PIB App9 PIB App9 Liquidity
PIB A9.1 PIB A9.1 Application for a Global Liquidity Concession
PIB A9.1.1 PIB A9.1.1(1) This Rule applies to an
Authorised Firmcarrying on business in or from the DIFCthrough a Branchthat applies for a global liquidity concession under PIB Rule 9.3.2.(2) The Authorised Firmmust demonstrate to the DFSAthat:(a) its Branchcomplies with all applicable liquidity systems and controls requirements in sections PIB 9.2 and PIB 9.2A;(b) its head office is established in a jurisdiction where there are no legal constraints imposed by the home supervisor or any other authority on the provision of liquidity to its branch; and(c) its head office is subject to equivalent or more restrictive liquidity requirements, than those imposed by the DFSA.(3) The DFSAmay, when considering an application from the Authorised Firmfor a global liquidity concession, impose additional or alternative conditions to those specified in (2) or disapply a condition in (2).
PIB A9.1.1 Guidance1. An application for a global liquidity concession pursuant to PIB Rule 9.3.2 should include at least the following:a. a clear description of the home supervisor's requirements for managing, monitoring and controlling liquidity risk;b. a clear description of the systems and controls used by the head office to ensure the adequacy of the
Branch'sliquidity;c. a written assurance from the Authorised Firm'shead office that it will:i. ensure that adequate liquidity is available at all times to support the branch;ii. notify the DFSA, at the same time as it notifies its home supervisor, of any material issues concerning its exposure to Liquidity Riskand issues in relation to its compliance with applicable liquidity limits, including its liquidity coverage ratio; andiii. in the event of a liquidity crisis, provide the DFSAwith all relevant information on the whole Authorised Firm'sliquidity, and a list of any known constraints on the head office, legal or otherwise, to providing the branch with liquidity.d. a notification from the Authorised Firm'shome supervisor:i. expressing no objection to the branch obtaining the DFSA'sliquidity concession or acknowledging the branch application to the DFSAfor a global liquidity concession; andii. providing information about, and confirming, the quality of Liquidity Risksystems and controls and the liquidity exposures at the Authorised Firm'shead office.2. Under PIB Rule A9.1.1(2)(b), the DFSAwill consider liquidity transfer restrictions (e.g. ring-fencing measures, non-convertibility of local currency, foreign exchange controls) imposed under applicable laws, regulations or supervisory requirements in jurisdictions in which a banking group operates which affect the availability of liquidity by inhibiting the transfer of HQLA and fund flows within the Group.
PIB A9.1.2(1) An
Authorised Firmthat has been granted a global liquidity concession must provide the DFSAwith ongoing assurance about its Liquidity Riskby:(a) submitting to the DFSAat least quarterly a copy of the LCR calculation for the Authorised Firm, as submitted by its head office to its home supervisor;(b) notifying the DFSAimmediately of the results of every assessment which its home supervisor conducts which relates to the quality of liquidity systems and controls at its head office;(c) notifying the DFSAin writing immediately of any adverse finding or action taken by its home supervisor;(d) notifying the DFSAin writing immediately of any potential change in the branch funding strategy, business model or material potential change in its balance sheet structure; and(e) notifying the DFSAin writing immediately of any changes relating to its compliance with the conditions referred to in PIB Rule A9.1.1.(2) The DFSAmay at any time, based on its assessment of the Liquidity Riskexposures of an Authorised Firm, by written notice adjust or exclude any of the requirements in (1), impose additional requirements or cancel the global liquidity concession granted to the Authorised Firm.
PIB A9.2 PIB A9.2 The Liquidity Coverage Ratio
PIB A9.2 Guidance1. The objective of the LCR is to promote short-term resilience of an
Authorised Firm'sliquidity risk profile. The LCR aims to ensure that an Authorised Firmmaintains an adequate level of unencumbered HQLA that can be converted into cash to meet its liquidity needs for a 30 calendar day period under a severe liquidity stress scenario.2. The LCR is calculated under PIB Rule 9.3.5 using the following formula:
LCR = Value of stock of HQLA / Total Net Cash Outflows over the next 30 calendar days3. The LCR has two components:a. Value of the stock of HQLA in stressed conditions; andb. Total Net Cash Outflows, calculated according to the scenario parameters outlined in this section.4. The stress scenario entails both institution-specific and systemic shocks including:a. the run-off of a proportion of retail deposits;b. a partial loss of unsecured wholesale funding capacity;c. a partial loss of secured, short-term financing with certain collateral and counterparties;d. additional contractual outflows that would arise from a downgrade in the
Authorised Firm'spublic credit rating, where applicable, by up to and including three notches, including collateral posting requirements;e. increases in market volatility that affect the quality of collateral or potential future exposure of derivative positions and so require larger collateral haircuts or additional collateral, or lead to other liquidity needs;f. unscheduled draws on committed but unused credit and liquidity facilities that the Authorised Firmhas provided to its clients; andg. the potential need for the Authorised Firmto buy back debt or honour non-contractual obligations to mitigate reputational risk.
PIB A9.2.1 PIB A9.2.1
Authorised Firmmust calculate its LCR on an ongoing basis and separately for each significant currency. An Authorised Firmmust report to the DFSAits aggregate LCR calculation in USD.
PIB A9.2.1 Guidance
A currency is considered significant if the aggregate liabilities denominated in that currency amount to 5% or more of the
Authorised Firm'stotal liabilities.
High Quality Liquid Assets (HQLA)
Assets that meet the conditions in Rules PIB A9.2.2 to PIB A9.2.9 are considered to be HQLA. Those assets are considered to be HQLA as they can be converted easily and immediately into cash at little or no loss of value. To qualify as HQLA, assets should be liquid in markets during a time of stress. In determining whether or not the market for an asset can be relied upon to raise liquidity during a time of stress, the following factors should be taken into account:1. fundamental characteristics, for example:a. low risk: high credit standing of the issuer and a low degree of subordination, low duration, low legal risk, low inflation risk, denomination in a convertible currency with low foreign exchange risk;b. ease and certainty of valuation;c. low correlation with risky assets, not subject to wrong-way risk; andd. listing on a developed and recognised exchange.2. market-related characteristics, for example:a. active and sizable market, including active outright sale or repo markets at all times. This can be demonstrated through:i. historical evidence of market breadth and market depth (low bid-ask spreads, high trading volumes, large and diverse number of market participants); orii. existence of robust market infrastructure (presence of multiple committed market makers);b. low price volatility, including historical evidence of relative stability of market terms (e.g. prices and haircuts) and volumes during stressed periods; orc. flight to quality, i.e. that historically the market has shown a tendency to move into these types of high quality assets in a systemic crisis.
