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]