• IBANK Chapter 8 IBANK Chapter 8 Liquidity risk

    • IBANK Part 8.1 IBANK Part 8.1 Liquidity risk management — introductory

      • IBANK Division 8.1.A IBANK Division 8.1.A Preliminary

        • IBANK 8.1.1 Introduction — Chapter 8

          (1) This Chapter sets out an Islamic banking business firm's obligations:
          (a) to adopt prudent practices in managing liquidity risk;
          (b) to maintain adequate liquidity to meet its obligations as they fall due across a wide range of operating circumstances; and
          (c) to have adequate sources of stable long-term funding.
          (2) In general terms, this Chapter requires an Islamic banking business firm:
          (a) to have a risk management framework to measure, monitor and manage liquidity risk that is appropriate for the nature, scale and complexity of the firm's operations;
          (b) to maintain a portfolio of high-quality liquid assets sufficient to enable the firm to withstand a severe liquidity stress;
          (c) to maintain a robust funding structure appropriate for the nature, scale and complexity of the firm's operations;
          (d) to limit maturity mismatches between its assets and its liabilities; and
          (e) to inform the Regulatory Authority promptly about liquidity concerns.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.2 Categorisation of firms in terms of liquidity management obligations

          (1) For the purposes of this Chapter, Islamic banking business firms are either liquidity risk group A Islamic banking business firms or liquidity risk group B Islamic banking business firms.
          (2) An Islamic banking business firm is a liquidity risk group A Islamic banking business firm if it has been so designated by the Regulatory Authority. Any other Islamic banking business firm is a liquidity group B banking business firm.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.3 Designation of firms as liquidity risk group A Islamic banking business firms

          (1) The Authority may designate an Islamic banking business firm as a liquidity risk group A Islamic banking business firm by written notice if the Authority is satisfied that:
          (a) the firm meets any of the criteria in subrule (2); or
          (b) it is necessary to do so for any other reason.
          (2) The criteria are the following:
          (a) the firm is active internationally;
          (b) it is significant to the general stability and effective working of the financial system;
          (c) there is significant liquidity risk associated with it;
          (d) it is systemically linked to another liquidity risk group A Islamic banking business firm or a liquidity risk group A banking business firm;
          (e) it (first firm) is so connected to another liquidity risk group A Islamic banking business firm (second firm) that, if the first firm were not a liquidity risk group A Islamic banking business firm, connection would or might adversely affect either or both of the following:
          (i) the second firm's calculation of its LCR;
          (ii) the first firm's calculation of its MLR.

          Note For LCR, see rule 8.4.1; for MLR, see rule 8.5.2.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.4 Application of Chapter 8

          The Parts of this Chapter apply to Islamic banking business firms as set out in table 8.1.4.

          Table 8.1.4 Application of Parts of Chapter 8

          Part Applies to:
          Part 8.1 All Islamic banking business firms
          Part 8.2 All Islamic banking business firms
          Part 8.3 All Islamic banking business firms
          Part 8.4 Liquidity risk group A Islamic banking business firms
          Part 8.5 Liquidity risk group B Islamic banking business firms
          Part 8.6 Liquidity risk group A Islamic banking business firms
          Part 8.7 Liquidity risk group B Islamic banking business firms
          Part 8.8 All Islamic banking business firms
          Part 8.9 All Islamic banking business firms


          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.1.B IBANK Division 8.1.B Principles

        • IBANK 8.1.5 Principle 1 — sound management of liquidity risk

          An Islamic banking business firm is responsible for the sound management of its liquidity risk, and must have a robust framework to manage that risk.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.6 Principle 2 — maintaining sufficient liquidity to meet obligations as they fall due

          An Islamic banking business firm must at all times maintain sufficient liquidity to meet its obligations as they fall due, and must hold a minimum level of high-quality liquid assets to survive a severe liquidity stress.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.7 Principle 3 — stable sources of funding

          An Islamic banking business firm must ensure that its activities are funded with stable sources of funding on an ongoing basis.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.8 IBANK 8.1.8 Principle 4 — informing the Regulatory Authority of liquidity concerns

          An Islamic banking business firm must inform the Regulatory Authority as soon as possible of any concerns that the firm has about its current or future liquidity, and its plans to address these concerns. In particular, if an Islamic banking business firm experiences a severe liquidity stress, it must notify the Authority immediately, and must describe the action that is being taken to address the situation.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.1.8 Guidance

            Individual rules in this Chapter that require the Authority to be notified "immediately" specify what is meant by "immediately".

