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  • PIB 9 PIB 9 Liquidity Risk

    • Introduction

      • PIB 9 Guidance

        1. This chapter deals with management of Liquidity Risk by an Authorised Firm. Liquidity Risk refers to the risk of potential losses incurred by an Authorised Firm's failure to have liquid assets to ensure payment of all its liabilities as they fall due and be in a position to meet all payments required to sustain its business on a planned growth path.
        2. This chapter requires an Authorised Firm to:
        a. maintain and implement a Liquidity Risk policy;
        b. identify, measure and monitor Liquidity Risk;
        c. maintain a minimum level of High Quality Liquid Assets (HQLA);
        d. determine quantitative limits on cumulative negative maturity mismatch in accordance with a specified methodology; and
        e. maintain a minimum Net Stable Funding Ratio.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 9.1 PIB 9.1 Application

      • PIB 9.1.1 PIB 9.1.1

        (1) This chapter applies to an Authorised Firm in Category 1, 2 or 5. (2) Only PIB Rule 9.2.2(3) applies to an Authorised Firm in Category 2.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

        • PIB 9.1.1 Guidance

          In accordance with Rules PIB 3.2.2 or PIB 3.2.4, an Authorised Firm is required to ensure that there is no significant risk that liabilities cannot be met as they fall due. With specific reference to liquidity, an Authorised Firm may meet its obligations in a number of ways, including:

          a. by holding sufficient immediately available cash or unencumbered readily marketable assets; and
          b. by securing an appropriate matching future profile of cashflows.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 9.2 PIB 9.2 Liquidity Risk policy, Systems and Controls

      • PIB 9.2.1 PIB 9.2.1

        (1) An Authorised Firm must establish and maintain a Liquidity Risk policy.
        (1A) An Authorised Firm must ensure the policy is in writing and is approved at least annually by its Governing Body.
        (1B) The policy must set out the level of Liquidity Risk the Authorised Firm is willing to tolerate, which must be in line with its business objectives, strategy and overall risk tolerance.
        (2) The policy must include systems and controls for intra-day daily, short-term, medium-term and long-term management of Liquidity Risk appropriate to the nature, scale and complexity of the activities conducted by the firm.
        (3) The systems and controls referred to in (2) must include:
        (a) a system for identifying and assessing Liquidity Risk in accordance with PIB Rule 9.2.4.
        (b) a system for the measurement and monitoring of Liquidity Risk using a robust and consistent method which enables the Authorised Firm to implement the requirements set out in PIB Rule 9.2.5;
        (c) a system for controlling Liquidity Risk which enables the Authorised Firm to implement the requirements set out in PIB Rule 9.2.6;
        (d) a system for collateral management and asset encumbrance which is able to adequately identify, monitor and manage the risks associated with these activities in accordance with PIB Rule 9.2.8;
        (e) a system for adequate allocation of liquidity costs, benefits and risks that meets the requirements set out in PIB Rule 9.2.9; and;
        (f) a system to manage intra-day liquidity positions effectively and meet the requirements in PIB Rule 9.2.10.
        (4) An Authorised Firm must ensure that it has risk management systems to implement the policy.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2.1 Guidance

          1. The DFSA expects that an Authorised Firm's Liquidity Risk policy will set out the approach that the Authorised Firm will take to Liquidity Risk management, including various quantitative and qualitative targets. It should be communicated to all relevant functions and staff within the organisation.
          2. The level of Liquidity Risk tolerance should ensure that the Authorised Firm manages its liquidity and funding risk prudently in normal times in a way that allows it to withstand periods of stress. The level of Liquidity Risk tolerance should be expressed in qualitative and quantitative terms that are clear enough for all levels of management to be able to understand the trade-off between risks and profits.
          3. The DFSA expects that an Authorised Firm will intergrate its Liquidity Risk policy within its overall risk management framework and that its policy will take into account the need to:
          a. develop liquidity management processes and procedures to implement the Authorised Firm's stated Liquidity Risk tolerance;
          b. ensure that the Authorised Firm maintains sufficient liquidity resources at all times to meet its ongoing liquidity obligations and withstand a period of individual or market-wide stress;
          c. determine the structure, responsibilities and controls for managing Liquidity Risk and for overseeing the liquidity positions of all branches and subsidiaries in the jurisdictions in which the Authorised Firm is active, and outline these elements clearly in the Authorised Firm's liquidity policies;
          d. have in place adequate internal controls to ensure the integrity of its Liquidity Risk management processes;
          e. ensure that stress tests, contingency funding plans and holdings of liquid assets are effective and appropriate for the Authorised Firm's business model, funding strategy, complexity of its on- and off-balance sheet activities and funding mismatches. The Authorised Firm should also make appropriate assumptions in relation to the marketability of liquid assets under various stress scenarios;
          f. establish a set of reporting criteria, specifying the scope, manner and frequency of reporting to various recipients (such as the Governing Body, senior management and the asset/liability committee) and who is responsible for preparing the reports. The reporting should include a comprehensive system for projecting cash flows arising from assets, liabilities and off-balance sheet items, both consolidated and at the entity level, over an appropriate set of time horizons;
          g. establish the specific procedures and approvals necessary for exceptions to policies and limits, including the escalation procedures and follow-up actions to be taken for breaches of limits;
          h. monitor closely current trends and potential market developments that may present significant, unprecedented and complex challenges for managing Liquidity Risk so that appropriate and prompt changes to the liquidity management strategy can be made as needed;
          i. continuously review information on the Authorised Firm's liquidity developments and report regularly to the Governing Body; and
          j. maintain an independent and competent internal control function and conduct regular internal audit reviews to ensure the integrity and effectiveness of the Liquidity Risk policy.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • PIB 9.2.2 PIB 9.2.2