HQLA — general operational requirements
To be eligible as HQLA, assets in the portfolio of HQLA must be appropriately diversified in terms of type of assets, type of issuer and specific counterparty or issuer.
To be eligible as HQLA, assets must meet the following requirements:(a) the assets must be under the control of the specific function or functions charged with managing the liquidity of the
Authorised Firmwho must have the continuous authority and legal and operational capability to liquidate any asset in the stock; and(b) a representative portion of the assets in the stock of HQLA must be liquidated periodically and at least annually by the Authorised Firmto test its access to the market, the effectiveness of its processes for liquidation, the availability of the assets, and to minimise the risk of negative signalling during a period of actual stress.
PIB A9.2.4 PIB A9.2.4
To be eligible as HQLA, an asset must also meet the following requirements:(a) the asset must be unencumbered and free of legal, regulatory, contractual or other restrictions that affect the ability of the
Authorised Firmto liquidate, sell, transfer, or assign the asset;(b) the asset must not be pledged, either explicitly or implicitly, to secure, collateralise or credit-enhance any transaction, nor be designated to cover operational costs (such as rents and salaries); and(c) an asset received in a reverse repo or securities financing transactions that is held at the Authorised Firm, is eligible for inclusion in the stock of HQLA only if the asset has not been rehypothecated and is legally and contractually available for the Authorised Firm'suse.
PIB A9.2.4 Guidance1. The requirements in Rules PIB A9.2.2 to PIB A9.2.4 are intended to ensure that the stock of HQLA is managed in such a way that the
Authorised Firmcan, and is able to demonstrate that it can, immediately use the assets as a source of contingent funds that is available to convert into cash to fill funding gaps between cash inflows and outflows at any time during the 30-day stress period, with no restriction on the use of the liquidity generated.2. Under PIB Rule A9.2.3(a), the control of the HQLA may be evidenced either by:(a) maintaining assets in a separate pool managed by the identified liquidity management function (typically the treasurer) with the sole intent to use it as a source of contingent funds; or(b) demonstrating that the relevant function can liquidate the asset at any point in the 30-day stress period and that the proceeds are available to the function throughout the 30-day stress period without directly conflicting with a stated business or risk management strategy.3. Operational capability to liquidate assets referred to in PIB Rule A9.2.3(b), requires procedures and appropriate systems to be in place. This includes providing the liquidity management function with access to all necessary information to liquidate any asset at any time. Liquidation of the asset should be executable operationally within the standard settlement period for the asset class in the relevant jurisdiction.
Caps on different types of HQLA
PIB A9.2.5 PIB A9.2.5(1) Assets eligible to be included in the stock of HQLA for the purpose of the LCR calculation are classified under the following two categories:(a) Level 1 HQLA, consisting of the highest quality and most liquid assets; and(b) Level 2 HQLA, including Level 2A HQLA and Level 2B HQLA, consisting of other high quality liquid assets.(2) When calculating the total stock of HQLA, an
Authorised Firmmust apply the following caps in respect of each category of assets:(a) Level 1 HQLA can be included in the total stock of HQLA without any limit (i.e. up to 100% of HQLA);(b) Total Level 2 HQLA, including both Level 2A HQLA and Level 2B HQLA, can comprise only up to 40% of the total stock of HQLA; and(c) Level 2B HQLA can comprise only up to 15% of the total stock of HQLA within the overall 40% limit on Level 2 HQLA in (b).(3) The caps on Level 2 HQLA and Level 2B HQLA must be determined after applying the haircuts required under Rules PIB A9.2.7 and PIB A9.2.8, and after unwinding the amounts of HQLA involved in short-term secured funding, secured lending and collateral swap transactions maturing within 30 calendar days that involve the exchange of HQLA.(4) The assets to be included in each category of HQLA must be restricted to assets being held or owned by the Authorised Firmon the first day of the stress period, irrespective of their residual maturity.
PIB A9.2.5 Guidance1. The following
Guidanceis intended to illustrate how PIB Rule A9.2.5 should be applied in practice.2. Under PIB Rule A9.2.5(3) the adjusted amounts of HQLA should be calculated as the amount of HQLA that would result after unwinding those short-term secured funding, secured lending and collateral swap transactions that involve the exchange of any HQLA for any other HQLA.3. The calculation of the stock of HQLA under PIB Rule A9.2.5 can be expressed as the following formula:
Stock of HQLA = Level 1 HQLA + Level 2A HQLA + Level 2B HQLA – Adjustment for 15% cap – Adjustment for 40% cap
a. Adjustment for 15% cap = Max (Adjusted Level 2B HQLA – 15/85 x (Adjusted Level 1 HQLA + Level 2A HQLA), Adjusted Level 2B HQLA - 15/60 x (Adjusted Level 1 HQLA, 0)b. Adjustment for 40% cap = Max ((Adjusted Level 2A HQLA + Adjusted Level 2B HQLA – Adjustment for 15% cap) - 2/3 x Adjusted Level 1 HQLA, 0)
Level 1 HQLA
PIB A9.2.6(1) Level 1 HQLA must be valued at market value.(2) Level 1 HQLA consists of:(a) banknotes and coin;(b) central bank reserves, to the extent that such reserves are capable of being drawn down immediately in times of stress;(c) marketable securities representing claims on or claims guaranteed by sovereigns, central banks,
Public Sector Entities(PSEs), the Bank for International Settlements, the International Monetary Fund, the European Central Bank and European Commission or Multilateral Development Banks(MDBs), and that satisfy all of the following conditions:(ii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions; and(iv) they are not an obligation of a financial institution or any of its associated entities;(d) in the case of sovereigns that are not eligible for zero % risk-weight, sovereign or central bank debt securities issued in domestic currencies by the sovereign or central bank in the country in which the liquidity risk is being taken or in the Authorised Firm'shome jurisdiction, where those securities satisfy all of the conditions in paragraph (c) (ii)(iii) and (iv);(e) in the case of sovereigns that are not eligible for zero % risk-weight, domestic sovereign or central bank debt securities issued in foreign currencies, up to the amount of the Authorised Firm'sstressed net cash outflows in that specific foreign currency stemming from the Authorised Firm'soperations in the jurisdiction where the Authorised Firm'sliquidity risk is being taken, where those securities satisfy all of the conditions in paragraph (c) (ii)(iii) and (iv); and(f) any other types of assets approved by the DFSAunder PIB Rule A9.2.9 as being eligible to be Level 1 HQLA.
