The Central Bank of Ireland (CBI) has published a Thematic Review in respect of Liquidity Risk Management in the MiFID Investment Firm Sector (the Report).
The CBI’s Regulatory & Supervisory Outlook publications for 2025 and 2026 (as to which see our insights posts 2025 Outlook and 2026 Outlook) identified weaknesses in culture, governance and risk management as key risks for the MiFID investment firm sector. This has led to an increased supervisory focus on MiFID investment firm’s compliance functions. The CBI’s recent thematic assessment of liquidity risk, which was carried out with a cohort of MiFID investment firms in 2025, is the latest output of this supervisory work and is aligned to the CBI’s ‘Safety and Soundness of Firms’ safeguarding outcome.
Key takeaways
- The CBI’s overall assessment is broadly positive, but some firms need to develop out their liquidity risk management
- Key weaknesses relate to liquidity risk limits, stress testing and contingent funding arrangements
- The board and senior management have ultimate responsibility for liquidity risk management and must assess and take action promptly
Objectives of the Assessment
The CBI’s assessment considered whether firms were managing liquidity risk in line with Directive (EU) 2019/2034 (the Investment Firm Directive), Regulation (EU) 2019/2033 (the Investment Firm Regulation), the Joint EBA and ESMA Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under the Investment Firm Directive (the Joint Guidelines), and the CBI’s own expectations. The assessment focused on:
- how the firms evaluated their exposures to liquidity risk, and
- the adequacy of their liquidity risk management frameworks
The Report aims to outline the key findings from the assessment, remind firms of their regulatory obligations, and highlight the CBI’s expectations for firms and boards in respect of their compliance functions. It also sets out elements of good practice and areas for improvement.
Evaluation of Liquidity Risk
- The CBI’s assessment found that firms are generally performing adequate liquidity risk assessments. The majority of firms presented a clear analysis in their Internal Capital Adequacy and Risk Assessment (ICARA), with due consideration of intraday liquidity risk and funding stability. Firms were also able to evidence the ability to ensure compliance with minimum liquidity requirements in both normal and stressed conditions. The CBI did note, however, that some firm’s ICARAs would benefit from more detail and analysis on identified liquidity risk exposures, and their potential impacts from a normative and economic perspective.
Liquidity Risk Management Frameworks
| General Observations
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Identified Good Practices
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Areas for Improvement | |
| Appropriateness of Risk Management Frameworks
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All firms had a “three lines of defence” structure to manage liquidity risk. | Clear Risk Appetite Statements.
Liquidity risk appetite linked to a self-determined minimum liquidity requirement (higher than the legal minimum).
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Some firms need to include further detail on liquidity risk exposures and controls in their risk registers. |
| Appropriateness of Limit Frameworks
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All firms had implemented specific liquidity risk limits.
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Limits that were clearly reflective of firms’ business and / or funding models.
Limits that were aligned to stress testing outputs and minimum liquidity requirements.
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Some firms could not adequately justify their calibrations.
Some frameworks lacked built in buffers / early warning indicators. |
| Stress Testing Frameworks
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The majority of firms had developed appropriate frameworks. | Stress tests clearly aligned to the firm’s self-assessed liquidity risks.
Stress tests conducted from both the normative and economic perspective.
Stress tests which considered compliance with minimum liquidity requirements (statutory and self-imposed).
Reverse stress tests.
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Some firms did not stress test from the economic perspective.
Some firms provided insufficient detail regarding the potential impact of stress scenarios on the firm’s liquidity position. |
| Contingent Funding Sources | There is a high
level of reliance on funding from affiliate entities to meet any stressed liquidity requirements. |
Availability of additional contingent funding, in addition to affiliate support.
Firm-specific contingency funding plans. |
Overall, a high level of reliance on affiliates.
Some firms don’t have any formal contingent funding.
Some firms contingent funding actions are reliant on reducing expenses rather than additional liquidity drawings.
Some firms contingent funding is uncommitted. |
Regulatory Expectations and Next Steps
- Self-assessment: All firms, their boards and senior management should revisit and review Joint Guidelines and the findings in the CBI’s Report. Gaps and weaknesses should be identified and addressed promptly to ensure that risk management frameworks are well designed, operating effectively, and sufficiently robust.
- Board engagement and documentation: The Report must be tabled at the next board meeting, and the discussion must be recorded in the board minutes.
To discuss the Report in more detail please contact a member of the Financial Regulation Group or your usual Arthur Cox contact.