        (1) An Authorised Firm must ensure that its Governing Body is ultimately responsible for the Liquidity Risk assumed by the firm as well as the adequacy of systems, controls and processes used to manage that risk.
        (2) Without limiting the operation of (1), the responsibilities of an Authorised Firm's Governing Body in respect of Liquidity Risk include:
        (a) approving the Authorised Firm's Liquidity Risk policy;
        (b) establishing and maintaining a senior management structure with clearly defined responsibilities and roles for the management of Liquidity Risk and for ensuring compliance with the Authorised Firm's Liquidity Risk policy;
        (c) ensuring the senior management in (b) and other relevant personnel have the necessary experience to manage Liquidity Risk;
        (d) monitoring the Authorised Firm's overall Liquidity Risk profile on a regular basis by receiving adequate reporting and being aware of any material changes in the Authorised Firm's current or prospective Liquidity Risk profile;
        (e) ensuring that Liquidity Risk is adequately identified, assessed, mitigated, controlled and monitored in accordance with the Authorised Firm's Liquidity Risk policy;
        (f) ensuring that the Liquidity Risk policy are is documented; and
        (g) ensuring that the Liquidity Risk policy are is reviewed at least annually.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2.2 Guidance

          1. Senior management and the Governing Body of an Authorised Firm are expected to demonstrate a thorough understanding of the links between funding liquidity risk and market liquidity risk, as well as how other risks, including credit, market, operational and reputation risks, affect the Authorised Firm's overall Liquidity Risk policy.
          2. Senior management should ensure that all business units with activities that have an impact on Liquidity Risk are aware of the Liquidity Risk policy and limits.
          3. Senior management should ensure that the Liquidity Risk policy outlines clearly the structure, responsibilities and controls for managing Liquidity Risk in and across different jurisdictions, legal entities and branches. They should also ensure that the structure, responsibilities and controls take into account legal, operational, regulatory, reputational and other constraints on liquidity transfer.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • Requirements imposed on a Category 2 firm

          (3) An Authorised Firm in Category 2 must:
          (a) establish and maintain a senior management structure to manage Liquidity Risk;
          (b) identify, assess, mitigate, control and monitor Liquidity Risk; and
          (c) monitor the Authorised Firm's overall Liquidity Risk profile on a regular basis.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • Guidance

            In respect of Rule 9.2.2(2)(b), senior management are expected to:

            a. oversee the development, establishment and maintenance of procedures and practices that translate the goals, objectives and risk tolerances approved by the Governing Body into operating standards that are consistent with the Governing Body's intent and which are understood by the relevant members of an Authorised Firm's staff;
            b. adhere to the lines of authority and responsibility that the Governing Body has established for managing Liquidity Risk;
            c. oversee the establishment and maintenance of management information and other systems that identify, assess, control and monitor the Authorised Firm's Liquidity Risk; and
            d. oversee the establishment of effective internal controls over the Liquidity Risk management process.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • PIB 9.2.3 PIB 9.2.3

        (1) An Authorised Firm may delegate the day-to-day management of its Liquidity Risk to another entity in the same Group for management on a Group basis only if:
        (a) the Governing Body of the Authorised Firm:
        (i) has formally approved the delegation;
        (ii) keeps the delegation under review; and
        (b) the Authorised Firm notifies the DFSA in writing of the delegation immediately upon its being made.
        (2) If an Authorised Firm delegates the management of its Liquidity Risk in accordance with (1), the requirements in this chapter continue to apply to the Authorised Firm.
        (3) An Authorised Firm must revoke a delegation referred to in (1) and bring day-to-day Liquidity Risk management back within the Authorised Firm if the DFSA requests it in writing to do so.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2.3 Guidance

          If Liquidity Risk management is delegated as set out in PIB Rule 9.2.3, responsibility for its effectiveness remains with the Authorised Firm's Governing Body.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • Identifying Liquidity Risk

        • PIB 9.2.4 PIB 9.2.4

          (1) An Authorised Firm must comply with the requirements in this Rule in implementing its system and controls referred to in PIB Rule 9.2.1(2) and (3).
          (2) An Authorised Firm must assess the cash flows for its assets, liabilities and off-balance sheet items under both normal market conditions and stressed conditions resulting from either general market turbulence or firm-specific difficulties.
          (3) An Authorised Firm must assess the extent to which committed facilities can be relied upon under stressed conditions identified in accordance with PIB Rule 9.2A.3.
          (4) An Authorised Firm must consider potential liability concentrations when determining the appropriate mix of liabilities.
          (5) An Authorised Firm must identify the Liquidity Risk across all legal entities, branches and subsidiaries and in all jurisdictions in which it operates.
          (6) If an Authorised Firm has significant, unhedged liquidity mismatches in particular currencies, it must assess:
          (a) the volatilities of the exchange rates of the mismatched currencies;
          (b) likely access to the foreign exchange markets in normal and stressed conditions; and
          (c) the stability of deposits in those currencies with the Authorised Firm in stressed conditions.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.2.4 Guidance