Level 2A HQLA
PIB A9.2.7(1) Level 2A HQLA must be valued at market value and subject to a 15% haircut.(2) Level 2A HQLA consists of:(a) marketable securities representing claims on or guaranteed by sovereigns, central banks, PSEs or MDBs that satisfy all of the following conditions:(ii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 10%); and(iv) they are not an obligation of a financial institution or any of its associated entities;(b) corporate debt securities (including commercial paper) and covered bonds that satisfy all of the following conditions:(i) in the case of corporate debt securities: they must not be issued by a financial institution or any of its associated entities and must include only plain vanilla assets (i.e. not include complex structured products or subordinated debt) whose valuation is readily available based on standard methods and does not depend on private knowledge;(ii) in the case of covered bonds: they must not be issued by the
Authorised Firmitself or any of its associated entities;(iii) the assets must have a Credit Quality Grade of 1 from a recognised ECAI or, if the assets do not have a credit assessment by a recognised ECAI, they must be internally rated as having a probability of default (PD) corresponding to a Credit Quality Grade of 1;(iv) they must be traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(v) they must have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 10%); and(c) any other types of assets approved by the DFSAunder PIB Rule A9.2.9 as being eligible to be Level 2A HQLA.
Level 2B HQLA
PIB A9.2.8(1) Level 2B HQLA must be valued at market value and subject to an appropriate haircut, as specified in (2), for each type of asset.(2) Level 2B HQLA consists of:(a) residential mortgage backed securities that satisfy all of the following conditions, subject to a 25% haircut:(i) they are not issued by, and the underlying assets have not been originated by, the
Authorised Firmitself or any of its affiliated entities;(ii) they have a Credit Quality Grade of 1 from a recognised ECAI;(iii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration;(iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 20%);(v) the underlying asset pool is restricted to residential mortgages and does not contain structured products;(vi) the underlying mortgages are “full recourse'' loans (i.e. in the case of foreclosure the mortgage owner remains liable for any shortfall in sales proceeds from the property) and have a maximum loan-to-value ratio (LTV) of 80% on average at issuance; and(vii) the securitisations are subject to “risk retention” regulations which require issuers to retain an interest in the assets they securitise;(b) corporate debt securities (including commercial paper) that satisfy all of the following conditions, subject to a 50% haircut:(i) they are not issued by a financial institution or any of its affiliated entities;(ii) they have a Credit Quality Grade of 2 or 3 from a recognised ECAI or, in the case the assets do not have a credit assessment by a recognised ECAI, are internally rated as having a probability of default (PD) corresponding to a Credit Quality Grade of 2 or 3;(iii) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 20%);(c) equity shares that satisfy all of the following conditions, subject to a 50% haircut:(i) they are not issued by a financial institution or any of its affiliated entities;(ii) they are exchange traded and centrally cleared;(iii) they are a constituent of the major stock index in the home jurisdiction, or where the liquidity risk is taken, as decided by the supervisor in the jurisdiction where the index is located;(iv) they are denominated in the domestic currency of an Authorised Firm'shome jurisdiction or in the currency of the jurisdiction where an Authorised Firm'sliquidity risk is taken;(v) they are traded in large, deep and active repo or cash markets characterised by a low level of concentration; and(vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, (i.e. maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 40%); and(d) any other types of assets approved by the DFSAunder PIB Rule A9.2.9 as being eligible to be Level 2B HQLA.
Approval of other types of HQLA
PIB A9.2.9 PIB A9.2.9(1) The
DFSAmay approve other types of assets (in addition to those specified in Rules PIB A9.2.6 to PIB A9.2.8) as being eligible to be included in the stock of HQLA for the purposes of the calculation of the LCR.(2) If the DFSAapproves assets under (1), it must specify whether they are to be classified as Level 1 HQLA or Level 2 HQLA and the haircut, if any, to be applied to them.
PIB A9.2.9 Guidance
DFSAmay use its discretion under PIB Rule A9.2.9 to approve other types of assets as HQLA including, but not limited to, Shar'iah compliant financial products. When the DFSAapproves assets it may define the conditions that the assets must satisfy to be treated as HQLA. It must specify whether the assets are to be treated as Level 1 HQLA or Level 2A or 2B HQLA.
Other provisions relating to LCR calculation
For the purpose of calculating the LCR, if an eligible asset within HQLA becomes ineligible (e.g. due to a rating downgrade), an
Authorised Firmis allowed to keep the asset in its stock of HQLA for an additional 30 calendar days to allow time to adjust its stock as needed or replace the asset.
For the purpose of calculating a consolidated LCR for a
Financial Group, where applicable, qualifying HQLA held to meet statutory liquidity requirements at a legal entity or sub-consolidated level may be included in the stock at the consolidated level only to the extent that the related risks are also reflected in the consolidated LCR. Any surplus of HQLA held at the legal entity can be included in the consolidated stock of HQLA only if those assets would also be freely available to the consolidated parent entity in times of stress.