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.1.9 IBANK 8.1.9 Responsibilities of governing body and senior management

          (1) An Islamic banking business firm's governing body is ultimately responsible for the sound and prudent management of the firm's liquidity risk. An Islamic banking business firm must maintain a liquidity risk management framework that is appropriate for the level and extent of liquidity risk to which the firm is exposed.
          (2) The governing body must ensure that:
          (a) the firm's senior management and other relevant personnel have the necessary experience to manage liquidity risk; and
          (b) the firm's liquidity risk management framework and liquidity risk management practices are documented, and are reviewed at least annually.
          (3) The governing body must review regular reports on the firm's liquidity and, as necessary, information on new or emerging liquidity risks.
          (4) An Islamic banking business firm's senior management must do all of the following:
          (a) develop a liquidity management strategy, policies and processes in accordance with the liquidity risk tolerance approved by the firm's governing body;

          Note For liquidity risk tolerance, see rule 8.3.1.
          (b) ensure that the firm maintains sufficient liquidity at all times;
          (c) determine the structure, responsibilities and controls for managing liquidity risk, and for overseeing the liquidity positions, of the firm and all of its branches and subsidiaries in all of the jurisdictions in which the firm and its branches and subsidiaries are active, and set out that structure and those responsibilities and controls clearly in the firm's liquidity policies;
          (d) ensure that the firm has adequate internal controls to ensure the integrity of its liquidity risk management processes;
          (e) ensure that stress tests, contingency funding plans and holdings of high-quality liquid assets are effective and appropriate for the firm;
          (f) establish reporting criteria specifying the scope, manner and frequency of reporting for various recipients (such as the firm's governing body and senior management and any relevant committee of the governing body) and fix who is responsible for preparing the reports;
          (g) establish the specific procedures and approvals necessary for making exceptions to policies and limits, including the escalation procedures and follow-up actions to be taken for breaches of limits;
          (h) closely monitor current trends and potential market developments that may present challenges for managing liquidity risk, so that appropriate and timely changes to the liquidity management strategy can be made as needed;
          (i) continuously review information on the firm's liquidity developments and report to the governing body regularly.
          (5) The firm's governing body and senior management must be able to demonstrate a thorough understanding of:
          (a) the links between funding liquidity risk (the risk that the firm 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 decline significantly); and
          (b) how risks of other kinds, such as credit risk, market risk, operational risk and reputational risk, affect the firm's liquidity risk management strategy.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.1.9 Guidance

            1 An Islamic banking business firm needs a robust Shari'a governance system to ensure that there is effective independent oversight of Shari'a compliance within the firm. One of the major parts of that system is the firm's Shari'a supervisory board. Members of the board should take an active role in issues of compliance with Shari'a that the firm faces in managing liquidity risk.
            2 IFSB—10 (Guiding Principles on Shari'ah governance systems for institutions offering Islamic financial services, published by the Islamic Financial Services Board in December 2009, highlights the role of an Islamic banking business firm's Shari'a supervisory board in the firm's Shari'a governance processes. Some areas related to liquidity risk management where the board can play an important role include:
            •    approving new Shari'a-compliant liquidity risk management products and mechanisms, including Shari'a-compliant hedging products
            •    ensuring that the firm's products and mechanisms are properly executed, in association with the firm's internal Shari'a compliance and audit functions
            •    controlling and verifying the non-commingling of funds between Islamic subsidiaries and parent conventional entities
            •    controlling and verifying the extent of the firm's investments with conventional financial institutions.
            3 For more on the Shari'a supervisory board and its responsibilities, see Division 1.1.B of these Rules, and CTRL, Part 9.3.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018)
            Amended by QFCRA RM/2021-1 (as from 1st July 2021).

        • IBANK 8.1.10 Relation to internal capital adequacy assessment

          An Islamic banking business firm must be able to demonstrate to the Regulatory Authority that its ICAAP adequately captures liquidity risk, even if the effect of liquidity risk on the firm's capital is indirect (for example, by reducing the value of the firm's assets at the time they are realised).

          Note For ICAAP, see rule 3.1.5.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.2 IBANK Part 8.2 Guidance on liquidity risks arising from Islamic financial contracts

      Note for Part 8.2 This Part applies to all Islamic banking business firms — see rule 8.1.4.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.1 Introduction

        This Part gives guidance on the liquidity risks that may arise from various Islamic financial contracts. An Islamic banking business firm should look into risk transformation in these contracts during their various stages, because such transformations may directly or indirectly affect the liquidity of the contracts.

