Funds Transfer Pricing (FTP) Regulation Explained | What Regulators Expect from Banks
23 September 2026·22 min
Watch on YouTubeAbout this video
How is Funds Transfer Pricing (FTP) regulated, and what do banking regulators actually expect from an effective FTP framework?
There is no single regulatory formula telling banks exactly how to calculate a Funds Transfer Price. But that does not mean FTP is unregulated.
Across Basel, the EBA and PRA, the underlying expectation is clear: funding and liquidity costs, benefits and risks need to reach the business decisions that create them.
In Session 2 of our complete Funds Transfer Pricing course, we explore the regulatory framework behind FTP and what supervisors actually look for when assessing a bank's internal pricing framework.
You'll learn why even a technically sophisticated FTP methodology can fail regulatory expectations — and why the real test is whether FTP influences product pricing, performance measurement, incentives, new product approval and balance-sheet decisions.
In this session:
• Funds Transfer Pricing and banking regulation
• Basel BCBS 144 and Principle 4
• Liquidity cost and benefit allocation
• EBA expectations and the SREP framework
• PRA expectations for FTP
• FTP and the ILAAP
• Pillar 2 liquidity and transfer pricing
• FTP and IRRBB consistency
• Behavioural assumptions and model risk
• PRA SS24/15 and SS1/23
• Contingent liquidity risk
• Economic FTP vs management overlays
• Why Treasury shouldn't use FTP as a profit centre
• Marginal vs average funding economics
• FTP granularity and governance
• What supervisors actually test
• Why FTP must influence real business decisions
What do regulators expect from FTP?
One of the biggest misconceptions about FTP is that because regulators don't prescribe a specific methodology, banks can calculate transfer prices however they want.
The regulatory focus is instead on whether the economic consequences of funding and liquidity risk reach the decisions creating those risks.
If a business originates a five-year mortgage, its internal economics should reflect the relevant funding, liquidity and behavioural characteristics.
If a product creates contingent liquidity risk, having no immediate cash outflow doesn't mean it creates no liquidity cost.
And if funding costs rise while businesses continue receiving stale internal prices based on historic cheap funding, FTP can create exactly the wrong incentive.
Basel, EBA and PRA
A key foundation is the Basel Committee's Principles for Sound Liquidity Risk Management and Supervision (BCBS 144).
Principle 4 establishes that banks should incorporate liquidity costs, benefits and risks into internal pricing, performance measurement and new product approval across significant business activities.
European and UK supervisory frameworks reinforce this principle.
A credible FTP framework should:
• Cover material activities
• Reflect relevant liquidity costs, benefits and risks
• Create appropriate incentives
• Be reviewed and recalibrated
• Be understood by management
• Influence actual customer and balance-sheet decisions
Timing matters too.
If FTP is calculated only after a transaction has already been approved and executed, it may provide useful management information — but it hasn't influenced the decision that created the risk.
What do supervisors test?
Four questions provide a useful framework:
1. Economic relevance: Does FTP provide a meaningful signal about the current cost or value of changing the balance sheet?
2. Granularity: Does it distinguish between products with materially different funding and liquidity characteristics?
3. Governance: Can management explain what the framework is doing and why?
4. Evidence of use: Can the bank demonstrate that FTP has actually changed a product price, transaction, business case, appetite decision or balance-sheet choice?
If FTP never changes a decision, you should question whether it is really a pricing mechanism — or simply an allocation process.
Continue the complete FTP course
This is part of our comprehensive Funds Transfer Pricing (FTP) course, covering FTP curves, matched-maturity pricing, marginal funding costs, liquidity premiums, contingent liquidity, non-maturing deposits, behavioural assumptions, replicating portfolios, optionality, Treasury P&L, governance and practical FTP implementation.
In the next session, we'll break apart the FTP rate itself, including the reference curve, term liquidity premium, contingent liquidity cost, basis, optionality and structural or regulatory charges.
Create a free Industry Portal account for our free courses, quizzes, resources and weekly newsletter covering banking, Treasury, liquidity, risk, regulation, data and technology.
Subscribe and turn on notifications so you don't miss the next session.
#FundsTransferPricing #FTP #BankingRegulation #BankTreasury #ALM #LiquidityRisk #Treasury #Banking
funds transfer pricingFTPFTP bankingFTP regulationFTP explainedbank treasurytreasury managementasset liability managementALMALM bankingliquidity riskliquidity risk management
Get the next one in your inbox
A weekly note across Finance & Treasury, Innovation & Automation and Career Development. No spam, unsubscribe any time.