Guidance Note: Basel III: Liquidity Management and Reporting for Jersey Incorporated Deposit Takers (June 2018)

Summary

This is a JFSC guidance note explaining how Jersey incorporated deposit takers (JIBs, i.e. Jersey-incorporated banks) should manage and report liquidity risk under the Basel III framework, replacing the JFSC's 2007 liquidity guidance. It sits alongside the Banking Code of Practice for Deposit-Taking Business and the Pillar 2 in Jersey guidance, and explains the JFSC's expectations for Liquidity Management Policies (LMPs) and Liquidity Contingency Plans (LCPs).

• Minimum liquidity ratio: Each JIB must measure short-term liquidity using either the Liquidity Coverage Ratio (LCR) or the Liquidity Mismatch Ratio (LMR), maintained at a minimum of 100% (or a higher level agreed with the JFSC).
• Daily monitoring and immediate reporting: Liquidity must be monitored daily, and any breach of the 100% minimum, or reasonable grounds to believe a breach is imminent, must be reported to the JFSC immediately, with an explanation and remedial actions.
• Liquidity Management Policy (LMP): Senior management must prepare, and the Board must approve, an LMP covering funding sources, concentration risk, HQLA classes, LCR/LMR adjustments, group interdependencies and reporting responsibilities; it must be reviewed at least annually.
• Liquidity Contingency Plan (LCP): Each JIB must maintain an LCP addressing definition of a liquidity crisis, early warning indicators, mitigating actions, roles and responsibilities, escalation, communication (including with the JFSC), and scenario testing; all senior and executive management should hold a copy.
• ICAAP self-assessment: JIBs must include a self-assessment of the adequacy and effectiveness of their LMP and LCP within their Pillar 2 self-assessment (ICAAP), which now also covers liquidity, not just capital adequacy.
• NSFR and prudential reporting: There is no fixed minimum for the Net Stable Funding Ratio (NSFR), but it must be reported as part of prudential reporting, and banks are expected to consider internal limits for it in their ICAAP.

These reporting changes were incorporated into prudential reporting from the quarter ending 31 December 2018 onward. The JFSC stresses that its liquidity requirements are minimum standards only and do not replace a firm's own LMP.

Key obligations

• Each JIB must measure and maintain the LCR or LMR at a minimum of 100% (or higher level agreed with the JFSC).
• JIBs must monitor their liquidity position daily in accordance with their agreed methodology (LCR or LMR).
• JIBs must immediately report to the JFSC any instance where the minimum liquidity level is breached, or where a breach is reasonably believed to be imminent, including an explanation and remedial actions.
• Each JIB must establish, and have the Board approve, a Liquidity Management Policy (LMP), reviewed at least annually.
• Each JIB must establish a Liquidity Contingency Plan (LCP) covering crisis definition, early warning indicators, mitigating actions, roles/responsibilities, escalation, communication channels (including with the JFSC), and scenario testing.
• JIBs must include a self-assessment of the adequacy and effectiveness of their LMP and LCP within their Pillar 2 self-assessment (ICAAP).
• JIBs must report the Net Stable Funding Ratio (NSFR) as part of prudential reporting.
• All senior and executive management should have a copy of the LCP.

Applies to

Jersey incorporated deposit takers (JIBs), banks

Deadlines

• quarter ending 31 December 2018: Changes to liquidity reporting to the JFSC (including LCR/LMR and NSFR reporting) are incorporated within prudential reporting from this quarter and thereafter.

Related documents

• This document replaces Guidance Note: Liquidity Management and Reporting (May 2007)