Commission consults on proposed Bank Liquidity Framework (2016-11-07)

Summary

This is a consultation paper issued by the Guernsey Financial Services Commission proposing a new Basel III based liquidity framework for Guernsey licensed deposit takers (banks). It sets out proposed minimum liquidity requirements and new regulatory reporting forms, replacing the current maturity mismatch liquidity regime, and invites industry comment before finalisation.

• Liquidity Coverage Ratio (LCR): A new minimum regulatory liquidity requirement for Guernsey incorporated banks requiring a stock of High Quality Liquid Assets sufficient to cover net cash outflows over a 30 day stress scenario; banks would need to maintain an LCR of 100% or above and file a monthly Form LCR.
• Liquidity Mismatch Ratio (LMR): An alternative approach available with Commission approval for banks reliant on group funding inflows, also requiring a ratio of 100% or above and monthly reporting via Form LMR.
• Net Stable Funding Ratio (NSFR): A new regulatory reporting requirement (not a minimum standard) consistent with the Basel III NSFR, requiring completion of Form NSFR.
• Maturity mismatch transition: The existing maturity mismatch minimum liquidity standard would become a quarterly reporting requirement (Form retained) rather than a binding limit, applicable to all banks including branches.
• Guidance on Liquidity Risk Management: Revised guidance on liquidity risk management practices would accompany the new framework (Appendix 1).
• Scope: The LCR and LMR requirements would apply only to Guernsey incorporated banks, not to Guernsey branches of banks incorporated outside Guernsey, though branches remain subject to the retained quarterly maturity analysis reporting.

The Commission asks for comments on specific questions raised throughout the paper, including the introduction of the LCR and the alternative LMR approach, and requests that industry bodies identify the institutions they represent and quantify any costs cited. Feedback will inform the final policy and the timing of implementation.

Key obligations

• Guernsey incorporated banks would be required to submit a monthly Form LCR and maintain an LCR of 100% or above (once the framework is finalised)
• Banks approved to use the alternative approach would be required to submit a monthly Form LMR and maintain an LMR of 100% or above
• All banks (including branches) would be required to continue submitting a quarterly maturity analysis as a reporting requirement
• Guernsey incorporated banks would be required to submit Form NSFR reporting consistent with the Basel III NSFR standard
• Respondents should quote paragraph references when commenting and industry bodies should summarise the individuals/institutions they represent, quantifying any costs referenced

Applies to

Guernsey licensed deposit takers (banks), Guernsey incorporated banks, Guernsey branches of banks incorporated outside Guernsey

Deadlines

• 30 December 2016: Deadline (5.00pm) for industry responses to the consultation paper
• 31 May 2017: Commission's aim for the implementation date of the revised liquidity regime, subject to consultation feedback
• 28 calendar days after month end: Proposed submission deadline for Form LCR and Form LMR data, referenced to the last day of the month