            1. As part of the assessment for the purposes of PIB Rule 9.2.4(2), an Authorised Firm should:
            a. identify significant concentrations within its asset portfolio; and
            b. value the assets conservatively, taking into account the likely deterioration in the value of assets under market-wide stress conditions.
            2. For the purposes of PIB Rule 9.2.4(4), an Authorised Firm should consider factors including:
            a. the term structure of its liabilities;
            b. the credit-sensitivity of its liabilities;
            c. the mix of secured and unsecured funding;
            d. concentrations among its liability providers or related Groups of liability providers;
            e. reliance on particular instruments or products;
            f. the geographical location of liability providers; and
            g. reliance on intra-Group funding.
            3. As appropriate, an Authorised Firm would be expected to consider the amount of funding required by:
            a. commitments given;
            b. standby facilities given;
            c. wholesale overdraft facilities given;
            d. proprietary derivatives positions; and
            e. liquidity facilities given for securitisation transactions.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Measuring and Monitoring Liquidity Risk

        • PIB 9.2.5 PIB 9.2.5

          (1) An Authorised Firm must ensure that the method referred to in PIB Rule 9.2.1(3)(b) for measuring Liquidity Risk is capable of:
          (a) measuring the extent of the Liquidity Risk it is incurring
          (b) tracking early warning indicators to aid the Liquidity Risk management processes;
          (c) dealing with the dynamic aspects of the Authorised Firm's liquidity profile;
          (d) where appropriate, measuring the Authorised Firm's Exposure to Foreign Currency Liquidity Risk; and
          (e) where appropriate, measuring the Authorised Firm's Exposure to PSIA and Islamic Contract Liquidity Risk.
          (2) An Authorised Firm must establish and maintain a system of management reporting which provides relevant, accurate, comprehensive, timely, forward looking and reliable Liquidity Risk reports to relevant functions within the Authorised Firm.
          (3) The method for measuring Liquidity Risk under (1)(a) must enable the Authorised Firm to forecast prospective cash flows for assets, liabilities, off-balance sheet commitments and contingent liabilities over a variety of time horizons, under both normal conditions and a range of stress scenarios, including scenarios of severe stress.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.2.5 Guidance

            1. An Authorised Firm, in measuring its Liquidity Risk under PIB Rule 9.2.5 should ensure that:
            (a) the variety of time horizons cover changes in liquidity needs and funding capacity on an intra-day, daily, short-term, medium-term and long–term basis;
            (b) it considers the vulnerabilities of cash flows to events, activities and business strategies;
            (c) its dynamic cash flow forecasts are carried out at a sufficiently detailed level and include assumptions on the actions of key counterparties in response to changes in operating conditions;
            (d) cash flows in all significant foreign currencies are measured on an aggregate basis, as well as at the individual currency level, taking into account stressed conditions affecting foreign exchange markets;
            (e) it captures the impact of providing correspondent, custody and settlement activities on cash flows; and
            (f) assumptions used to determine future liquidity and funding needs are realistic and reflect the complexities of the underlying businesses, products and markets.
            2. Early warning indicators should be designed to assist the Authorised Firm to identify any negative trends in its liquidity position and to assist its management to assess and respond to mitigate its exposure to those trends.
            3. Management information should include the following:
            a. a cash-flow or funding gap report on an aggregate basis and by currency, legal entity and country;
            b. a funding maturity schedule;
            c. a list of large providers of funding;
            d. reports on Collateral and encumbered assets to enable compliance with PIB Rule 9.2.8;
            e. a liquidity costs, benefits and risks allocation report to assist compliance with PIB Rule 9.2.9;
            f. intra-day liquidity reports to assist compliance with PIB Rule 9.2.10;
            g. where appropriate, a schedule of Islamic funding sources;
            h. a limit monitoring and exception report;
            i. asset quality and trends;
            j. earnings projections; and
            k. the Authorised Firm's reputation in the market and the condition of the market itself.
            4.An Authorised Firm should be able to generate critical liquidity reports on a daily basis, including in times of stress.
            5.Where an Authorised Firm is a member of a Group, it should be able to assess the potential impact on it of Liquidity Risk arising in other parts of the Group.
            6. Where an Authorised Firm has subsidiaries or branches, it should be able to monitor and control Liquidity Risk at the individual branch or subsidiary level and on a consolidated level taking into account legal, operational, regulatory, reputational and other relevant constraints.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Controlling Liquidity Risk

        • PIB 9.2.6

          An Authorised Firm must ensure that the system referred to in PIB Rule 9.2.1(3)(c):