        Note Under FSR, article 17 (4), guidance is indicative of the view of the Regulatory Authority at the time and in the circumstances in which it was given.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.2 Liquidity risks — murabahah

        In a murabahah contract, an Islamic banking business firm's liquidity may be affected by late payment or non-payment by the customer.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.3 Liquidity risks — commodity murabahah

        (1) An Islamic banking business firm may offer commodity murabahah accounts as a means of raising funds. Because raising funds in this way requires the firm to pay back the principal and agreed share of profit to the customer on maturity, the firm may be exposed to liquidity risk.
        (2) If commodity-murabahah-based funds (which are usually short-term in nature) are used by the firm to finance longer-term assets, a maturity mismatch will result. Such a mismatch may become acute if the firm has a high reliance on such deposits to fund its assets.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.4 Liquidity risks — salam

        In a salam contract, the illiquidity of commodity markets and the nonpermissibility of exiting the contract before delivery can give rise to liquidity risk for an Islamic banking business firm.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.5 Liquidity risks — ijarah

        In an ijarah contract, an Islamic banking business firm may be exposed to liquidity risk because of:

        (a) late payment or non-payment of instalments by the customer;
        (b) the inability to sell or lease the asset to a new customer at the end of an earlier contract; or
        (c) default by the customer.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.6 Liquidity risks — mudarabah and musharakah

        In a mudarabah or musharakah contract, an Islamic banking business firm may be exposed to liquidity risk because of:

        (a) late payment or non-payment of profit payments during the contract; or
        (b) non-payment by the customer of the remaining principal at the end of the contract.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.7 Liquidity risks — PSIAs

        An Islamic banking business firm may be affected by panic withdrawals of funds by IAHs. Such withdrawals may result from rate of return risk, Shari'a non-compliance risk or reputational risk.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.2.8 Liquidity risks — qard

        An Islamic banking business firm may offer unremunerated current accounts on the basis of qard, under which the firm guarantees the nominal amount of the accounts. The firm should pay back the full amount on demand and should therefore ensure that sufficient funds are available to do so as and when the demand arises.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.3 IBANK Part 8.3 Liquidity risk management — firms' obligations in detail

      Note for Part 8.3

      This Part applies to all Islamic banking business firms — see rule 8.1.4.

      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.1 Liquidity risk tolerance

        (1) An Islamic banking business firm's liquidity risk tolerance defines the level of liquidity risk that the firm is willing to assume.

        Guidance
        An Islamic banking business firm's risk management strategy usually refers to risk tolerance although risk appetite may also be used. The 2 terms are used interchangeably to describe both the absolute risks a firm is open to take (by some called risk appetite) and the actual limits within its risk appetite that a firm pursues (by some called risk tolerance).
        (2) An Islamic banking business firm's liquidity risk tolerance must be appropriate for the firm's operations and strategy and its role in the financial systems in which it operates.
        (3) The firm must review its liquidity risk tolerance at least annually to reflect the firm's financial condition and funding capacity.
        (4) The firm's governing body and senior management must ensure that the firm's liquidity risk tolerance allows the firm to effectively manage its liquidity in such a way that the firm can withstand prolonged liquidity stress.
        (5) The firm must document its liquidity risk tolerance in a way that clearly states the trade-off between risks and profits.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.2 IBANK 8.3.2 Liquidity risk management framework — structure and basic content

        (1) An Islamic banking business firm's liquidity risk management framework must include:
        (a) a statement of the firm's liquidity risk tolerance, approved by the firm's governing body;
        (b) a statement of the firm's liquidity risk management strategy and policy, approved by the governing body;
        (c) a statement of the firm's operating standards (in the form of policies, procedures and controls) for identifying, measuring, monitoring and controlling its liquidity risk in accordance with its liquidity risk tolerance;
        (d) a statement of the firm's funding strategy, approved by the governing body; and
        (e) a contingency funding plan.
        (2) The framework must clearly set out the firm's organisational structure as it relates to liquidity risk management, and must define the responsibilities and roles of senior management involved in managing liquidity risk.
        (3) The framework must be formulated to ensure that the firm maintains sufficient liquidity to withstand a range of liquidity stress events (whether specific to the firm, market-wide, or a combination of the two), including the loss or impairment of both unsecured and secured funding sources.
        (4) The framework must be well integrated into the firm's overall risk management process.
        (5) The liquidity risk management framework must be subject to ongoing effective and comprehensive independent review.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.3.2 Guidance

