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4.2. Liquidity Risk Governance - Senior Management Responsibilities

Effective from Sep 24 2019 - Dec 31 2019
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65.A FBB’s senior management is ultimately responsible for the sound and prudent management of the liquidity risk of the FBB. An FBB must maintain a liquidity risk management framework commensurate with the level and extent of liquidity risk to which the FBB is exposed from its activities.
 
66.The liquidity risk management framework must, at a minimum, include the following;
 
 i.A statement of the FBB’s liquidity risk appetite and tolerance, approved by the GM/CEO in charge of the FBB;
 
 ii.The liquidity management strategy and policy of the FBB, approved by the GM/CEO in charge of the FBB;
 
 iii.The FBB’s operating standards (e.g. in the form of policies, procedures and controls) for identifying, measuring, monitoring and controlling its liquidity risk in accordance with its liquidity risk tolerance;
 
 iv.The FBB’s funding strategy, approved by the GM/CEO in charge of the FBB; and
 
 v.A Contingency Funding Plan (CFP).
 
67.The FBB must ensure that:
 
 i.Senior management and other relevant personnel have the necessary experience to manage liquidity risk; and
 
 ii.The FBB’s liquidity risk management framework and liquidity risk management practices are documented and reviewed at least annually.
 
68.The senior management of the FBB must review regular reports on the liquidity position of the FBB and, where necessary, information on new or emerging liquidity risks.
 
69.An FBB’s senior management must, at a minimum;
 
 i.Develop a liquidity management strategy, policies and processes in accordance with the Head Office-approved liquidity tolerance;
 
 ii.Ensure that the FBB maintains sufficient liquidity at all times;
 
 iii.Determine the structure, responsibilities and controls for managing liquidity risk and for overseeing the liquidity positions of the FBB, and outline these elements clearly in the FBB’s liquidity policies;
 
 iv.Ensure that the FBB has adequate internal controls to ensure the integrity of its liquidity risk management processes;
 
 v.Ensure that stress tests, contingency funding plans and holdings of liquid assets are effective and appropriate for the FBB;
 
 vi.Establish a set of reporting criteria specifying the scope, manner and frequency of reporting for various recipients including the parties responsible for preparing the reports;
 
 vii.Establish specific procedures and approvals necessary for exceptions to policies and limits, including escalation procedures and follow-up actions to be taken for breaches of limits;
 
 viii.Closely monitor current trends and potential market developments that may present significant, unprecedented and complex challenges for managing liquidity risk so that appropriate and timely changes to the liquidity management strategy may be made as needed; and
 
 ix.Continuously review information on the FBB’s liquidity developments and report to the senior management on a regular basis.
 
70.Senior management must be able to demonstrate a thorough understanding of the links between funding liquidity risk (the risk that an FBB may not be able to meet its financial obligations as they fall due) and market liquidity risk (the risk that liquidity in financial markets, such as the market for debt securities, may reduce significantly), as well as how other risks, including credit, market, operational and reputation risks, affect the FBB’s overall liquidity risk management strategy.