          (a) enables the Authorised Firm's Governing Body and senior management to review compliance with limits set in accordance with PIB Rule 9.2.7 and operating procedures; and
          (b) has appropriate approval processes, limits and other mechanisms designed to provide reasonable assurance that the Authorised Firm's Liquidity Risk management processes are adhered to.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2.7 PIB 9.2.7

          (1) An Authorised Firm must hold sufficient liquidity resources and ensure that its Governing Body sets appropriate liquidity limits to manage its Liquidity Risk effectively under both day-to-day and stressed conditions.
          (2) An Authorised Firm must periodically review and, where appropriate, adjust the limits referred to in (1) when its Liquidity Risk policy changes.
          (3) An Authorised Firm must promptly escalate and resolve any policy or limit exceptions according to the processes described in its Liquidity Risk policy.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.2.7 Guidance

            An Authorised Firm should set limits to control its liquidity risk exposure and vulnerabilities. Limits and corresponding escalation procedures should be reviewed regularly. Limits should be relevant to the business in terms of its location, complexity of activity, nature of products, currencies and markets served. If an Authorised Firm breaches a liquidity risk limit, it should implement a plan to review its exposure and reduce it to a level that is within the limit.

            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Management of collateralised and encumbered assets

        • PIB 9.2.8

          (1) An Authorised Firm must prudently manage its collateral positions using a collateral management system.
          (2) The Authorised Firm's collateral management system must be able to:
          (a) distinguish between pledged and unencumbered assets, including during periods of liquidity stress;
          (b) take into account the legal entity in which liquid assets reside; and
          (c) identify, in a timely manner, the countries where assets are legally recorded and any restrictions imposed on their transfer or liquidation.
          (3) An Authorised Firm must manage its encumbered balance sheet assets within prudent limits to minimise the impact on its liquidity position and funding cost.
          (4) For the purposes of (3), the Authorised Firm's system supporting the management of encumbered assets must be able to provide information on:
          (a) the current and expected level and types of asset encumbrance and related transactions;
          (b) the nature of unencumbered assets including amount, location and credit quality;
          (c) the capacity for further asset encumbrance, including available unencumbered assets and the potential liquidity that can be generated; and
          (d) the expected amount, level and type of additional encumbrance that may result from stress scenarios.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Allocation of liquidity costs, benefits and risks

        • PIB 9.2.9

          An Authorised Firm must ensure that the system referred to in PIB Rule 9.2.1(3)(e):

          (a) incorporates liquidity costs, benefits and risks in internal pricing, performance measurement, and new product approval processes for all significant business activities both on- and off-balance sheet;
          (b) assigns appropriate liquidity charges to positions, portfolios and transactions. The liquidity charge must incorporate factors relating to the holding period of assets and liabilities, market liquidity characteristics, stability of the funding source and any other relevant factor;
          (c) provides quantification and attribution of Liquidity Risk that is explicit, transparent and takes into account liquidity under stressed conditions; and
          (d) is reviewed periodically to reflect changing business and market conditions.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Intra-day liquidity

        • PIB 9.2.10

          (1) An Authorised Firm must manage its intra-day liquidity positions prudently to ensure that it is able to meet its settlement and payment obligations in a timely manner under business as usual and stressed conditions, in all material currencies and active markets.
          (2) For the purposes of (1), an Authorised Firm must be reasonably able to:
          (a) identify and prioritise the most time critical payment and settlement obligations;
          (b) measure daily gross liquidity inflows and outflows and any potential funding gaps;
          (c) identify cash flow timings and shortfalls at different points in time during the day;
          (d) manage the timing of cash outflows to give priority to time critical payments; and
          (e) obtain sufficient intra-day funding, including intra-day liquidity facilities from correspondent banks or Central Banks.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • PIB 9.2A PIB 9.2A Funding Strategy, Stress Testing and Contingency Funding Plan

      • Funding strategy

        • PIB 9.2A.1 PIB 9.2A.1

          (1) An Authorised Firm must develop a funding strategy that provides effective diversification in the sources and nature of its funding.
          (2) An Authorised Firm must ensure that the funding strategy is in writing and is approved by its Governing Body.
          (3) The funding strategy must be in line with the Authorised Firm's stated Liquidity Risk tolerance and supported by robust assumptions that are consistent with the Authorised Firm's budgeting and business planning process.
          (4) The funding strategy must be supported by systems that allow the Authorised Firm to identify, measure, manage and monitor funding positions.
          (5) An Authorised Firm must ensure that its funding strategy is reviewed regularly and at least annually, and is updated as necessary in light of changed funding conditions and any change in the Authorised Firm's strategy.
          (6) An Authorised Firm must notify the DFSA in writing immediately of any material changes to the Authorised Firm's funding strategy.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.2A.1 Guidance

            1. The diversification under PIB Rule 9.2A.1(1) should include, for example, different counterparties, instruments, currencies, geographies and markets.
            2. The assumptions in PIB Rule 9.2A.1(3) should be forward looking and take into account the macroeconomic and market conditions in which the Authorised Firm operates and any other factors that are likely to impact its funding position.
            3. The DFSA expects that funding positions referred to in PIB Rule 9.2A.1(4) would cover both present and projected positions across multiple time horizons generated from both on- and off-balance sheet items.
            4. In order to formulate the funding strategy properly, an Authorised Firm should pay attention to other risks, including, for example, credit market, operational and reputational risk and their impact of funding requirements.
            5. An Authorised Firm should maintain an ongoing presence in its chosen funding markets and strong relationships with funds providers.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2A.2

