4.4. Management of Liquidity Risk

Effective from Sep 24 2019 - Dec 31 2019
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85.	An FBB must have a sound process for identifying, measuring, monitoring and controlling liquidity risk. This process must include a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off- balance sheet items over an appropriate set of time horizons.
86.	An FBB must set limits to control its liquidity risk exposure and vulnerabilities. Limits and corresponding escalation procedures must be reviewed regularly. Limits must be relevant to the business in terms of its complexity of activity, nature of products, currencies and markets served. Where a liquidity risk limit is breached, an FBB must implement a plan of action to review the exposure and reduce it to a level that is within the limit.
87.	An FBB must actively manage its collateral positions, differentiating between encumbered and unencumbered assets.
88.	An FBB must design a set of early warning indicators to aid its daily liquidity risk management processes in identifying the emergence of increased risk or vulnerabilities in its liquidity risk position or potential funding needs. Such early warning indicators must be structured so as to assist in the identification and escalation of any negative trends in the FBB’s liquidity position and lead to an assessment and potential response by management to mitigate the FBB’s exposure to these trends.
89.	An FBB must have a reliable management information system that provides the senior management and other appropriate personnel with timely and forward-looking information on the liquidity position of the FBB.
90.	An FBB must actively manage its intraday liquidity positions and risks in order to meet payment and settlement obligations on a timely basis under both normal and stressed conditions, thus contributing to the orderly functioning of payment and settlement systems.
91.	An FBB must develop and implement a costs and benefits allocation process for funding and liquidity that appropriately apportions the costs of prudent liquidity management to the sources of liquidity risk and provides appropriate incentives to manage liquidity risk.
92.	An FBB active in multiple currencies must:
	i.	Maintain liquid assets consistent with the distribution of its liquidity needs by currency;
	ii.	Assess its aggregate foreign currency liquidity needs and determine an acceptable level of currency mismatches; and
	iii.	Undertake a separate analysis of its strategy for each currency in which it has material activities, considering potential constraints in times of stress.

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