Authorised Firmmust be able to meet its liquidity needs in each currency in which it has a significant exposure. The currencies of the stock of HQLA of an Authorised Firmmust be similar in composition to its liquidity needs by currency.
Total Net Cash Outflow
PIB A9.2.13(1) An
Authorised Firmmust calculate its Total Net Cash Outflow over the following 30 calendar days in accordance with the following formula:
Total Net Cash Outflows over the next 30 calendar days
total expected cash outflows
whichever is the lesser amount of total expected cash inflows or 75% of total expected cash outflows(2) Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down.(3) Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in.(4) To ensure a minimum level of HQLA holdings at all times, total cash inflows are subject to an aggregate cap of 75% of total expected cash outflows.
Authorised Firmmust not double-count items. That is, for assets included as part of the eligible stock of HQLA, the associated cash inflows arising from such assets must not be counted as cash inflows for the purpose of calculating the net cash outflows over the next 30 calendar days.
PIB A9.2.15 PIB A9.2.15
The following table specifies, for each of the various categories or types of liabilities and off-balance sheet commitments, the rates at which they are expected to run off or be drawn down for the purpose of calculating the LCR.Cash OutflowsItemFactor
A. Retail Deposits: Demand deposit and term deposits (less than 30 days maturity):
• Stable deposits
• Less stable retail deposits
10% Term deposits with residual maturity greater than 30 days 0% B. Unsecured Wholesale Funding: Demand and term deposits (less than 30 days maturity) provided by small business customers:
• Stable deposits
• Less stable deposits
10% Small business customers – Term deposits with residual maturity greater than 30 days with no legal right to withdraw or a withdrawal with a significant penalty0% Operational deposits or operational accounts generated by clearing, custody and cash management activities:
• Portion covered by deposit insurance
5% Cooperative banks or institutions offering Islamic financial services in an institutional network (qualifying deposits with the centralised institution)25% Non-financial corporates, sovereigns, central banks, multilateral development banks and PSEs:
• If the entire amount is fully covered by a deposit protection scheme
20% Other legal entity customers100% C. Secured Funding: • Secured funding transactions with a central bank counterparty or backed by Level 1 HQLA with any counterparty 0% • Secured funding transactions backed by Level 2A HQLA, with any counterparty 15% • Secured funding transactions backed by non-Level 1 HQLA or non-Level 2A HQLA, with domestic sovereigns, multilateral development banks, or domestic PSEs as a counterparty 25% • Backed by RMBS eligible for inclusion in Level 2B HQLA 25% • Backed by other Level 2B HQLA 50% • All other secured funding transactions 100% D. Additional Requirements: Derivatives cash outflows or Shari'a compliant hedging 100% Liquidity needs (e.g. collateral calls) related to financing transactions, derivatives and other contracts 100% Market valuation changes on non-Level 1 HQLA posted collateral securing derivatives 20% Excess collateral held by a bank related to derivative transactions that could contractually be called at any time by its counterparty 100% Liquidity needs related to collateral contractually due from the reporting bank on derivatives transactions 100% Increased liquidity needs related to derivative transactions that allow collateral substitution to non-HQLA assets 100% Market valuation changes on derivatives transactions (largest absolute net 30-day collateral flows realised during the preceding 24 months) 100% ABCP, SIVs, Conduits, etc:
• Loss of funding on Asset Backed Securities, covered bonds and other structured financing instruments
100% • Loss of funding on ABCP, SIVs, SPVs, etc 100% Undrawn committed credit and liquidity facilities:
• Credit and Liquidity Facilities: Retail and small and medium-sized enterprise clients
5% • Credit Facilities: Non-financial corporates, sovereigns and central banks, PSEs, MDBs 10% • Liquidity Facilities: Non-financial corporates, sovereigns and central banks, PSEs, MDBs 30% • Credit and Liquidity Facilities: Banks subject to prudential supervision 40% • Credit Facilities: Other financial institutions (include securities firms, insurance companies, fiduciaries and beneficiaries) 40% • Liquidity Facilities: Other financial institutions (include securities firms, insurance companies, fiduciaries and beneficiaries) 100% • Credit and Liquidity Facilities: Other legal entity customers 100% • Other contractual obligations to financial institutions 100% • Other contractual obligations to retail and non-financial corporate clients 100% Other contingent funding obligations:
• Non-contractual obligations related to potential liquidity draws from joint ventures or minority investments in entities
100% • Trade finance-related obligations (including letters of credit and guarantees) 3% • Unconditionally revocable "uncommitted" credit and liquidity facilities 5% • Guarantees and letters of credit unrelated to trade finance obligations 10% Non-contractual obligations:
• Debt-buy back requests (incl. related conduits)
100% • Structured products 10% • Managed funds 10% • Other non-contractual obligations 100% Outstanding debt securities with remaining maturity > 30 days 100% Non contractual obligations where customer short positions are covered by other customers' collateral 50% Other contractual cash outflows 100%
PIB A9.2.15 Guidance1. The following
Guidancesets out the DFSA'sviews about how the Table to PIB Rule A9.2.15 should be applied to different items.
Retail Deposits:2. Retail deposits should include deposits from individuals placed with an
Authorised Firm. Depositsfrom legal entities, sole proprietorships or partnerships should be included in wholesale deposit categories. Depositsmay include demand deposits and term deposits, unless otherwise excluded.3. Under COB section 4.2, an Authorised Firmcan only accept deposits from individuals who are Professional Clients.4. Depositsfrom individuals are divided under the Table into 'stable' and 'less stable' deposits. Stable deposits should include the portion of deposits that are fully covered by an effective deposit insurance scheme or by a public guarantee that provides equivalent protection and where:a. the depositor has other established relationships with the Authorised Firmthat make deposit withdrawal highly unlikely; orb. the deposits are in transactional accounts (e.g. accounts where salaries are automatically credited).5. If an Authorised Firmis not able to readily identify which retail deposits would qualify as “stable” according to paragraph 4, it should place the full amount in the “less stable” buckets.6. Less stable deposits should consist of the portion of deposits that do not meet the conditions in paragraph 4 and also include types of deposits more likely to be withdrawn in a time of stress. These should include high-value deposits (i.e. deposits above any deposit insurance limit), deposits from customers who do not have established relationships with an Authorised Firmthat make the deposit withdrawal unlikely, deposits from sophisticated or high net worth individuals, deposits where the internet is integral to the design, marketing and use of the account (on-line accounts) and deposits with promotional interest rates (i.e. that are heavily rate-driven).7. Cash outflows related to retail term deposits with a residual maturity or withdrawal notice period of greater than 30 days should be excluded from total expected cash outflows only if the depositor has no legal right to withdraw deposits within the 30-day period of the LCR, or if early withdrawal results in a significant penalty that is materially greater than the loss of interest. If an Authorised Firmallows a depositor to withdraw such deposits despite a clause that says the depositor has no legal right to withdraw, the entire category of these funds should be treated as demand deposits.