          (1) An Authorised Firm must assess market access under a variety of normal and stressed conditions.
          (2) An Authorised Firm must assess regularly its capacity to raise funds quickly including on a secured and unsecured basis.
          (3) An Authorised Firm must:
          (a) identify the main factors that affect its ability to raise funds; and
          (b) monitor those factors closely to ensure that estimates of fund raising capacity remain valid.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Stress Testing

        • PIB 9.2A.3 PIB 9.2A.3

          (1) An Authorised Firm must conduct stress tests regularly to identify sources of potential liquidity strain and to ensure that its exposures remain within its Liquidity Risk tolerance.
          (2) When using stress testing in accordance with (1), an Authorised Firm must:
          (a) use scenarios based on varying degrees of short-term and protracted institution-specific and market-wide stress (individually and in combination); and
          (b) include a cash-flow projection for each scenario tested, based on reasonable estimates of the impact (both on and off-balance sheet) of that scenario on the Authorised Firm's funding needs and sources.
          (3) An Authorised Firm must fully document its stress test scenarios and related assumptions, and review the scenarios and assumptions, at least annually to ensure they remain appropriate.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.2A.3 Guidance

            1. An Authorised Firm should consider carefully the design of stress scenarios and the variety of shocks used. Regardless of how strong its current liquidity situation appears to be, it should take a conservative approach when setting stress testing assumptions. It should consider the potential impact of severe stress scenarios and how they would affect the following Liquidity Risk drivers as applicable to the firm's operations:
            a. retail funding risk;
            b. wholesale secured and unsecured funding risk;
            c. risks arising from funding markets;
            d. lack of diversification between funding types;
            e. off-balance sheet funding risk;
            f. risks arising from the firm's funding tenors;
            g. risks associated with a deterioration of the firm's credit rating;
            h. cross-currency funding risk;
            i. risk that liquidity resources cannot be transferred across entities, sectors and countries;
            j. funding risks resulting from estimates of future balance sheet growth;
            k. reputational risk;
            l. marketable and non-marketable assets risk; and
            m. intra-day payment and settlement risk.
            2. Market-wide stress scenarios under PIB 9.2A.3(2)(a) should include:
            a. a simultaneous drying up of market liquidity in several previously highly liquid markets;
            b. severe constraints in accessing secured and unsecured funding;
            c. restrictions on currency convertibility; and
            d. severe operational or settlement disruptions affecting one or more payment or settlement systems.
            3. The identification of the possible balance sheet and off-balance sheet impact referred to in PIB Rule 9.2A.3(2)(b) should take into account:
            a. possible changes in the market's perception of the Authorised Firm and the effects that this might have on the Authorised Firm's access to the markets, including:
            i. where the Authorised Firm funds its holdings of assets in one currency with liabilities in another, access to foreign exchange markets, particularly in less frequently traded currencies;
            ii. access to secured funding, including by way of repurchase agreement transactions; and
            iii. the extent to which the Authorised Firm may rely on committed facilities made available to it;
            b. whenever applicable the possible effect of each scenario tested on currencies whose exchange rates are currently pegged or fixed; and
            c. that:
            i. general market turbulence may trigger a substantial increase in the extent to which persons exercise rights against the Authorised Firm under off-balance sheet instruments to which the Authorised Firm is party;
            ii. access to OTC derivative and foreign exchange markets is sensitive to credit-ratings;
            iii. Early Amortisation in asset securitisation transactions with which the Authorised Firm has a connection may be triggered;
            iv. its ability to securitise assets may be reduced; and
            v. there may be a potential need to buy back debt or honour non-contractual obligations to mitigate reputational risk.
            4. An Authorised Firm is required to conduct stress tests regularly. The frequency with which an Authorised Firm should conduct stress tests will depend on the risks to the particular Authorised Firm. For some Authorised Firms, it may be adequate to conduct tests annually, but, for others, it may be necessary to conduct tests more frequently e.g. quarterly.
            Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
            [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
            [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB 9.2A.4

          An Authorised Firm must ensure that stress tests conducted under PIB Rule 9.2A.3 enable it to analyse the impact of stress scenarios on its liquidity positions, as well as on the liquidity positions of its individual business lines.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.2A.5 PIB 9.2A.5

          (1) An Authorised Firm must ensure that results of the stress tests are integrated into its strategic planning process and its day-to-day risk management practices.
          (2) An Authorised Firm must apply the results of the stress tests:
          (a) to adjust its liquidity management strategy, policies and positions, including to determine an appropriate buffer of HQLA;
          (b) for the setting of internal limits; and
          (c) for the purpose of the IRAP and ICAAP assessments under chapter 10, where applicable.
          (3) An Authorised Firm must incorporate the stress test results in assessing and planning for related potential funding shortfalls in its Contingency Funding Plan.
          (4) An Authorised Firm must ensure that the stress test results and vulnerabilities and any resulting actions are reported to, and discussed with, its Governing Body and the DFSA.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.2A.5 Guidance

            If the DFSA considers that an Authorised Firm has not carried out effective stress tests under Rules PIB 9.2A.3 to PIB 9.2A.5, it may use its power under Article 75A of the Regulatory Law to require the Authorised Firm to maintain a buffer of liquid assets in addition to that required under section PIB 9.3.

