments and stress tests often already address Pillar 2 risks. Additional quantification could result in unnecessary cost or operational inefficiencies and may not be necessary provided that institutions meet Pillar 1 requirements.

We appreciate stakeholders’ feedback that Pillar 2 liquidity assessment is already quite mature in Canada, given existing liquidity risk guidance. The draft ILAAP Guideline focuses on providing qualitative and quantitative insights on residual risks not fully captured by Pillar 1.

The draft ILAAP Guideline does not establish explicit Pillar 2 add-ons for each risk. Rather, it asks institutions to assess liquidity adequacy holistically, inclusive of all liquidity risks.

Stakeholders felt that Chapter 7 of the LAR Guideline and Guideline B-6 as well as recent supervisory review work already provide them with clear expectations on intraday liquidity risk management. They are wary of any more prescriptive expectations coming from an ILAAP guideline.

For example, stakeholders recognized the need to consider double duty risk but were concerned about using regulatory intraday stress testing results to calibrate a buffer as these contain “overly conservative expectations”. They would prefer to set their own buffers that consider management actions and their internal risk appetite.

Assessments of intraday liquidity risk in an institution’s ILAAP should be consistent with Chapter 7 of the LAR Guideline and Guideline B-6 as well as any other expectations around intraday liquidity that we communicate as part of ongoing supervisory work.

However, we do not expect institutions to rely upon regulatory intraday stress testing results for their ILAAP assessments of intraday liquidity risk, especially given our instructions for institutions to exclude management actions from the regulatory stress testing results. Rather, institutions should establish buffers with internal metrics that consider management actions and the institutions’ internal risk appetite.

Stakeholders asked us to clarify the need for additional coverage on ‘settlement’ systems vs. payment systems (that is, greater than the scope of Chapter 7 of the LAR Guideline).

Expectations in the draft ILAAP Guideline are consistent with Guideline B-6 and Chapter 7 of the LAR Guideline, both of which already discuss an institution’s obligations to meet payment and settlement obligations on a timely basis.

Stakeholders asked us to explain why the discussion paper mentioned payment throttling, which could lead to increased systemic stress and disruption, as a potential management action.

The draft ILAAP Guideline no longer cites payment throttling as an example of a management action. However, we understand that institutions carefully manage the timing of some payments, especially during periods of stress, and we encourage them to recognize this when considering management actions for intraday liquidity.

Stakeholders suggested that the ILAAP could consolidate documentation and reporting needed to demonstrate adherence to Principle 8 (assessing pledging risk and adequacy of unencumbered assets) of Guideline B-6. This could possibly take the form of a templated return to facilitate a fit-for-purpose assessment based on an institution’s pledging risk exposure and use cases. Some stakeholders recommended that institutions file such reporting annually.

Some stakeholders observed that pledging practices and processes are likely to be divergent across institutions. Stakeholders also inquired as to what incremental benefits the ILAAP would provide, beyond expectations already established through other guidelines, such as Guideline B-6 and Guideline B-11 - Pledging, or through regulatory returns such as the Collateral and Pledging Report (H4).

We considered this feedback while drafting Section 4.7 of the draft ILAAP Guideline. This section presents pledging risk in the context of liquidity adequacy and offers guidance on how to assess the availability of collateral relative to current and potential needs. In the draft ILAAP Guideline, we provide several details on what institutions should consider when assessing pledging risk. However, we do not plan to introduce new templates or regulatory returns for pledging risk in the near term. Outside of the ILAAP submissions, we will continue to rely upon existing returns such as the Collateral and Pledging Report (H4).

Stakeholders recognized that managing liquidity by currency is critical, particularly under stress. Current frameworks address foreign funding flows and foreign currency (FX) risk through contingency funding plans and recovery planning. Challenges include differing assumptions across institutions, limited historical data for FX behavior under stress, and integration of central bank facilities.

