Liquidity risk has quietly moved up the regulatory agenda, with regulated firms beginning to feel the impact.
For years, many firms in the sector have relied on a model built around speed, credit flexibility, and trusted counterparty relationships. But those relationships are being re-evaluated by regulators, banks, and liquidity providers alike.
We’re seeing a shift. And the firms that pause now to reassess their liquidity controls, credit governance, and stress testing logic will be better positioned, whether the next challenge comes from the market, a trading counterparty, or the FCA.
Liquidity providers (LP) are tightening up, and it’s already affecting firms.
Across the market, we’ve seen banks and LPs reduce limits, introduce stricter prefunding requirements, and scale back appetite for structured FX or complex products.
This shift isn’t necessarily reactive, it’s proactive. LPs are under pressure to protect their own balance sheets and are being more selective about who they extend credit to, and on what terms. They’re looking closely at how firms manage risk, margin, and exposures.
For firms that rely on generous (over-the-margin) terms, such as delayed collateral calls, soft margin thresholds, or rolling exposure windows alongside wide credit lines, or assumptions around smooth daily settlement cycles, it’s a good time to revisit the model and ask whether it still fits the new environment.
The FCA is asking similar questions, but with a sharper focus on liquidity.
Regulatory engagement is increasingly focused on how firms fund their obligations during stress not just whether they meet point-in-time capital thresholds.
That includes the following questions.
- Can you handle a 5–10% FX move across multiple pairs without breaching your buffer?
- Can you meet both client calls and LP margin calls simultaneously?
- Can you evidence that your liquidity testing and Liquidity Asset Threshold Requirements (LATR) re being tracked together and not in isolation?
These aren’t theoretical concerns anymore. They’re governance questions. And the answers are expected to be supported by clear data, tested assumptions, and a narrative that holds up in a live discussion.
Section 165 requests are coming faster and getting more focused.
We’ve supported several firms who’ve received short-notice section 165 data requests from the FCA asking for detailed breakdowns of liquidity exposures, stress test results, and credit governance.
In many cases, the response timeline was less than five working days. That’s a tough ask especially if your liquidity tracking, stress testing outputs, and ICARA don’t align cleanly.
It’s not about catching firms out. It’s about understanding whether the controls described in your are operating in real time, not just on paper. Where firms can’t respond quickly or clearly, it’s often a sign that some realignment is needed, not a failure, but an opportunity to sharpen the process.
Stress testing and LATR need to be connected, not just coexisting.
One of the most common gaps we see is a disconnect between liquidity stress testing and the LATR. The LATR is there to define your minimum usable buffer. If you’re not testing how that buffer holds up under stress, it loses relevance.
We’ve worked with firms to reframe their stress models, so they explicitly show buffer depletion against LATR using realistic margin assumptions, callable exposure modelling, and time-based cash flows.
The result? A clearer view of when to act and the confidence to engage proactively with the regulator, not just respond reactively.
Wind-down planning isn’t just a capital exercise; it’s a liquidity story.
Wind-down plans that assume clean exits, instant cost settlements, or full recovery of margin and client funds in week one often don’t hold up under scrutiny.
Instead, we’re seeing the FCA ask:
- How will you phase liquidity through the wind-down horizon?
- When does margin get returned?
- What happens if a client disputes settlement terms?
Firms who can sequence wind-down flows into weeks (rather than static totals) and tie them to their ICARA will be in a much stronger position.
Where are firms focusing now?
As we work with clients across the FX and payments space, these themes come up again and again:
- OTM credit still in place but not reflected in liquidity stress
- Variation margin counted as available cash (even if returnable)
- Structured product exposures not netting as expected under stress
- Credit limits granted years ago still sitting open and unmonitored
- Wind-down assumptions built around accounting costs, not actual cash movement
None of these are unusual. But they’re often inherited logic built for a different environment. And now, they’re being stress tested in practice.
Where we’ve been helping.
At fscom, we’re working directly with firms to help close these gaps in practical, credible ways. That includes:
- Conducting liquidity healthchecks and assurance reviews to give firms a clear picture of any areas that need to be addressed
- Rebuilding stress testing frameworks so they show daily LATR coverage, margin velocity, and buffer erosion in real terms
- Developing tools for tracking buffer vs stress, MTM volatility, and margin calls across clients
- Mapping real-world wind-down cashflows by week—not just estimating end-state costs
- Reviewing credit terms, identifying unused lines and OTM exposure, and linking that back to liquidity planning
The goal isn’t perfection. It’s clarity and control. Enough to give you, your board, and your regulator confidence that your liquidity governance works in practice.
Get in touch to discuss with our team today.
