Liquidity Risk Management - Rules and Guidelines (February 2022)

Summary

This CIMA document sets out the Basel III-based Liquidity Risk Management Rules and Guidelines for banks licensed in the Cayman Islands. It establishes an overall liquidity risk management framework covering governance, strategy, monitoring, contingency planning and internal controls, and then specifies quantitative liquidity standards together with additional monitoring tools.

• Liquidity Coverage Ratio (LCR): A quantitative liquidity standard, defined with detailed rules on High Quality Liquid Assets (HQLA) and cash inflows/outflows for LCR purposes.
• Net Stable Funding Ratio (NSFR): A quantitative liquidity standard, defined with detailed rules on Available and Required Stable Funding factors.
• Minimum Liquidity Ratio (MLR): A quantitative liquidity standard requiring liquid assets equal to at least 15% of qualifying liabilities, with liquid assets and qualifying liabilities defined in detail for the MLR calculation.
• Additional monitoring tools: Includes contractual maturity mismatch and funding concentration metrics.

The rules apply differently depending on bank category. Category "A" Retail banks must meet the LCR and NSFR minimum requirements, while Category "A" Non-Retail banks and Category "B" banks must instead meet the MLR requirement.

• Board approval: Boards must approve liquidity strategy and significant related policies.
• Senior management: Senior management must ensure liquidity is actively managed and controlled.
• Information systems: Banks must maintain information systems capable of calculating liquidity positions across currencies and time horizons, including short horizons of a few days.
• Reporting: Banks must report to the board and to CIMA on request.

Portions of the text marked with an "R" are binding rules, while the rest of the document is guidance.

Key obligations

• Category "A" Retail banks must meet the minimum LCR and NSFR requirements set out in Parts II and III.
• Category "A" Non-Retail banks and Category "B" banks must meet the minimum MLR requirement, holding Liquid Assets of no less than 15% of Qualifying Liabilities at all times.
• Each bank must have a board-approved liquidity strategy and management structure for day-to-day liquidity management.
• Senior management must ensure liquidity is effectively managed and that policies/procedures to control and mitigate liquidity risk are established.
• The board must be informed regularly of the bank's liquidity situation and immediately of material changes to current or prospective liquidity position.
• Banks must maintain adequate information systems to measure, monitor, control and report liquidity risk, and provide timely reports to the board, senior management, and the Authority upon request.
• Banks must set limits (operational, concentration, exposure/sensitivity, trading/stop-loss) to control liquidity risk, subject to review and potential approval by CIMA.
• Banks must be able to calculate liquidity positions across major currencies individually and on an aggregate basis, including short time horizons (e.g., out to eight days) and longer periods.
• Liquid assets used for MLR calculation must be marked-to-market and free from prior encumbrances; certain intragroup deposit arrangements require an explicit agreement approved by the Authority to qualify.
• Qualifying liabilities for MLR must be computed per specified gross/net bases, including 15% of undrawn commitments.

Applies to

banks, Category "A" Retail banks, Category "A" Non-Retail banks, Category "B" banks