LCR Guidance (Guidance to completing the LCR module of Form LCR)

Summary

This is technical guidance published by the Guernsey Financial Services Commission explaining how banks should complete the Liquidity Coverage Ratio (LCR) module of Form LCR. It sets out the methodology for calculating the ratio of High Quality Liquid Assets (HQLA) to projected net cash outflows over a 30-day stress period, following the Basel III LCR Standard, and provides line-by-line instructions for the reporting form.

• HQLA assessment: Banks must assess which assets qualify as High Quality Liquid Assets based on fundamental characteristics (low credit risk, ease of valuation, low correlation with risky assets, exchange listing) and market-related characteristics (active markets, low volatility, flight-to-quality behaviour).
• Liquidity Management Policy (LMP): The assessment process for determining eligible HQLA, and the bank's control and monitoring arrangements over those assets, must be documented in the bank's LMP.
• Operational requirements: Assets counted in the HQLA stock must be unencumbered, under the control of the treasury/liquidity function, and operationally capable of being monetised within the standard settlement period during the 30-day stress window.
• Periodic testing: Banks should periodically monetise a representative sample of stock assets through repo or outright sale to test market access and processes.
• Cash flow classification: Guidance details how to classify and weight deposits (including operational, correspondent banking, prime brokerage and Personal Investment Company deposits) and other cash flows for the net outflow calculation.
• Excess deposit methodology: Banks must determine and apply a methodology, at a sufficiently granular level, for identifying excess operational deposits excluded from preferential outflow treatment.

The document is purely explanatory of form-completion methodology rather than a standalone rulebook provision; it does not itself state filing deadlines, but assumes the LCR return is submitted on the Commission's standard banking return schedule.

Key obligations

• Banks must describe their HQLA eligibility assessment process in their Liquidity Management Policy (LMP)
• Banks must ensure all assets counted as HQLA are unencumbered and operationally capable of being monetised within the standard settlement period during a 30-day stress scenario
• Banks must maintain evidenced control by the treasury/liquidity function over all assets included in the HQLA stock
• Banks should periodically monetise a representative proportion of HQLA through repo or outright sale to test market access and monetisation processes
• Banks must determine a methodology, at a sufficiently granular level, for identifying excess deposits excluded from preferential operational-deposit outflow treatment
• Deposits arising from correspondent banking or prime brokerage services must be treated as having no operational activity for run-off factor purposes
• Banks must contact the Commission where further guidance on completing the LCR form is required

Applies to

banks