Consultation on Basel III: Liquidity Management (No.3 2017)

Summary

This is a JFSC consultation paper proposing to implement the Basel III liquidity standards in Jersey, revising liquidity management, monitoring and prudential reporting requirements for banks. It sets out proposed changes to the Banking Codes, the Pillar 2 Guidance Note and prudential reporting guides, and invites industry comment before finalisation.

• LCR implementation: Introduces the Liquidity Coverage Ratio (LCR) standard for Jersey Incorporated Banks (JIBs), with local amendments for fiduciary deposits and intra-group lending, replacing current liquidity mismatch rules.
• Reporting changes: Expands prudential reporting for JIBs (including new NSFR, funding concentration, HQLA concentration and cashflow reporting) and introduces more limited reporting changes for Overseas Incorporated Banks (OIBs).
• Internal liquidity assessment: Requires JIBs to conduct an annual internal liquidity assessment process, documented within ICAAP, including stress testing of predicted flows and HQLA availability, subject to supervisory review.
• Banking Codes amendments: Proposes to expand Section 5 of the Banking Codes to require daily LCR/LMR monitoring and ICAAP coverage of liquidity risk, and Section 6 to require notification if the LCR/LMR falls below 100%.
• Scope: All changes to liquidity regulation apply to JIBs only; OIBs are affected only by limited changes to regulatory reporting (Section 5), since principal prudential oversight of OIBs rests with their home regulator.

The paper poses nine specific consultation questions covering fiduciary deposits, HQLA treatment, transitional arrangements, implementation approach, reporting, and internal liquidity assessment, and includes draft Banking Codes revisions and reporting guides as appendices. Final requirements, including revised Banking Codes and Pillar 2 Guidance, are expected to be issued in 2018 following review of feedback.

Key obligations

• Direct respondents registered under the Banking Law are requested to complete the Excel response form and upload it via the JFSC secure upload site by 26 July 2017
• JIBs will be required to monitor the LCR/LMR daily and cover liquidity risk in their ICAAP once the revised Banking Codes take effect
• JIBs will be required to notify the JFSC if the LCR/LMR drops below 100% under the proposed Banking Codes changes
• JIBs will be required to perform an annual internal liquidity assessment process, including stress testing of predicted flows and HQLA availability, documented in ICAAP
• JIBs will be subject to expanded prudential reporting including LCR/LMR, NSFR, funding concentration, HQLA concentration and cashflow reporting
• OIBs will be subject to limited changes to prudential reporting of their liquidity position

Applies to

Jersey Incorporated Banks (JIBs), Overseas Incorporated Banks (OIBs), persons registered under the Banking Law

Deadlines

• 26 July 2017: Deadline for responses to the consultation to be sent to the JFSC (David Fisher) or, for industry responses coordinated by Jersey Finance, to Thomas Cowsill
• 2017/2018: Period during which work on revisions to prudential reporting systems and testing will take place, with all affected banks implementing by the end of this period
• 2018: Expected year for revision of the Banking Codes and Pillar 2 Guidance Note to introduce the new and revised liquidity requirements