Guidance on Liquidity Risk Management (2017, reissued November 2021)

Summary

This is GFSC guidance setting out the liquidity risk management framework applicable to Guernsey incorporated banks and Guernsey branches, originally issued in 2009 and effective from 31 July 2017, reissued in November 2021. It adopts the Basel Committee's Liquidity Coverage Ratio as a minimum regulatory standard and the Net Stable Funding Ratio as a reporting requirement, sets out additional monitoring expectations, and requires banks to maintain a Board-ratified Liquidity Management Policy consistent with the Basel Principles for Sound Liquidity Risk Management.

• LCR: Guernsey incorporated banks (unless approved to use the LMR approach) must submit a monthly LCR return and maintain an LCR of 100% or above at all times; breaches must be reported to the Commission immediately and remedied promptly.
• LMR alternative: Banks approved to use the Liquidity Mismatch Ratio must submit a monthly LMR return and maintain an LMR above 100% at all times, with immediate reporting and prompt remediation of any breach.
• NSFR: All Guernsey incorporated banks must report the NSFR as part of their applicable LCR or LMR monthly return, currently as a monitoring rather than minimum requirement.
• Reporting timing: The reference date for LCR and LMR monthly returns is the last day of the month, with data submitted 28 calendar days later.
• Additional monitoring: All banks (Guernsey incorporated and branches) must complete Module 9 Maturity Analysis and Module 8 Prudential Information of the BSL/2 quarterly return; the Commission may require further bank specific liquidity reporting on a case by case basis.
• Liquidity Management Policy: Guernsey incorporated banks must maintain an appropriate LMP, ratified by the local Board, provide a copy to the Commission for review, and review it annually with Board ratification of any changes.
• Stress testing: Banks must conduct regular stress tests (bank specific and market wide), with results reported to the board and a written statement on results sent to the Commission as part of the Annual Compliance Form.
• Fundamental principles: Banks must demonstrate adherence to twelve Basel-derived principles covering governance, risk tolerance, funding diversification, intraday liquidity, collateral management, stress testing and contingency funding planning.

The guidance does not itself introduce new deadlines beyond its stated 31 July 2017 effective date, but embeds ongoing recurring obligations (monthly returns, quarterly BSL/2 modules, annual LMP review, annual board review of liquidity strategy, and annual compliance reporting on stress testing) that remain in force.

Key obligations

• Guernsey incorporated banks must submit a monthly LCR return and maintain an LCR of 100% or above at all times, unless approved to use the LMR approach.
• Banks approved for the LMR approach must submit a monthly LMR return and maintain an LMR above 100% at all times.
• Any breach of the minimum LCR or LMR must be reported to the Commission immediately and remedied promptly, with action taken to prevent recurrence.
• All Guernsey incorporated banks must report the NSFR as part of their applicable LCR or LMR monthly return.
• LCR and LMR monthly return data must be submitted with a reference date of the last day of the month, 28 calendar days later.
• All banks (Guernsey incorporated banks and Guernsey branches) must complete Module 9 Maturity Analysis and Module 8 Prudential Information of the BSL/2 quarterly return.
• Guernsey incorporated banks must maintain a Liquidity Management Policy (LMP), have it ratified by the local Board, and provide a copy to the Commission for review.
• The LMP must be reviewed annually with any changes ratified by the Board.
• Guernsey incorporated banks must conduct regular stress tests and report results, vulnerabilities and resulting actions to the Board, with a written statement sent to the Commission as part of the Annual Compliance Form.
• The Board of directors should review and approve liquidity strategy, policies and practices at least annually.
• Guernsey incorporated banks must demonstrate adherence to the Basel Principles for Sound Liquidity Risk Management via an LMP agreed with the Commission.

Applies to

Guernsey incorporated banks, Guernsey branches of banks

Deadlines

• 31 July 2017: Effective date of this guidance.
• monthly: LCR and LMR returns must be submitted monthly.
• 28 calendar days after month end: LCR and LMR monthly return data submission deadline, based on a reference date of the last day of the month.
• quarterly: Module 9 Maturity Analysis and Module 8 Prudential Information must be completed as part of the BSL/2 quarterly return.
• annually: LMP must be reviewed annually and any changes ratified by the Board; Board must review and approve liquidity strategy, policies and practices at least annually; stress test results reported via the Annual Compliance Form.