Stakeholders asked us to provide guidance on consistent assumptions and documentation rationalization to reduce duplication and ensure assessments reflect specific entity structures, funding strategies, and regulatory constraints.

We considered this feedback while drafting section 4.5 of the draft ILAAP Guideline. The section offers guidance on FX liquidity risk assessment, supporting consistent assumptions, scenario design, and stress testing while accommodating entity-specific structures and funding strategies.

Stakeholders supported alignment with the FX Global Code in principle, emphasizing the importance of a fair and transparent FX market. However, expectations should be flexible to reflect the size and nature of FX activities, and adherence should not fall directly under the responsibility of liquidity risk managers. Existing compliance and operational frameworks are sufficient to satisfy Global Code principles, ensuring alignment with the Code without duplication of reporting or control requirements.

We encourage alignment with the FX Global Code where relevant but recognize that adherence will vary by institution. The draft ILAAP Guideline does not reference the FX Global Code.

Stakeholders noted that adherence to Solo Total Loss Absorbing Capacity (TLAC) requirements provides loss-absorbing capacity but does not directly measure liquidity availability or mobility across entities. Stakeholders cautioned against using institutions’ Solo TLAC ratios as a primary tool for solo or intragroup liquidity assessment, noting differences in stress timelines between TLAC and liquidity. Instead, the draft ILAAP Guideline should focus on ring-fencing, trapped liquidity, and intragroup funding constraints, with Solo TLAC ratios considered as supplementary information.

We considered this feedback while drafting section 4.6 of the draft ILAAP Guideline. We will use Solo TLAC information as a reference for intragroup liquidity assessment, but the draft ILAAP Guideline emphasizes liquidity-specific metrics, trapped liquidity, and intragroup funding flows.

Stakeholders observed that an institution’s ILAAP could assess trapped liquidity and intragroup funding risks through internal liquidity stress testing, reflecting entity-specific structures, funding strategies, and local regulations. Challenges include differences in regulatory views, assumptions about extreme stress actions, and potential duplicative buffers. Stakeholders recommend flexibility in assumptions, evidence-based monitoring, and leveraging existing contingency and recovery plans while avoiding rigid, standardized metrics that may overlook operational capabilities or entity-specific risk profiles.

We considered this feedback while drafting section 4.6 of the draft ILAAP Guideline. We acknowledge stakeholders’ challenges and recognize the need for flexible, entity-specific, scenario development. Assessment of solo and intragroup liquidity risk should focus on assumptions, governance, and evidence-based monitoring while avoiding rigid standardized buffers.

Stakeholders acknowledged that an institution’s ILAAP could evaluate how liquidity actions during stress affect reputation and market access. However, they noted that contingency funding and recovery plans already capture much of this information. They raised challenges such as subjective interpretations of what constitutes “core” business, potential overlap with existing plans, and the risk that material increases in liquidity buffers could penalize institutions relative to international peers. Stakeholders emphasized coordination with risk appetite, operational capability, and proportionality rather than a prescriptive, uniform approach across institutions.

We acknowledge the subjectivity in an institution’s franchise viability assessment. We encourage qualitative evaluation of reputational and market access risks within an institution’s ILAAP, coordinated with existing risk appetite frameworks and recovery plans.

Stakeholders observed that institutions can incorporate short-term liquidity stress into internal stress testing, but an explicit 5-day requirement unique to Canada may reduce flexibility, raise costs, and distort markets. Stakeholders highlight variability in assumptions, operational readiness, and market depth as challenges, suggesting that institutions should capture short-term metrics within stress tests while considering management actions and central bank support. Standardization should not override the need for practical, institution-specific assessments.

We appreciate the benefits and drawbacks of standardization and considered stakeholder feedback while drafting section 4.3 of the draft ILAAP Guideline. As part of its ILAAP, an institution will calibrate its own assumptions for the short-term liquidity metric. This includes assumptions around the availability and effectiveness of management actions.

