Risk Advisory · ILAAP
RiskTAE’s ILAAP service writes the Internal Liquidity Adequacy Assessment Process for UK banks and building societies, or reviews and challenges the firm’s own draft, and builds the liquidity stress testing behind it. Senior practitioners who have held the roles do the work, and the document and the open Excel model pass to your team.
Your board approves an ILAAP it can defend through the PRA’s liquidity review, and your own people can rerun the stress tests next quarter.
By Mark Dougherty, CPA (CAN)Updated
Definition
An ILAAP (Internal Liquidity Adequacy Assessment Process) is a firm’s own assessment of the liquidity and funding it needs to meet its liabilities as they fall due, in normal conditions and under stress. The PRA requires one under the Internal Liquidity Adequacy Assessment Part of its Rulebook.
Our explainer What is an ILAAP? covers the rules, what goes into the document, the survival period and how the PRA uses it in the L-SREP.
In drafts we review, the first check is whether the OLAR conclusion at the front is the number the stress testing chapter produces at the back. Often two people wrote them from different versions of the balance sheet.
Sources: PRA Rulebook, Internal Liquidity Adequacy Assessment Part, rules 2.1 and 13.3.
Supervision
The ILAAP feeds the Liquidity Supervisory Review and Evaluation Process (L-SREP), run at a frequency proportionate to the firm’s nature, scale and complexity, which ends in individual liquidity guidance (ILG) on the amount and quality of HQLA the PRA considers appropriate, beyond the LCR buffer. Two layers result:
The Rulebook also sets out what follows if the LCR falls, or is reasonably expected to fall, below 100%: notify the PRA without delay, submit a plan to restore compliance, and report PRA110 daily (weekly under £5 billion of total assets) until it is restored. An ILAAP that cannot show how the firm would see that breach coming is the one the supervisor comes back to.
Sources: PRA SS24/15, paras 3.1 to 3.4 and 3.11; PRA Rulebook, Liquidity Coverage Ratio (CRR) Part, Article 4, and Liquidity (CRR) Part, Articles 412 to 414; PRA SoP1/18 Pillar 2 liquidity, December 2023, para 1.1 and chapters 3 to 6.
Contents
The Rulebook sets what the process must cover; SS24/15 carries the document templates. The right-hand column is what we find in drafts we review.
| Part | What the PRA expects | Where drafts fall short |
|---|---|---|
| Overall liquidity adequacy rule | Liquidity resources adequate in amount and quality, with no significant risk that liabilities cannot be met as they fall due (ILAA 2.1). | Asserted at the front, never reconciled to the stress results at the back. |
| Liquidity and funding risk appetite | Set by the management body and communicated to the business lines, stating the duration and type of stress the firm aims to survive. | A survival period in days, with no statement of which stress, or which currency. |
| Stress testing | Regular stress tests across a range of severe but plausible scenarios, reviewed by senior management and reported to the management body (ILAA 11.3 and 11.7). | One market-wide scenario measured at day 30 only, so the low point inside the window never appears. |
| Liquidity contingency plan | Also called the contingency funding plan: tested at least annually and approved by senior management (ILAA 12.1 and 12.3). SS24/15 strongly encourages combining it with the recovery plan. | Actions with no time to cash, and options that duplicate the recovery plan under other names. |
| Approval | The management body approves the ILAAP (ILAA 13.3) on each update cycle. | An approval minute with no record of what the board challenged. |
Sources: PRA Rulebook, ILAA Part, rules 2.1, 4.1, 11.3, 11.7, 12.1, 12.3 and 13.3; PRA SS24/15, paras 2.10 to 2.12 and 2.40A.
Stress testing
Start from what the PRA will measure. SS24/15 asks for a range of severe but plausible scenarios and for the lowest point of cumulative stressed net cashflows, both within the 30-day LCR horizon and across the survival days. As we read it, the statement sets no single fixed survival period: the firm’s risk appetite defines the stress it aims to survive, and the Pillar 2 baseline is survival throughout the 30-day granular LCR scenario on a consolidated currency basis.