            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Contingency Funding Plan

        • Guidance

          A Contingency Funding Plan, or CFP, is a compilation of policies, procedures and action plans for responding to severe disruptions to an Authorised Firm's ability to meet its liabilities as they fall due or its ability to fund some or all of its activities quickly and at a reasonable cost.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.2A.6 PIB 9.2A.6

          (1) An Authorised Firm must have a documented Contingency Funding Plan (CFP) that sets out clearly its strategies for addressing liquidity shortfalls in emergency situations.
          (2) An Authorised Firm must ensure that its CFP is in writing and is approved by its Governing Body.
          (3) The CFP must be commensurate with an Authorised Firm's complexity, risk profile and scope of operations and its role in the financial systems in which it operates.
          (4) The CFP must:
          (a) list the events or circumstances that will lead the Authorised Firm to put any part of the plan into action;
          (b) set out available potential contingency funding sources and the amount of funds an Authorised Firm estimates can be derived from these sources;
          (c) estimate the lead time needed to tap additional funds from each of the contingency sources;
          (d) set out the extent to which the plan relies upon:
          (i) asset sales, using assets as Collateral on secured funding (including repurchase agreements), securitising its assets or otherwise reducing its assets;
          (ii) modifying the structure of, or increasing, its liabilities; and
          (iii) the use of committed facilities; and
          (e) contain clear administrative policies and procedures that will enable the Authorised Firm to manage the implementation of the plan, including:
          (i) the roles and responsibilities of senior management, including who has the authority to invoke the CFP;
          (ii) the names, location and contact details of members of the team responsible for implementing the plan;
          (iii) the details of who is responsible for contact with the Authorised Firm's head office (if appropriate), analysts, investors, external auditors, media, significant customers, regulators and others; and
          (iv) the mechanisms that enable senior management and the Governing Body to receive relevant, accurate, comprehensive, timely and reliable management information.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.2A.6 Guidance

            1. The CFP should provide a framework with a high degree of flexibility so that an Authorised Firm can respond quickly in a variety of situations.
            2. The CFP's design, plans and procedures should be closely integrated with the Authorised Firm's ongoing analysis of Liquidity Risk and with the results of the scenarios and assumptions used in stress tests.
            3. The CFP should assist the Authorised Firm to manage a range of scenarios of severe liquidity stress that include both firm-specific and more generalised market-wide stress, as well as the potential interaction between them.
            4. The CFP should, for each of the tested scenarios, demonstrate that the Authorised Firm has sufficient liquid financial resources to meet its liabilities over a range of different time periods, including intraday.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.2A.7

          An Authorised Firm must ensure that its CFP accounts for:

          (a) the impact of stressed market conditions on its ability to sell or securitise assets;
          (b) the link between asset liquidity and funding liquidity;
          (c) second round and reputational effects related to execution of contingency funding measures; and
          (d) the potential to transfer liquidity across Group entities, borders and lines of business, taking into account legal, regulatory, operational and time zone constraints.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.2A.8 PIB 9.2A.8

          (1) An Authorised Firm must review and test its CFP regularly to ensure it is effective and operationally feasible.
          (2) For the purposes of (1), an Authorised Firm must review and update its CFP at least annually for approval by its Governing Body, or more frequently if required by business or market circumstances.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.2A.8 Guidance

            1. Key aspects of CFP testing include ensuring that roles and responsibilities are appropriate and understood, confirming that contact information is up to date, proving the transferability of cash and collateral (especially across borders and entities) and ensuring that the necessary legal and operational documentation is in place to execute the plan at short notice.
            2. An Authorised Firm should test key assumptions regularly, such as its ability to sell or repo certain assets or periodically draw down credit lines.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.2A.9 PIB 9.2A.9

          An Authorised Firm must ensure that its CFP is consistent with its business continuity and disaster recovery arrangements and can operate in situations where business continuity arrangements have been invoked.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.2A.9 Guidance

            1. See GEN chapter 5 regarding requirements relating to an Authorised Firm's business continuity and disaster recovery arrangements.
            2. An Authorised Firm should ensure effective coordination between teams managing issues surrounding liquidity crises and business continuity. Liquidity crisis team members and alternates should have access to CFPs on-site and off-site.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

    • PIB 9.3 PIB 9.3 Liquidity Requirements

      • PIB 9.3.1

        (1) This section applies to an Authorised Firm in Category 1 or 5.
        (2) The Rules in this section apply, except as provided in (3), to an Authorised Firm on a solo basis.
        (3) The DFSA may require an Authorised Firm to apply the requirements in this section to its Financial Group, if the Authorised Firm and its Financial Group are subject to consolidated supervision.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Global Liquidity Concession

