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PIB A9.2.15 Guidance

1. The following Guidance sets out the DFSA's views 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. Deposits from legal entities, sole proprietorships or partnerships should be included in wholesale deposit categories. Deposits may include demand deposits and term deposits, unless otherwise excluded.
3. Under COB section 4.2, an Authorised Firm can only accept deposits from individuals who are Professional Clients.
4. Deposits from 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 Firm that make deposit withdrawal highly unlikely; or
b. the deposits are in transactional accounts (e.g. accounts where salaries are automatically credited).
5. If an Authorised Firm is 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portion of deposits that do not meet the conditions in paragraph 4 and also include types of deposits more likely to be withdrawn in a time of stress.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 Firm that 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 Firm allows 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 Firm accepting 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; and
b. 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 deposits

12. Operational deposits should consist of those deposits where customers place, or leave, deposits with an Authorised Firm to 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 Firm and 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 Firm to 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 Firm in the wholesale market in the sole interest of offering interest income; and
c. 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 facilities

16. 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's own assets, should be captured in their entirety as a liquidity facility to a financial institution.

Unrestricted PSIAs and other Shari'a compliant products

18. For the purposes of calculating cash outflows, Unrestricted PSIAs should be treated similarly to the relevant category of deposits specified in the Table. The appropriate run-off factor for a PSIA will 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 Firm with no mark-up, then the applicable run-off factor will be the same as that for the relevant category of deposit or Unrestricted PSIA under the Table.
[Added] DFSA RM148/2014 (Made 1st January 2015). [VER23/01-15]