Contingency Funding Plan
A Contingency Funding Plan, or CFP, is a compilation of policies, procedures and action plans for responding to severe disruptions to an
Authorised Firm'sability 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.
PIB 9.2A.6 PIB 9.2A.6(1) An
Authorised Firmmust have a documented Contingency Funding Plan (CFP) that sets out clearly its strategies for addressing liquidity shortfalls in emergency situations.(2) An Authorised Firmmust ensure that its CFP is in writing and is approved by its Governing Body.(3) The CFP must be commensurate with an Authorised Firm'scomplexity, 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 Firmto put any part of the plan into action;(b) set out available potential contingency funding sources and the amount of funds an Authorised Firmestimates 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 Collateralon 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 Firmto 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'shead office (if appropriate), analysts, investors, external auditors, media, significant customers, regulators and others; and(iv) the mechanisms that enable senior management and the Governing Bodyto receive relevant, accurate, comprehensive, timely and reliable management information.
PIB 9.2A.6 Guidance1. The CFP should provide a framework with a high degree of flexibility so that an
Authorised Firmcan respond quickly in a variety of situations.2. The CFP's design, plans and procedures should be closely integrated with the Authorised Firm'songoing analysis of Liquidity Riskand with the results of the scenarios and assumptions used in stress tests.3. The CFP should assist the Authorised Firmto 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 Firmhas sufficient liquid financial resources to meet its liabilities over a range of different time periods, including intraday.
Authorised Firmmust 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 Groupentities, borders and lines of business, taking into account legal, regulatory, operational and time zone constraints.
PIB 9.2A.8 PIB 9.2A.8(1) An
Authorised Firmmust review and test its CFP regularly to ensure it is effective and operationally feasible.(2) For the purposes of (1), an Authorised Firmmust review and update its CFP at least annually for approval by its Governing Body, or more frequently if required by business or market circumstances.
PIB 9.2A.8 Guidance1. 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 Firmshould test key assumptions regularly, such as its ability to sell or repo certain assets or periodically draw down credit lines.
PIB 9.2A.9 PIB 9.2A.9
Authorised Firmmust 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.
PIB 9.2A.9 Guidance1. See GEN chapter 5 regarding requirements relating to an
Authorised Firm'sbusiness continuity and disaster recovery arrangements.2. An Authorised Firmshould 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.