        • PIB 9.3.2 PIB 9.3.2

          (1) An Authorised Firm which carries on business in or from the DIFC through a Branch may apply to the DFSA for a global liquidity concession.
          (2) An application for a global liquidity concession must be made in accordance with the requirements in section PIB A9.1 of App9.
          (3) If the DFSA grants a global liquidity concession to an Authorised Firm, that Authorised Firm need not comply with all or any of the requirements of this section as specified by the DFSA in the concession.
          (4) The DFSA may specify the period for which a global liquidity concession is valid.
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.2 Guidance [Deleted]

            [Deleted] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • HQLA Requirement

        • PIB 9.3.3 PIB 9.3.3

          An Authorised Firm must maintain an adequate level of HQLA to meet its liquidity needs for, at a minimum, a 30 calendar day period under a severe stress scenario.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.3 Guidance

            Rules PIB A9.2.2 to PIB A9.2.9 in App9 set out the conditions that must be met for assets to be treated as HQLA.

            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Liquidity Coverage Ratio

        • PIB 9.3.4 PIB 9.3.4

          An Authorised Firm must, except as provided in PIB Rule 9.3.8, maintain a LCR of at least the level specified in the table below from the date specified in the table.

          Table - Minimum LCR levels

          Date
          1st January 2015
          1st January 2016
          1st January 2017
          1st January 2018
          1st January 2019
          Minimum LCR
          60%
          70%
          80%
          90%
          100%
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.4 Guidance

            Under PIB Rule 9.3.4, an Authorised Firm must maintain a minimum level of LCR of 60% starting on 1 January 2015. The minimum requirement will be increased subsequently in each following year in equal annual steps of 10% to reach 100% on and from 1 January 2019. PIB Rule 9.3.4 sets minimum levels and is not intended to limit the generality of the requirement in PIB Rule 9.3.3.

            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

        • PIB 9.3.5 PIB 9.3.5

          An Authorised Firm must calculate its LCR using the following formula and in accordance with the Rules in section PIB A9.2 of App9.

          LCR = Value of stock of HQLA / Total Net Cash Outflows over the next 30 calendar days

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.5 Guidance

            1. Section PIB A9.2 of App9 sets out how the value of stock of HQLA and Total Net Cash Outflows are to be calculated.
            2. An Authorised Firm active in multiple currencies should:
            a. maintain HQLA consistent with the distribution of its liquidity needs by currency;
            b. assess its aggregate foreign currency liquidity needs and determine an acceptable level of currency mismatches; and
            c. undertake a separate analysis of its strategy for each currency in which it has material activities, considering potential constraints in times of stress.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Individual Liquidity Requirement

        • PIB 9.3.6

          (1) The DFSA may by written notice to an Authorised Firm in relation to the LCR Requirement applying to it:
          (a) adjust the LCR Requirement or NSFR Requirement;
          (b) adjust requirements under section PIB A9.2 of App9 for calculating the Authorised Firm's stock of HQLA or the Total Net Cash Outflows, or under section PIB A9.4 of App9 for calculating its ASF or RSF;
          (c) alter the calculation methodologies or parameters for the purposes of the LCR Requirement or NSFR Requirement;
          (d) disapply the LCR Requirement or NSFR Requirement; or
          (e) impose additional requirements based on the DFSA's assessment of the Liquidity Risk exposure of that Authorised Firm.
          (2) If the DFSA amends a requirement under (1)(a), (b), (c) or (e), the Authorised Firm must comply with the requirement as amended. If the DFSA disapplies a requirement under (1)(d), the Authorised Firm need not comply with that requirement.
          (3) The procedures in Schedule 3 to the Regulatory Law apply to a decision of the DFSA under (1)(a),(b),(c) or (e).
          (4) If the DFSA decides to exercise its power under (1)(a),(b),(c) or (e), the Authorised Firm may refer the matter to the FMT for review.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Liquid Assets Buffer

        • PIB 9.3.7 PIB 9.3.7

          (1) An Authorised Firm must, except as provided under PIB Rule 9.3.8, maintain a buffer of HQLA over the minimum level of LCR required under its LCR Requirement, appropriate to the nature, scale and complexity of its operations and in line with its Liquidity Risk tolerance.
          (2) In determining the size of its buffer of HQLA under (1), an Authorised Firm must also take into account the results of stress tests conducted under section PIB 9.2A.
          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.7 Guidance

            1. For the purposes of PIB Rule 9.3.7(2), an Authorised Firm should conduct its own stress tests to assess the level of liquidity it should hold beyond the minimum required under this section, and construct its own scenarios that could cause difficulties for its specific business activities. Such internal stress tests should incorporate longer periods than the one required under this section. Authorised Firms are expected to share the results of these additional stress tests with the DFSA.
            2. As set out in the Guidance after PIB Rule 9.2A.5, the DFSA may require an Authorised Firm to maintain an additional buffer of liquid assets in cases where the DFSA assesses that the Authorised Firm has failed to carry out stress tests effectively.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Liquidation of Assets During Periods of Stress

        • PIB 9.3.8

          During a period of financial or liquidity stress, an Authorised Firm may liquidate part of its stock of HQLA and use the cash generated to cover cash outflows. Its level of HQLA may fall below the levels required under its LCR Requirement and PIB Rule 9.3.7 to the extent necessary to deal with cash outflows during that period.