SoP1/18 adds the PRA’s own lens. It tests cash flow mismatch risk, insufficient liquidity from HQLA and other inflows to cover outflows daily, through the 30-day granular scenario and benchmark retail-only and wholesale-only scenarios over 90 days. The low point sits inside the window: a peak need before day 30 that is larger than the day-30 figure. A model that reports only day 30 cannot see it, and that is the gap we find most often.
A stress test set that will hold up covers:
Then test the data. SS24/15 expects a firm to be able to produce key data on buffers, cashflows, wholesale counterparties and FSCS balances during a stress. We ask the treasury team to produce that pack once, on a normal day, before the ILAAP says they can.
Sources: PRA SS24/15, chapter 2 (paras 2.10 to 2.18), paras 3.12 and 6.3; PRA SoP1/18, paras 3.2, 3.5, 3.8 and 3.13.
How the survival horizon reads
The low point sits inside the window, not at day 30
An illustrative liquidity profile through the 30-day and 90-day scenarios the PRA uses.
Sources: PRA SS24/15, January 2026, paras 2.10 to 2.18 and 3.12; PRA SoP1/18 Pillar 2 liquidity, December 2023, paras 3.2, 3.5, 3.8 and 3.13.
How we help
Take one, or combine them.
We hold the pen: risk identification with treasury and risk, the scenarios and cashflow profile, the document to the SS24/15 templates, and the route through committee to the board. Your team works alongside us, so the next refresh is theirs.
You keep the pen. We test the draft and the model against the ILAA Part, SS24/15 and, where they apply, the SDDT simplifications, and give the board a written gap report ranking each gap by how likely the PRA is to raise it, with the fix.
Where the spreadsheet is the weak point we start from RisKIT model 400: pre-built, open Excel, perpetual licence, calculating the LCR, the NSFR and the survival period with gap analysis by maturity bucket and mild, moderate and severe stress. We set it up and validate it on your data, with every formula visible.
Each action gets an owner, a time to cash and a value under stress, aligned with the recovery plan, which SS24/15 strongly encourages firms to combine with it. See recovery planning.
A briefing before the approval meeting on where the numbers come from and what the PRA will ask, or a fuller session from board risk training.
Engagement
Every engagement starts with a 30-minute scoping call and a written proposal setting out scope, timetable and fee. We plan back from the board date so directors have time to challenge the draft, and we read the PRA’s last liquidity feedback first, because it shows what the supervisor wants fixed.
The cashflow work comes before the prose. One engine drives the LCR, the survival horizon and the contingency funding plan, so the numbers in the text match the model.
The board receives:
Credentials
The work is led by Mark Dougherty, CPA (CAN), our technical lead, and done by senior practitioners who have held the roles: former CROs and heads of risk, former regulators and interim executives, with model and quant specialists.
Our people write and review ILAAPs for deposit-funded lenders, wholesale-funded banks and firms with trading books, and build the liquidity stress tests and contingency funding plans behind them. The same practitioners write the ICAAP, so both documents can share one balance sheet, and work across Risk Advisory.
FAQ
SS24/15 expects SDDTs and SDDT consolidation entities that are not new and growing banks to update their ILAAP documents at least every two years, a change in force since 20 January 2026 under PS4/26, and all other firms annually. The management body must approve it whatever the cycle.
As we read SS24/15, no single fixed period. The firm’s risk appetite statement defines the duration and type of stress it aims to survive, and the Pillar 2 baseline is survival throughout the 30-day granular LCR stress scenario on a consolidated currency basis.
Yes. We review the document and the model against the ILAA Part and SS24/15, and give the board a written gap report before approval, ranking each gap with the evidence that would close it.
An SDDT that is not a new and growing bank updates its ILAAP every two years, uses a simplified ILAAP template and generally carries no Pillar 2 liquidity add-ons (PS15/23). One whose four-quarter moving average Retail Deposit Ratio is 50% or more meets the RDR condition and may disapply the NSFR (SS24/15, para 2.47).
Insights
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Tell us your board date, what the PRA said last time and where the draft stands. We will tell you what it would take to finish, and whether you need writing, review or the stress testing.
Tell us what needs doing and by when. A partner will come back to you. Treated in confidence.
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