          In most cases, the independent reviews could be facilitated by the firm's internal audit function but may require the engagement of independent experts outside that function.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.3 Liquidity risk management — oversight

        (1) An Islamic banking business firm's liquidity risk management oversight function must be operationally independent. It must be staffed with personnel who have the skills and authority to challenge the firm's treasury and other liquidity management functions.
        (2) The firm must have adequate policies, procedures and controls to ensure that the firm's governing body and senior management are informed immediately of new and emerging liquidity concerns.

        Guidance
        Those concerns could include:
        •    increasing funding costs or concentrations
        •    increases in funding requirements
        •    shortage of other sources of liquidity
        •    material or persistent breaches of limits
        •    significant decline in the firm's holdings of unencumbered liquid assets
        •    changes in market conditions that could signal future difficulties.
        (3) The firm's senior management must be satisfied that all of the firm's business units whose activities affect the firm's liquidity:
        (a) are fully aware of the firm's liquidity risk management strategy; and
        (b) operate in accordance with the firm's approved policies, procedures, limits and controls.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.4 Liquidity management strategy

        (1) An Islamic banking business firm's liquidity management strategy must include specific policies on liquidity management, such as:
        (a) the composition and maturity of assets and liabilities;
        (b) the diversity and stability of funding sources;
        (c) the firm's approach to managing liquidity in different currencies, across borders, and across business lines and legal entities; and
        (d) the firm's approach to intraday liquidity management.
        (2) The strategy must take account of the firm's liquidity needs both under normal conditions and during periods of liquidity stress. The strategy must include quantitative and qualitative targets.
        (3) The strategy must be appropriate for the nature, scale and complexity of the firm's operations. In formulating the strategy, the firm must consider its legal structure, its key business lines, the breadth and diversity of its markets and products, the jurisdictions in which it operates, and regulatory requirements.
        (4) The firm's senior management must communicate the following throughout the firm:
        (a) the strategy;
        (b) the firm's key policies for implementing it;
        (c) the firm's liquidity management structure.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.5 Liquidity risk management — processes

        (1) An Islamic banking business firm must have a sound process for identifying, measuring, monitoring and controlling liquidity risk. The process must include a robust framework for comprehensively projecting cashflows arising from assets, liabilities and off-balancesheet items over an appropriate set of time horizons.
        (2) An Islamic banking business firm must set limits to control its liquidity risk exposure and vulnerabilities. The limits and the corresponding escalation procedures must be reviewed regularly.
        (3) The limits must be relevant to the business in terms of its location, the complexity of its operations, the nature of its products, and the currencies and markets it serves. If a limit is breached, the firm must implement a plan of action to review the exposure and reduce it to a level that is within the limit.
        (4) An Islamic banking business firm must actively manage its collateral positions, distinguishing between encumbered and unencumbered assets. The firm must monitor the legal entity in which, and the physical location where, collateral is held and how collateral can be mobilised in a timely manner.
        (5) An Islamic banking business firm must design a set of early warning indicators to help its daily liquidity risk management processes to identify the emergence of increased risk or vulnerabilities in its liquidity risk position or potential funding needs. The indicators must be structured so as to help identify negative trends in the firm's liquidity position and to lead to an assessment and a potential response by management to mitigate the firm's exposure to the trends.
        (6) An Islamic banking business firm must have a reliable management information system that provides the governing body, senior management and other appropriate personnel with timely and forward-looking information on the firm's liquidity position.
        (7) An Islamic banking business firm must actively manage its intraday liquidity positions to meet payment and settlement obligations on a timely basis under both normal and stressed market conditions, thus contributing to the orderly functioning of payment and settlement systems.
        (8) An Islamic banking business firm must develop and implement a costs and benefits allocation process for funding and liquidity. The process must appropriately apportion the costs of prudent liquidity management to the sources of liquidity risk, and must provide appropriate incentives to manage liquidity risk.
        (9) An Islamic banking business firm that is active in multiple currencies:
        (a) must assess its aggregate foreign currency liquidity needs and determine an acceptable level of currency mismatches; and
        (b) must undertake a separate analysis of its strategy for each significant currency, considering possible constraints during periods of liquidity stress.