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • Notification if LCR Requirement Not Met

        • PIB 9.3.9 PIB 9.3.9

          An Authorised Firm must notify the DFSA in writing immediately if it does not meet, or becomes aware of circumstances that may result in it not meeting, its LCR Requirement (including during a period of stress referred to in PIB Rule 9.3.8).

          [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

          • PIB 9.3.9 Guidance

            1. An Authorised Firm should in its notification clearly explain:
            a. the reasons for not meeting the limits;
            b. measures that have been taken and will be taken to ensure it meets its LCR Requirement; and
            c. its expectations regarding the potential duration of the situation.
            2. An Authorised Firm that makes a notification should discuss with the DFSA what, if any, further steps it should take to deal with the situation.
            [Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]

      • The Maturity Mismatch Approach

        • The Maturity Mismatch Approach Guidance

          The Maturity Mismatch approach measures an Authorised Firm's liquidity by assessing the mismatch between its inflows (assets) and outflows (liabilities) within different timebands on a Maturity Ladder.

          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB 9.3.10

        (1) An Authorised Firm in Category 1 or 5 must use the Maturity Mismatch approach, as set out in this section, to measure liquidity.
        (2) When using the Maturity Mismatch approach, an Authorised Firm must determine the net cumulative Maturity Mismatch position for each time band by:
        (a) determining, in accordance with the Rules in PIB section A9.3 of App9, the inflows (assets), outflows (liabilities), liquid assets and funding capacity which are to be included in the relevant time bands in the Maturity Ladder; and
        (b) subtracting outflows (liabilities) from inflows (assets) in each time band, and adding the eligible assets, in accordance with section A9.3 of App 9.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
        [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
        [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
        [Amended] DFSA RM227/2018 (Made 6th June 2018). [VER32/08-18]

      • Measuring Liquidity for Category 1 and Category 5

        • PIB 9.3.11

          (1) An Authorised Firm in Category 1 or 5 must determine a net cumulative Maturity Mismatch position for each time band in respect of each of the following means of funding used by the Authorised Firm:
          (a) PSIAus; and
          (b) deposits.
          (2) An Authorised Firm in Category 1 or 5 must calculate its liquidity by using the net cumulative Maturity Mismatch position separately for each means of funding used by the Authorised Firm as a percentage of the means of funding in each time band as follows:
          (a) PSIAu net cumulative Maturity Mismatch % =
          Net cumulative Maturity Mismatch x 100
          Total PSIAus
          (b) Total deposit liabilities net cumulative Maturity Mismatch % =
          Net cumulative Maturity Mismatch x 100
          Total deposits
          (3) An Authorised Firm must ensure that its net cumulative Maturity Mismatch position for each means of funding used by the Authorised Firm in the sight - 8 days time band does not exceed negative 15%
          (4) An Authorised Firm must notify the DFSA in writing immediately if it exceeds or is likely to exceed the net cumulative Maturity Mismatch limits referred to in (3).
          Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]
          [Amended] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
          [Amended] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Net Stable Funding Ratio (NSFR) Requirement

        • PIB 9.3.12 PIB 9.3.12

          (1) An Authorised Firm must maintain a Net Stable Funding Ratio (NSFR) of at least 100%.
          (2) The NSFR under (1) must be calculated using the formula:
          NSFR = ASF x 100
          RSF

          where:

          (a) ASF (Available Stable Funding) is the amount, calculated in accordance with PIB Rule A9.4.1, representing the relative stability of an Authorised Firm's available funding sources; and

          (b) RSF (Required Stable Funding) is the amount, calculated in accordance with PIB Rule A9.4.2, representing the Liquidity Risk profile of an Authorised Firm's assets and OBS Exposures (or potential liquidity Exposures).
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • PIB 9.3.12 Guidance

            1. The objective of the NSFR Requirement is to require an Authorised Firm to maintain a stable funding profile relative to the composition of its assets and off-balance sheet activities. A stable funding profile reduces the likelihood that disruptions to an Authorised Firm's regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR Requirement limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items and promotes funding stability.
            2. PIB Section A9.4 of App9 sets out how an Authorised Firm's Available Stable Funding (ASF) and Required Stable Funding (RSF) are to be calculated.
            3. If the DFSA considers that the Financial Services Regulator of the home state of an Authorised Firm that is a Branch has not fully implemented the Basel III NSFR requirements, it may use its power under Article 75A of the Regulatory Law to require the Authorised Firm to comply with appropriate NSFR requirements.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

      • Notification if the NSFR Requirement not met

        • PIB 9.3.13 PIB 9.3.13

          An Authorised Firm must notify the DFSA in writing immediately if it does not meet, or becomes aware of circumstances that may result in it not meeting, its NSFR Requirement.

          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

          • 9.3.13 Guidance

            1. An Authorised Firm should explain clearly in its notification:
            a. the reasons for it not meeting its NSFR Requirement;
            b. measures that have been taken and will be taken to ensure it meets its NSFR Requirement; and
            c. its expectations regarding the potential duration of the situation.
            2. An Authorised Firm that makes a notification should discuss with the DFSA what, if any, further steps it should take to deal with the situation.
            Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]