Unsecured wholesale funding:8. Unsecured wholesale funding should consist of liabilities and general obligations raised from non-natural persons (i.e. legal entities, including sole proprietorships and partnerships) and not collateralised by legal rights to specifically designated assets owned by the
Authorised Firmaccepting the deposit in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts should be excluded from this category.9. The wholesale funding included in the LCR should consist of all funding that is callable within the LCR's period of 30 days or that has its earliest possible contractual maturity date within this period (such as maturing term deposits and unsecured debt securities), as well as funding with an undetermined maturity. This should include all funding with options that are exercisable at the investor's discretion within the 30-day period.10. Wholesale funding that is callable by the funds provider subject to a contractually defined and binding notice period longer than the 30-day period should not be included.11. Unsecured wholesale funding provided by small and medium-sized enterprise customers should be treated as deposits from individuals where:a. the deposits and other extensions of funds made by non-financial small and medium-sized enterprise customers are managed as retail accounts and are generally considered as having similar liquidity risk characteristics to retail accounts; andb. the total aggregated funding raised from a small and medium-sized enterprise customer is less than USD 1 million (on a consolidated basis where applicable).
Operational deposits12. Operational deposits should consist of those deposits where customers place, or leave, deposits with an
Authorised Firmto facilitate their access and ability to use payment and settlement systems and otherwise make payments. Balances can be included only if the customer has a substantive dependency on the Authorised Firmand the deposit is required for such activities.13. Qualifying activities in this context refer to clearing, custody or cash management activities where the customer is reliant on the Authorised Firmto perform these services as an independent third-party intermediary in order to fulfil its normal banking activities over the next 30 days. These services should be provided to institutional customers under a legally binding agreement and the termination of such agreements should be subject either to a notice period of at least 30 days or to significant switching costs to be borne by the customer if the operational deposits are moved before 30 days.14. Qualifying operational deposits generated by such an activity should consist of deposits which are:a. by-products of the underlying services provided by the Authorised Firm;b. not offered by the Authorised Firmin the wholesale market in the sole interest of offering interest income; andc. held in specifically designated accounts and priced without giving an economic incentive to the customer to leave excess funds on these accounts.15. Any excess balances that could be withdrawn without jeopardising these clearing, custody or cash management activities should not qualify as operational deposits.
Liquidity facilities16. A liquidity facility should consist of any committed, undrawn back-up facility that would be used to refinance the debt obligations of a customer in situations where such a customer is unable to roll over that debt in financial markets. The amount of any commitment to be treated as a liquidity facility should consist of the amount of the outstanding debt issued by the customer (or proportionate share of a syndicated facility) maturing within a 30-day period that is backstopped by the facility. Any additional capacity of the facility should be treated as a committed credit facility. General working capital facilities for corporate entities (e.g. revolving credit facilities in place for general corporate or working capital purposes) should not be classified as liquidity facilities, but as credit facilities.17. Despite paragraph 16, any facilities provided to hedge funds, money market funds and special purpose funding vehicles, or other vehicles used to finance an
Authorised Firm'sown assets, should be captured in their entirety as a liquidity facility to a financial institution.
PSIAsand other Shari'a compliant products18. For the purposes of calculating cash outflows, Unrestricted PSIAsshould be treated similarly to the relevant category of deposits specified in the Table. The appropriate run-off factor for a PSIAwill depend on the contractual withdrawal rights of the investment account holders and whether it is a retail or wholesale account.19. For commodity Murabaha transactions, a run-off factor of 100% should be applied to the balance of the Murabaha payable, if the remaining term of the contract does not exceed 30 days. If early withdrawal of the original amount is allowed at the discretion of the Authorised Firmwith no mark-up, then the applicable run-off factor will be the same as that for the relevant category of deposit or Unrestricted PSIAunder the Table.
PIB A9.2.16(1) When considering its available cash inflows, an
Authorised Firmmay include contractual inflows from outstanding exposures only if they are fully performing and there is no reasonable basis to expect a default within the 30-day period. Contingent inflows are not included in total net cash inflows.(2) Where an Authorised Firmis overly reliant on cash inflows from one or a limited number of wholesale counterparties, the DFSAmay set an alternative limit on the level of cash inflows that can be included in the LCR.
PIB A9.2.17(1) The
DFSAmay allow an Authorised Firmto recognise as cash inflow, access to a parent entity's funds via a committed funding facility if the Authorised Firmis a subsidiary of a foreign bank. In such instances, the committed funding facility from the parent entity must meet both of the following criteria:(a) the facility must be an irrevocable commitment and must be appropriately documented; and(b) the facility must be quantified.(2) A committed funding facility from a parent entity referred to in (1) can be recognised as a cash inflow only from day 16 of the LCR scenario. The cash inflow from a parent entity can be sufficient in size to cover only net cash outflows against items with a maturity or next call date between days 16 and 30 of the LCR.