Stakeholders noted that they assess product-level liquidity by mapping exposures to runoff, facility drawdowns, collateral requirements, and wholesale funding dependencies using qualitative and quantitative methods. Institutions evaluate new products through governance processes and incorporate them into stress tests. While detailed, dynamic modeling is challenging, institutions recommended focusing initially on embedding liquidity risk into new business approval processes and using existing stress testing frameworks to maintain an efficient and practical approach.

We support institutions’ approaches to product-level liquidity assessment and encourage integration with stress testing and new business governance. We recognize that dynamic, real-time modelling of product-level liquidity is operationally complex. Accordingly, section 4.1 of the draft ILAAP Guideline asks institutions to adopt a pragmatic and risk-based approach.

Stakeholders observed that an institution’s ILAAP could centralize the documentation and internal review of their liquidity action plans. However, they believe their ILAAP would have limited effect on resolution-specific funding needs, which are largely dictated by existing recovery and contingency frameworks. Stakeholders advocated for alignment rather than seamless integration with recovery plans to avoid duplication, maintain operational efficiency, and ensure that an institution’s ILAAP complements rather than replicates existing stress testing and recovery processes.

We support alignment between an institution’s ILAAP and recovery planning, emphasizing complementary documentation and supervisory insight without duplicating operational or funding requirements. We reflected these views in section 3.6 of the draft ILAAP Guideline.

Stakeholders noted that proportionality in potential implementation should consider the comprehensiveness of internal risk management frameworks relative to the institution’s size and range of business activities.

Domestic systemically important banks (D-SIBs) typically have more complex business structures and wider product ranges than small and medium-sized banks (SMSBs). As such, they should have more sophisticated liquidity risk management capabilities and more extensive liquidity risk supervision.

Stakeholders suggested that we may need to enhance the criteria for SMSB categorization when considering the appropriateness of ILAAP requirements as the existing criteria do not consider the scope and complexity of lending and deposit products.

We incorporated additional guidance to reflect proportionality in the draft ILAAP Guideline. The relevance of different Pillar 2 liquidity risks may not be aligned with the categorization criteria in the SMSB Capital and Liquidity Requirements Guideline, which is focused on Pillar 1 requirements. The draft ILAAP Guideline does not have different ILAAP expectations for different SMSB categories but instead clarifies that institutions should address all material liquidity risks they face, regardless of their SMSB category.

Stakeholders noted that existing reporting under Guideline B-6, the LAR Guideline, internal liquidity stress testing, and recovery plans cover much of the proposed ILAAP content, though institutions may require narrative explanation and supplementary documentation. They recommended a phased approach with high-level annual reporting initially, providing flexibility in structure and governance, and gradually adding granularity as supervisory engagement identifies specific Pillar 2 focus areas.

We accept this feedback and plan to adopt a phased implementation as described in the draft ILAAP Guideline, beginning with high-level annual submissions and expanding granularity over time. Reporting requirements will consider existing practices to reduce duplication while enabling effective supervisory assessment.

Stakeholders noted that implementing an ILAAP framework would be a complex, resource-intensive exercise requiring significant investment in staff, data systems, and documentation, with the risk of duplicating existing frameworks such as Guideline B-6, the LAR Guideline, and recovery and resolution planning. They noted challenges in achieving consistent interpretation across institutions, the potential diversion of resources into administrative processes rather than core risk management, and the difficulty of translating Pillar 2 risks into explicit buffer requirements. Stakeholders also warned of unintended consequences, including the imposition of duplicative or excessive buffers, reduced international competitiveness, higher costs for consumers, and inefficiencies from continuously escalating regulatory expectations.

We recognize these concerns and plan to work closely with the industry throughout implementation to promote consistent interpretation. The three-year phased implementation proposed in the draft ILAAP Guideline will allow for continuous engagement between stakeholders and help avoid unintended competitive impacts, ensuring that regulatory outcomes remain risk-based, efficient, and proportionate.