        Note Such a firm must also maintain a portfolio of high-quality liquid assets consistent with the distribution of its liquidity needs by currency — see rule 8.4.6 (3).
        (10) For subrule (9) (b), a currency is significant for an Islamic banking business firm if the firm's liabilities denominated in it amount to 5% or more of the firm's total liabilities.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.6 Funding strategy

        (1) An Islamic banking business firm:
        (a) must develop and document a 3-yearly funding strategy;
        (b) must maintain a continuing presence in its chosen funding markets;
        (c) must maintain strong relationships with funds providers; and
        (d) must regularly estimate its capacity to raise funds quickly.
        (2) The firm must identify the main factors that affect its ability to raise funds, and must monitor those factors closely to ensure that its estimates of its fund-raising capacity remain valid.
        (3) The strategy must be approved by the firm's governing body, and must be supported by robust assumptions in line with the firm's liquidity management strategy and business objectives.
        (4) The funding strategy must be reviewed at least annually, and must be updated as necessary in light of changed funding conditions or changes in the firm's business model.
        (5) The firm must give a copy of the funding strategy to the Regulatory Authority on request. The firm must also inform the Authority of any significant change to the strategy.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.7 Stress testing

        (1) An Islamic banking business firm must carry out stress tests regularly for a variety of short-term and long-term liquidity stress scenarios (firm-specific and market-wide, separately and in combination) to identify sources of potential liquidity stress and to ensure that the firm's exposures continue to be in accordance with its liquidity risk tolerance.
        (2) The tests must enable the firm to analyse the effect of stress scenarios on its liquidity positions, and on the liquidity positions of individual business lines.
        (3) The scenarios and related assumptions must take into account the particular features specific to Islamic financial business.

        Guidance
        For guidance on those features and how they should be taken into account, see IFSB–13, Guiding principles on stress testing for institutions offering Islamic financial services [excluding Islamic insurance (takaful) institutions and Islamic collective investment schemes], published by the Islamic Financial Services Board in March 2012.
        (4) The test scenarios and related assumptions must be well documented, and must be reviewed together with the test results. The results, the vulnerabilities found and any resulting actions must be reported to, and discussed with, the firm's governing body and the Regulatory Authority.
        (5) The test outcomes must be used to adjust the firm's liquidity management strategy, policies and positions, and to develop effective contingency plans to deal with liquidity stress.
        (6) The results of the tests must be integrated into the firm's strategic planning process and its day-to-day risk management practices. The results must be explicitly considered in the setting of internal limits.
        (7) The firm must decide how to incorporate the results in assessing and planning for possible funding shortfalls in its contingency funding plan.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.3.8 Contingency funding plan

        (1) An Islamic banking business firm must have a formal contingency funding plan that clearly sets out the firm's strategies for addressing liquidity shortfalls in emergency situations. The plan:
        (a) must outline policies to manage a range of liquidity stress situations;
        (b) must establish clear lines of responsibility; and
        (c) must include clear escalation procedures.
        (2) The plan must be appropriate to the nature, scale and complexity of the firm's operations and the firm's role in the financial systems in which it operates.
        (3) The plan must provide a framework with a high degree of flexibility so that the firm can respond quickly in a variety of liquidity stress situations.
        (4) The plan must set out:
        (a) available sources of contingency funding and an estimate of the amount of funds that can be obtained from each source;
        (b) clear procedures for escalation and prioritisation, setting out when and how each of the actions in the plan can and must be activated; and
        (c) the lead time needed to obtain additional funds from each of the sources.
        (5) The plan's design, scope and procedures must be closely integrated with the firm's continuing analysis of liquidity risk and with the assumptions used in its stress tests and the results of those tests. The plan must address issues over a range of different time horizons, including intraday.
        (6) The firm must review and test the plan regularly to ensure that the plan remains effective and operationally feasible. The firm must review and update the plan for the governing body's approval at least annually (or more often, as changing business or market circumstances require).
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.4 IBANK Part 8.4 Liquidity coverage ratio — liquidity risk group A Islamic banking business firms