PIB A9.2.18 PIB A9.2.18
The following table specifies, for each of the various categories and types of contractual receivables, the rates at which they are expected to flow in for the purpose of the calculation of the LCR:Cash InflowsItemFactor
Maturing secured lending (incl. reverse repos and securities borrowing), backed by the following as collateral:
• Level 1 HQLA
• Level 2A HQLA
• Level 2B HQLA - eligible RMBS
• Level 2B HQLA - Other assets
• Margin lending backed by all other collateral
• All other assets
• Credit or liquidity facilities provided to the reporting Bank
• Operational deposits or operational accounts held at other financial institutions (including deposits held at centralised institution of network of co-operative banks or operational accounts held at institutions offering Islamic financial services)
Other inflows by counterparty
• Amounts receivable from retail counterparties
• Amounts receivable from non-financial wholesale counterparties, from transactions other than those listed in the above inflow categories
• Amounts receivable from financial institutions and central banks, from transactions other than those listed in the above inflow categories
• Net derivative receivables
• Net Shari'a compliant hedging cash inflows
• Other contractual cash inflows
PIB A9.2.18 Guidance
Maturing secured lending, including reverse repos and securities borrowing1. An
Authorised Firmshould assume that maturing reverse repurchase or securities borrowing agreements secured by Level 1 HQLA will be rolled over and will not give rise to any cash inflows (zero %). Maturing reverse repurchase or securities borrowing agreements secured by Level 2 HQLA should be modelled as cash inflows, equivalent to the relevant haircut for the specific assets. An Authorised Firmis assumed not to roll-over maturing reserve repurchase or securities borrowing agreements secured by non-HQLA assets and can assume it will receive 100% of the cash related to those agreements. Collateralised loans extended to customers for the purpose of taking leveraged trading positions, i.e. margin loans, should be modelled with a 50% cash inflow from contractual inflows made against non-HQLA collateral.2. An exception to paragraph 1 is the situation where, if the collateral obtained through reverse repo, securities borrowing or collateral swaps, which matures within the 30-day period, is re-used (i.e. rehypothecated) and is tied up for 30 days or longer to cover short positions. An Authorised Firmshould then assume that such reverse repo or securities borrowing arrangements will be rolled over and will not give rise to any cash inflows (zero %), reflecting its need to continue to cover the short position or to repurchase the relevant securities.3. An Authorised Firmshould manage its collateral so that it is able to fulfil obligations to return collateral whenever the counterparty decides not to roll-over any reverse repo or securities lending transaction. This is especially the case for non-HQLA collateral, since such outflows are not captured in the LCR framework.
Lines of credit4. Lines of credit, liquidity facilities and other contingent funding facilities that an
Authorised Firmholds at other institutions for its own purposes should be assumed to be able to be drawn and so such facilities should receive a zero % inflow rate.
Inflows by counterparty5. All inflows should be taken only at the latest possible date, based on the contractual rights available to counterparties. Inflows from loans that have no specific maturity should not be included, with the exception of minimum payments of principal, fee or interest associated with an open maturity loan.6. Operational deposits: a zero % inflow rate should apply to deposits held at other financial institutions for operational purposes.
Other cash inflows7. Other contractual cash inflows: other contractual cash inflows should be included under this category. Cash inflows related to non-financial revenues should not be taken into account in the calculation of the net cash outflows for the purposes of the LCR. These items should receive an inflow rate of 100%.
PIB A9.3 PIB A9.3 The Maturity Mismatch Approach
Including Inflows (Assets) and Outflows (Liabilities) in the Timebands
PIB A9.3.1(1) Outflows (liabilities) must be included in the
Maturity Ladderaccording to their earliest contractual maturity.(2) Contingent liabilities may be excluded from the maturity mismatch ratio calculation only if there is a likelihood that the conditions necessary to trigger them will not be fulfilled within the ratio period.(3) Inflows (assets) must be included in the Maturity Ladderaccording to their latest contractual maturity.
Including liquid assets in the Maturity Ladder
PIB A9.3.2(1) Liquid assets are included at market value in the relevant section of the
Maturity Ladder.(2) An asset is regarded as liquid if:(a) prices are regularly quoted for the asset;(b) the asset is regularly traded;(c) the asset may readily be sold, including by repurchase agreement, either on an exchange, or in a deep and liquid market for payment in cash; and(d) settlement is according to a prescribed timetable rather than a negotiated timetable.(3) Deleted(4) The discount factor to be applied to types of marketable assets when completing the maturity mismatch ratio calculation must be determined by reference to the following table and PIB Rules A9.2.6 to A9.2.9 (which define which assets are eligible to be included in each HQLA level): Liquid assets Discount Level 1 HQLA 0% Level 2A HQLA 15% Level 2B HQLA - Eligible asset backed securities 25% Level 2B HQLA - Other HQLA 50% Non-HQLA eligible trading assets that are Investment Grade 60%(5) The DFSAmay vary the discounts to reflect the conditions of a particular market or institution.
PIB A9.3 [Deleted]
PIB A9.4 PIB A9.4 The Net Stable Funding Ratio (NSFR)
PIB A9.4 Guidance1. An
Authorised Firm's NSFRis the amount of Available Stable Funding (ASF)relative to the amount of Required Stable Funding (RSF). The NSFRshould be at least 100% at all times (see PIB Rule 9.3.12). The NSFRis calculated under PIB Rule 9.3.12 using the following formula:NSFR = ASF x 100RSF2. For the purposes of the NSFR Requirement, an Authorised Firm's ASFand RSFare calibrated to reflect the presumed degree of stability of liabilities and liquidity of assets.3. This Appendix sets out how the ASFand RSF are to be calculated.
