PIB 9.3 PIB 9.3 Liquidity Requirements
PIB 9.3.1(1) This section applies to an
Authorised Firmin Category1 or 5.(2) The Rules in this section apply, except as provided in (3), to an Authorised Firmon a solo basis.(3) The DFSAmay require an Authorised Firmto apply the requirements in this section to its Financial Group, if the Authorised Firmand its Financial Groupare subject to consolidated supervision.
Global Liquidity Concession
PIB 9.3.2 PIB 9.3.2(1) An
Authorised Firmwhich carries on business in or from the DIFCthrough a Branchmay apply to the DFSAfor 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 DFSAgrants a global liquidity concession to an Authorised Firm, that Authorised Firmneed not comply with all or any of the requirements of this section as specified by the DFSAin the concession.(4) The DFSAmay specify the period for which a global liquidity concession is valid.
PIB 9.3.2 Guidance [Deleted][Deleted] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]
PIB 9.3.3 PIB 9.3.3
Authorised Firmmust 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.
Liquidity Coverage Ratio
PIB 9.3.4 PIB 9.3.4
Authorised Firmmust, 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
Date1st January 20151st January 20161st January 20171st January 20181st January 2019 Minimum LCR60%70%80%90%100%
PIB 9.3.4 Guidance
Under PIB Rule 9.3.4, an
Authorised Firmmust 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.
PIB 9.3.5 PIB 9.3.5
Authorised Firmmust 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
PIB 9.3.5 Guidance1. 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 Firmactive 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; andc. undertake a separate analysis of its strategy for each currency in which it has material activities, considering potential constraints in times of stress.
Individual Liquidity Requirement
PIB 9.3.6(1) The
DFSAmay by written notice to an Authorised Firmin 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'sstock of HQLA or the Total Net Cash Outflows, or under section PIB A9.4 of App9 for calculating its ASFor 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 Riskexposure of that Authorised Firm.(2) If the DFSAamends a requirement under (1)(a), (b), (c) or (e), the Authorised Firmmust comply with the requirement as amended. If the DFSAdisapplies a requirement under (1)(d), the Authorised Firmneed not comply with that requirement.(3) The procedures in Schedule 3 to the Regulatory Lawapply to a decision of the DFSAunder (1)(a),(b),(c) or (e).(4) If the DFSAdecides to exercise its power under (1)(a),(b),(c) or (e), the Authorised Firmmay refer the matter to the FMTfor review.
Liquid Assets Buffer
PIB 9.3.7 PIB 9.3.7(1) An
Authorised Firmmust, 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 Risktolerance.(2) In determining the size of its buffer of HQLA under (1), an Authorised Firmmust also take into account the results of stress tests conducted under section PIB 9.2A.
PIB 9.3.7 Guidance1. For the purposes of PIB Rule 9.3.7(2), an
Authorised Firmshould 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 Firmsare expected to share the results of these additional stress tests with the DFSA.2. As set out in the Guidanceafter PIB Rule 9.2A.5, the DFSAmay require an Authorised Firmto maintain an additional buffer of liquid assets in cases where the DFSAassesses that the Authorised Firmhas failed to carry out stress tests effectively.
Liquidation of Assets During Periods of Stress
During a period of financial or liquidity stress, an
Authorised Firmmay 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.
Notification if LCR Requirement Not Met
PIB 9.3.9 PIB 9.3.9
Authorised Firmmust notify the DFSAin 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).
PIB 9.3.9 Guidance1. An
Authorised Firmshould 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; andc. its expectations regarding the potential duration of the situation.2. An Authorised Firmthat makes a notification should discuss with the DFSAwhat, if any, further steps it should take to deal with the situation.
The Maturity Mismatch Approach
The Maturity Mismatch Approach Guidance
Maturity Mismatchapproach measures an Authorised Firm'sliquidity 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 Firmin Category1 or 5 must use the Maturity Mismatchapproach, as set out in this section, to measure liquidity.(2) When using the Maturity Mismatchapproach, an Authorised Firmmust determine the net cumulative Maturity Mismatchposition 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
Measuring Liquidity for Category 1 and Category 5
PIB 9.3.11(1) An
Authorised Firmin Category1 or 5 must determine a net cumulative Maturity Mismatchposition 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 Firmin Category1 or 5 must calculate its liquidity by using the net cumulative Maturity Mismatchposition separately for each means of funding used by the Authorised Firmas a percentage of the means of funding in each time band as follows:(a) PSIAunet cumulative Maturity Mismatch% = Netcumulative Maturity Mismatchx 100
PSIAus(b) Total deposit liabilities net cumulative Maturity Mismatch% = Netcumulative Maturity Mismatchx 100
Total deposits(3) An
Authorised Firmmust ensure that its net cumulative Maturity Mismatchposition for each means of funding used by the Authorised Firmin the sight - 8 days time band does not exceed negative 15%(4) An Authorised Firmmust notify the DFSAin writing immediately if it exceeds or is likely to exceed the net cumulative Maturity Mismatchlimits referred to in (3).
Net Stable Funding Ratio (NSFR) Requirement
PIB 9.3.12 PIB 9.3.12(1) An
Authorised Firmmust 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
(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).
PIB 9.3.12 Guidance1. The objective of the NSFR Requirement is to require an
Authorised Firmto 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'sregular 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 DFSAconsiders that the Financial Services Regulator of the home state of an Authorised Firmthat is a Branchhas not fully implemented the Basel III NSFRrequirements, it may use its power under Article 75A of the Regulatory Lawto require the Authorised Firmto comply with appropriate NSFRrequirements.
Notification if the NSFR Requirement not met
PIB 9.3.13 PIB 9.3.13
Authorised Firmmust notify the DFSAin writing immediately if it does not meet, or becomes aware of circumstances that may result in it not meeting, its NSFR Requirement.
9.3.13 Guidance1. An
Authorised Firmshould 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; andc. its expectations regarding the potential duration of the situation.2. An Authorised Firmthat makes a notification should discuss with the DFSAwhat, if any, further steps it should take to deal with the situation.