      Notes for Part 8.4

      1 Much of this Part is based on:
      •    Basel III: The Liquidity Coverage Ratio and risk monitoring tools, published in January 2013 by the Basel Committee on Banking Supervision, available at http://www.bis.org/publ/bcbs238.htm (Basel III LCR)
      •    Guiding Principles on Liquidity Risk Management for Institutions Offering Islamic Financial Services [Excluding Islamic Insurance (Takaful) Institutions and Islamic Collective Investment Schemes], published by the Islamic Financial Services Board in March 2012 (IFSB — 12)
      •    Guidance Note on Quantitative Measures for Liquidity Management in Institutions Offering Islamic Financial Services [Excluding Islamic Insurance (Takaful) Institutions and Islamic Collective Investment Schemes], published by the Islamic Financial Services Board in April 2015 (IFSB GN 6).
      2 This Part applies only to liquidity risk group A Islamic banking business firms — see rule 8.1.4.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.A IBANK Division 8.4.A Introductory

        • IBANK 8.4.1 Introduction — Part 8.4

          (1) This Part requires a liquidity risk group A Islamic banking business firm to maintain a portfolio of high-quality liquid assets (HQLA portfolio) that can be monetised to meet the firm's liquidity needs for 30 calendar days under severe liquidity stress. This Part sets out:
          (a) what assets qualify as high-quality liquid assets;
          (b) how much the portfolio must be able to raise if monetised;
          (c) how assets must be valued for inclusion in the portfolio; and
          (d) how much of the portfolio's value may be made up of assets of different kinds.

          Guidance
          To obtain liquidity, a firm could monetise an asset by, for example, sale or repo.
          (2) This Part also requires an Islamic banking business firm to maintain a specified ratio (liquidity coverage ratio or LCR) of HQLA to its predicted need for liquidity over a 30-calendar-day period.
          (3) The purpose of requiring Islamic banking business firms to maintain the HQLA portfolio, and to meet the LCR requirement, is to ensure that such firms are resilient, in the short term, to liquidity risk. The LCR requirement is intended to ensure that such a firm always holds unencumbered assets that can be readily converted into sufficient cash to meet the firm's liquidity needs for 30 calendar days even under severe liquidity stress.
          (4) An Islamic banking business firm is required to maintain its HQLA portfolio, and to meet the minimum LCR, at all times. Therefore, such a firm should frequently calculate:
          (a) its liquidity needs for the coming 30 calendar days; and
          (b) the value of its HQLA portfolio.
          (5) Nothing in this Part prevents an Islamic banking business firm from holding HQLA in excess of the amounts required by this Part.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.2 Application of Part 8.4

          (1) This Part applies to an Islamic banking business firm on a solo basis.

          Note For the application of this Part to a firm that is a branch (and the global liquidity concession), see rule 8.4.58.
          (2) However, if an Islamic banking business firm is a member of a financial group that is subject to consolidated supervision by the Regulatory Authority, the Authority may direct the financial group as a whole to comply with this Part.

          Note For the application of this Part to a financial group, see rule 8.4.5.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.3 Definitions for Part 8.4

          In this Part:

          financial institution includes an Islamic banking business firm and an authorised firm of any other kind, and any of the following kinds of entity established outside the QFC:

          (a) a bank;
          (b) a securities firm;
          (c) an insurance company;
          (d) a fiduciary (that is, a legal entity that is authorised to manage assets on behalf of a third party, including an asset-management entity such as a pension fund or collective investment vehicle);
          (e) a beneficiary (that is, a legal entity that receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, or other contract).

          high-quality liquid assets has the meaning given by rules 8.4.8 to 8.4.13.

          HQLA means high-quality liquid assets.

          LCR means liquidity coverage ratio.

          liquidity coverage ratio for an Islamic banking business firm means the ratio calculated in accordance with rule 8.4.20.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.4 References in Part 8.4 to encumbered and unencumbered assets

          (1) For this Part: unencumbered, in relation to an asset, means free of legal, regulatory, contractual or other restrictions on liquidation, sale, transfer, or assignment.
          (2) For this Part, an asset is encumbered if it is lodged (either explicitly or implicitly) to secure, collateralise or credit-enhance a transaction, or is designated to cover operational costs (such as rents and salaries).
          (3) However, assets received by an Islamic banking business firm in reverse-repo and securities financing transactions are taken to be unencumbered if the assets:
          (a) are held at the firm;
          (b) have not been re-hypothecated; and
          (c) are legally and contractually available for the firm's use.
          (4) In addition, assets that have been pre-positioned or deposited with, or lodged with, a central bank or a public sector entity may be treated as unencumbered if the assets:
          (a) otherwise qualify as HQLA; and
          (b) have not been used to generate liquidity.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.5 IBANK 8.4.5 Application of LCR to financial group