Available Stable Funding (ASF)
PIB A9.4.1 PIB A9.4.1(1) An
Authorised Firmmust calculate its ASFby:(a) assigning the carrying value of each liability and capital instrument to the applicable ASF Categoryset out in the table;(b) adjusting the carrying value of each liability and capital instrument by multiplying it by the applicable ASF Factoras set out in the table; and(c) adding together each adjusted carrying value. ASF Categoriesand associated ASF Factors ASF FactorComponents of ASF Category 100%(a) the total amount of regulatory capital, before the application of capital deductions, excluding the proportion of Tier 2 instruments with residual maturity of less than one year;(b) the total amount of any capital instrument not included in (a) that has an effective residual maturity of one year or more, but excluding any instruments with explicit or embedded options that, if exercised, would reduce the expected maturity to less than one year; and(c) the total amount of secured and unsecured borrowings and liabilities (including term deposits) with effective residual maturities of one year or more. Cash flows falling below the one-year horizon but arising from liabilities with a final maturity greater than one year do not qualify for the 100% ASF Factor. 95%• "stable" non-maturity (demand) deposits, term deposits and/or PSIAus with residual maturities of less than one year provided by retail and small business customers. 90%• "less stable" non-maturity (demand) deposits, term deposits and/or PSIAus with residual maturities of less than one year provided by retail and small business customers. 50%(a) funding (secured and unsecured) with a residual maturity of less than one year provided by non-financial corporate customers;(b) operational deposits or operational accounts;(c) funding with residual maturity of less than one year from sovereigns, public sector enterprises (PSEs), and multilateral and national development banks;(d) other funding (secured and unsecured) not included in the categories above with residual maturity between six months to less than one year, including funding from Central Banks and financial institutions; and(e) funding with residual maturity of less than one year provided by non-financial corporate customers. 0%(a) all other liabilities and equity categories not included in the above categories, including other funding with residual maturity of less than six months from Central Banks and financial institutions;(b) other liabilities without a stated maturity. This category may include short positions and open maturity positions. Two exceptions can be recognised for liabilities without a stated maturity:(i) deferred tax liabilities, which should be treated according to the nearest possible date on which such liabilities could be realised; and(ii) minority interest, which should be treated according to the term of the instrument, usually in perpetuity.These liabilities would then be assigned either a 100% ASF Factor, if the effective maturity is one year or greater, or 50%, if the effective maturity is between six months and less than one year;(c) NSFR derivative liabilities (net of NSFR derivative assets) if NSFR derivative liabilities are greater than NSFR derivative assets;(d) Net NSFR Shari'a compliant hedging liabilities (if NSFR Shari'a compliant hedging liabilities are greater than NSFR Shari'a compliant hedging assets); and(e) "trade date" payables arising from purchases of financial instruments, foreign currencies and commodities that:(i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or(ii) have failed to, but are still expected to, settle.[Derived from] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
PIB A9.4.1 Guidance1. An
Authorised Firm's ASFrepresents the relative stability of its funding sources, including the contractual maturity of its liabilities and the differences in the propensity of different types of funding providers to withdraw their funding.2. The calibration of the ASFreflects the stability of liabilities, taking into account a number of factors:a. funding tenor – longer-term liabilities are assumed to be more stable than short-term liabilities; andb. funding type and counterparty – it is assumed that short-term deposits or PSIAus (i.e. maturing in less than one year) provided by retail customers and funding provided by small business customers are behaviourally more stable than wholesale funding of the same maturity from other counterparties.3. For ASFpurposes, when determining the maturity of an equity or liability instrument, investors are assumed to redeem a call option at the earliest possible date. For funding with options exercisable at the firm's discretion, the DFSAwill take into account reputational factors that may limit the firm's ability not to exercise the option. In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, the firm should assume such behaviour for the purpose of the NSFR Requirement and include these liabilities in the corresponding ASF Category. For long-dated liabilities, only the portion of cash flows falling at or beyond the six-month and one-year time horizons should be treated as having an effective residual maturity of six months or more and one year or more, respectively.4. Derivative liabilities are to be calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a negative value. When an eligible bilateral netting contract is in place that meets the conditions specified in the instructional guidelines for Form B300 set out in PRU Section 1.48, the replacement cost for the set of derivative exposures covered by the contract will be the net replacement cost.5. In calculating NSFRderivative liabilities, collateral posted in the form of variation margin in connection with derivative contracts, regardless of the asset type, must be deducted from the negative replacement cost amount.6. Carrying value is the amount at which a liability or equity instrument is recorded before the application of any regulatory deductions, filters or other adjustments.7. Regulatory capital consists of the sum of:a. T1 Capital (going-concern capital):i CET1; andii AT1; andb. T2 Capital (gone-concern capital).8. The Guidance in paragraphs 4 to 6 and 12 to 15 after PIB Rule A9.2.15 should be used to determine whether a deposit or PSIAu is to be treated as "stable", "less stable" or "operational".
Required Stable Funding (RSF)
PIB A9.4.2 PIB A9.4.2(1) An
Authorised Firmmust calculate its RSF by adding together:(a) the adjusted carrying values of its assets, calculated in accordance with (2); and(b) the adjusted carrying values of its off-balance sheet (OBS) Exposures(or potential liquidity Exposures), calculated in accordance with (3).(2) An Authorised Firmmust calculate the adjusted carrying values of its respective assets by:(a) assigning the carrying value of each asset to the applicable RSF Categoryset out in Table 1 to this Rule;(b) adjusting the carrying value of each asset by multiplying it by the applicable RSF Factorset out in Table 1; and(c) adding together each adjusted carrying value.(3) An Authorised Firmmust calculate the adjusted carrying values of its respective OBS Exposures(or potential liquidity Exposures) by:(a) assigning the carrying value of each Exposureto one of the OBS-RSF Categories set out in Table 2 to this Rule;(b) adjusting the carrying value of each asset by multiplying it by the applicable OBS-RSF Factorfor that OBS-RSF Category, as set out in Table 2; and(c) adding together each adjusted carrying value. Table 1 - RSF Factors and Categories RSF FactorComponents of RSF Category 0%(a) coins and banknotes immediately available to meet obligations;(b) all Central Banksreserves (including required reserves and excess reserves);(c) all claims on Central Bankswith residual maturities of less than six months; and(d) trade date receivables arising from sales of financial instruments, foreign currencies and commodities that:(i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or(ii) have failed to, but are still expected to, settle. 5% Unencumbered assets included in PIB Rule A9.2.6(2) (Level 1 HQLA), excluding assets receiving a 0% RSF Factoras specified above. 10% Unencumbered loans to financial institutions with residual maturities of less than six months, if the loan is secured against Level 1 HQLA included in PIB Rule A9.2.6, and where the bank has the ability freely to hypothecate the received collateral for the life of the loan. 15%
All loans to financial institutions with a residual maturity of less than six months, other than those receiving a 10% RSF Factor as specified above.