          (1) For calculating a consolidated LCR for a financial group, HQLA held to meet liquidity needs at the firm level may be included in the consolidated parent entity's HQLA portfolio only so far as the related liabilities are also reflected in the parent entity's LCR. Any surplus of HQLA held at the firm may be treated as forming part of the parent entity's HQLA portfolio only if those assets would be freely available to the parent entity during a period of liquidity stress.
          (2) When calculating its LCR on a consolidated basis, a cross-border banking group must, subject to subrule (3), apply its home jurisdiction's rules to all the legal entities that are being consolidated.
          (3) The firm must treat deposits by retail and small business customers with a consolidated entity according to the rules in the jurisdiction in which that entity operates. The firm must also apply those rules to decide whether a particular deposit qualifies as a deposit by a retail customer or a small business customer.
          (4) A cross-border banking group must not take excess liquidity into account in calculating its consolidated LCR if there is reasonable doubt about whether the liquidity would be available during a period of liquidity stress.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.5 Guidance

            Liquidity transfer restrictions (for example, ring-fencing measures, nonconvertibility of local currency, and foreign exchange controls) in jurisdictions in which an Islamic banking group operates would affect the availability of liquidity by restricting the transfer of HQLA and funds flows within the group. The consolidated LCR should reflect the restrictions consistently with this Part. For example, HQLA held to meet a local LCR requirement by a subsidiary that is being consolidated can be included in the consolidated LCR to the extent that the HQLA are used to cover the total net cash outflows of that subsidiary, even if the assets are subject to restrictions on transfer to the parent entity. If the HQLA held in excess of the total net cash outflows are not transferable, the firm should not count that surplus liquidity.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.B IBANK Division 8.4.B HQLA portfolio — makeup and value

        • IBANK 8.4.6 Requirement for HQLA portfolio — basic rules

          (1) An Islamic banking business firm must maintain an HQLA portfolio sufficient to meet its funding needs for at least 30 calendar days under severe liquidity stress.

          Note The value of the HQLA portfolio must bear a minimum ratio to the firm's outflows over the 30-calendar-day period. That minimum ratio is the liquidity coverage ratio or LCR — see rules 8.4.16 and 8.4.20.
          (2) The assets in the portfolio must be appropriately diversified in terms of type, issuer, currency and counterparty.
          (3) The firm must be able to meet its liquidity needs in each currency in which it has significant exposure. The portfolio must be similar in composition (in terms of the currencies in which the assets are denominated) to its liquidity needs.
          (4) For subrule (3), an Islamic banking business firm has significant exposure in a currency if 5% or more of the firm's total liabilities are denominated in the currency.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.7 HQLA portfolio — general operational requirements

          (1) An Islamic banking business firm's HQLA portfolio must be under the control of the specific function or functions charged with managing the firm's liquidity. That function must always have the authority, and must always be legally and operationally able, to monetise any asset in the portfolio.

          Guidance
          For the firm to be operationally able to monetise assets, the firm must have the necessary procedures and appropriate systems, and must have access to all the necessary information. The function must actually be able to monetise any of the assets within the standard settlement period for the asset class.
          (2) That control must be shown by:
          (a) maintaining the portfolio in a separate pool managed by the function solely as a source of contingent funds; or
          (b) showing that the function can monetise any asset in the portfolio at any time, and that the proceeds of doing so are available to the function throughout the following 30-calendar-day period, consistently with the firm's business and risk-management strategies.
          (3) The firm must monetise a representative part of the portfolio periodically (at least annually):
          (a) to test the firm's access to the market, the effectiveness of its processes for liquidation and the availability of the assets; and
          (b) to minimise the risk of giving a negative signal during a period of actual liquidity stress.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.8 What assets are HQLA

          (1) An asset is HQLA if it falls within any of rules 8.4.10 to 8.4.12, or is approved by the Regulatory Authority as HQLA under rule 8.4.13.

          Guidance
          Assets that fall within any of rules 8.4.10 to 8.4.12 are HQLA because such assets can be monetised easily and immediately with little or no loss of value.
          (2) An Islamic banking business firm must not include an asset in its HQLA portfolio if the asset is encumbered.
          Note For the meaning of encumbered, see rule 8.4.4 (2).
          (3) The firm must not include an asset in the portfolio if the firm could not, for any operational, legal, regulatory or other reason, monetise it at any time and receive the proceeds within 30 calendar days.