Unencumbered assets as defined in PIB Rule A9.2.7(2) (Level 2 HQLA).
50%(a) unencumbered assets included in PIB Rule A9.2.8(2) (Level 2B HQLA), excluding any haircuts required under that Rule;(b) any HQLA as defined in PIB Rules A9.2.6 to A9.2.8 that are encumbered for a period of between six months and less than one year;(c) all loans to financial institutions and Central Bankswith residual maturity of between six months and less than one year;(d) operational deposits, that is, deposits held at other financial institutions for operational purposes, that are subject to the 50% ASF Factorset out in the table in PIB Rule A9.4.1; and(e) all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non-financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns and PSEs. 65%(a) unencumbered residential mortgages with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under PIB Rule 4.12.17; and(b) other unencumbered loans not included in the above categories, excluding loans to financial institutions, with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under PIB section 4.12 (Risk Weights). 85%(a) cash, securities or other assets posted as initial margin for derivative contracts or Shari'a compliant hedging contracts and cash or other assets provided to contribute to the default fund of a Central Counterparty (CCP). Where securities or other assets posted as initial margin for derivative contracts would otherwise receive a higher RSF Factor, they should retain that higher factor;(b) other unencumbered performing loans that do not qualify for the 50% or lower risk weight under PIB section 4.12 and have residual maturities of one year or more, excluding loans to financial institutions.(c) unencumbered securities with a remaining maturity of one year or more and exchange-traded equities, that are not in default and do not qualify as HQLA; and(d) physical traded commodities, including gold. 100%(a) all assets that are encumbered for a period of one year or more;(b) NSFRderivative assets (net of NSFRderivative liabilities) if NSFRderivative assets are greater than NSFRderivative liabilities;(c) NSFRShari'a compliant hedging assets net of NSFRShari'a compliant hedging liabilities if NSFRShari'a compliant hedging assets are greater than NSFRShari'a compliant hedging liabilities;(d) all other assets not included in the above categories, including non-performing loans, loans to financial institutions with a residual maturity of one year or more, non-exchange-traded equities, fixed assets, items deducted from regulatory capital, retained interest, insurance assets, subsidiary interests and defaulted securities;(e) 20% of derivative liabilities (i.e. negative replacement cost amounts), before deducting variation margin posted; and(f) 20% of Shari'a compliant hedging liabilities. Table 2 - OBS-RSF Factors and Categories OBS-RSF FactorComponents of OBS-RSF Category 3% Trade finance related obligations (including guarantees and letters of credit). 5%(a) irrevocable and conditionally revocable credit and liquidity facilities to any client; and(b) unconditionally revocable credit and liquidity facilities. 10%(a) the following non-contractual obligations:(i) structured products where customers anticipate marketability, such as adjustable rate notes and variable rate notes; and(ii) managed funds that are marketed with the objective of maintaining a stable value; and(b) guarantees and letters of credit unrelated to trade finance obligations. 100%
The following non-contractual obligations:(a) potential requests for debt repurchases of the bank's own debt or that of related conduits, securities investment vehicles and other such financing facilities; and(b) other non-contractual obligations not mentioned above.
PIB A9.4.2 Guidance1. An
Authorised Firm's RSFrepresents the liquidity risk profile of its assets and OBS Exposures(or potential liquidity Exposures).2. When determining its RSF, an Authorised Firmshould:a. include financial instruments, foreign currencies and commodities for which a purchase order has been executed; andb. exclude financial instruments, foreign currencies and commodities for which a sales order has been executed, even if such transactions have not been reflected in the balance sheet under a settlement-date accounting model, provided that:i. the transactions are not reflected as derivatives or secured financing transactions in the firm's balance sheet; andii. the effects of such transactions will be reflected in the firm's balance sheet when settled.3. For secured funding arrangements, use of balance sheet and accounting treatments should generally result in a firm excluding, from their assets, securities which they have borrowed in securities financing transactions (such as reverse repos and collateral swaps) where they do not have beneficial ownership. In contrast, a firm should include securities they have lent in securities financing transactions where they retain beneficial ownership. A firm should also not include any securities they have received through collateral swaps if those securities do not appear on their balance sheet. Where a firm has encumbered securities in repos or other securities financing transactions, but has retained beneficial ownership and those assets remain on its balance sheet, the firm should allocate such securities to the appropriate RSF Category.4. SFT with a single counterparty should be measured net when calculating the NSFR, provided that the netting conditions set out in PIB Rules 4.9.13 to 4.9.20 are met.5. Derivative assets are calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a positive value. When an eligible bilateral netting contract is in place that meets the conditions as specified in the instructional guidelines for Form B300 set out in PRU Section 1.48, the replacement cost for the set of derivative exposures covered by the contract will be the net replacement cost.6. Shari'a compliant hedging liabilities (e.g. Islamic swaps) are calculated first based on the replacement cost for the Shari'a compliant hedging contracts (obtained by marking to market), such as ISDA/IIFM Tahawwut Master Agreement (TMA), where the contract has a negative value. When an eligible bilateral netting contract is in place, the replacement cost for the set of Shari'a compliant hedging exposures covered by the contract will be the net replacement cost.7. In calculating NSFRderivative assets, collateral received in connection with derivative contracts should not offset the positive replacement cost amount, regardless of whether or not netting is permitted under the firm's operative accounting or risk-based framework, unless it is received in the form of cash variation margin and meets the conditions as specified in the instructional guidelines for Form B300 set out in PRU section 1.48. Any remaining balance sheet liability associated with: (a) variation margin received that does not meet the criteria above; or (b) initial margin received; may not offset derivative assets and should be assigned a 0% ASF Factor.8. In calculating NSFR Shari'a compliant hedging liabilities, collateral posted in the form of variation margin that follows Shari'a principles in connection with Shari'a compliant hedging contracts as in the TMA contract, regardless of the asset type, must be deducted from the negative replacement cost amount.