          Guidance
          1 For example, the firm should not include an asset if:
          •    the asset was hypothecated to the firm and the asset's beneficial owner has the right to withdraw it
          •    the sale of the asset without replacement would remove a hedge so as to create an open risk position in excess of the firm's internal risk limit.
          2 When considering whether to include a particular asset, a firm should take into account any possible delays in the settlement of a sale.
          3 Subrule (3) would not prevent assets received as collateral for Shari'acompliant hedging transactions from being included in the portfolio provided that:
          •    the assets are not segregated and are legally able to be re-hypothecated
          •    the firm records an appropriate outflow for the associated risks.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.9 IBANK 8.4.9 Classification of HQLA

          (1) HQLA are classified as either level 1 HQLA or level 2 HQLA. Level 1 HQLA are the highest-quality, most liquid assets, and level 2 HQLA are other high-quality liquid assets.
          (2) Level 2 HQLA are further classified as either level 2A HQLA or level 2B HQLA.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.9 Guidance

            All classes of HQLA (other than cash and Central Bank reserves) are Shari'acompliant marketable securities that are traded in large, deep and active repo or cash markets with a low level of concentration.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.10 Level 1 HQLA

          Level 1 HQLA consists of:

          (a) currency notes and coins;
          (b) reserves held with the Qatar Central Bank, to the extent that they are capable of being drawn down immediately during a period of liquidity stress;
          (c) sukuk and other Shari'a-compliant marketable securities that satisfy all of the following conditions:
          (i) they are issued or guaranteed by a sovereign, a central bank, a public sector entity, an MDB or the IILMC;
          (ii) they are assigned a risk weight of 0% under Part 4.4;
          (iii) they are not an obligation of a financial institution nor of a related party of a financial institution;
          (iv) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (v) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions; and
          (d) sukuk and other Shari'a-compliant marketable securities that are not assigned a risk weight of 0% under Part 4.4, but:
          (i) meet the conditions in paragraphs (c) (iii), (iv) and (v); and
          (ii) are either:
          (A) sovereign or central bank securities issued in the domestic currency of either the jurisdiction in which the firm's liquidity risk is taken or the firm's home jurisdiction; or
          (B) sovereign or central bank securities issued in a foreign currency, up to the amount of the firm's stressed net cash outflows in that currency stemming from the firm's operations in the jurisdiction in which the firm's liquidity risk is taken.
          Note The Regulatory Authority may approve assets of other kinds as level 1 HQLA — see rule 8.4.13.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.11 Level 2A HQLA

          Level 2A HQLA consists of:

          (a) sukuk and other Shari'a-compliant marketable securities that represent claims on, or claims guaranteed by, a sovereign, a central bank, a public sector entity or an MDB, and meet all of the following conditions:
          (i) they are assigned a risk weight of 20% under Part 4.4;
          (ii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 10% decline in price (or 10 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
          (iv) they are not an obligation of a financial institution nor of a related party of a financial institution; and
          (b) sukuk and other Shari'a-compliant marketable corporate securities (including Shari'a-compliant commercial paper) that meet all of the following conditions:
          (i) they are not an obligation of a financial institution nor of a related party of a financial institution;
          (ii) they are rated no lower than AA- (long-term) or A-1 (short-term) by Standard & Poor's (or the equivalent by another ECRA);
          (iii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 10% decline in price (or 10 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress).

          Note The Regulatory Authority may approve assets of other kinds as level 2A HQLA — see rule 8.4.13.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.12 Level 2B HQLA

          Level 2B HQLA consists of:

          (a) sukuk and other Shari'a-compliant marketable securities that are backed by Shari'a-compliant residential mortgages, and meet all of the following conditions:
          (i) they were not issued by, and the underlying assets were not originated by, the firm itself or a related party of the firm;
          (ii) the underlying asset pool does not contain structured products;
          (iii) they are rated no lower than AA (long-term) or A-1 (shortterm) by Standard & Poor's (or the equivalent by another ECRA);
          (iv) the securitisations are subject to rules that require issuers to retain an interest in assets that they securitise;
          (v) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 20% decline in price (or 20 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
          (b) sukuk and other Shari'a-compliant marketable securities that do not fall within paragraph (a), and meet all of the following conditions:
          (i) they were not issued by a financial institution nor a related party of a financial institution;
          (ii) they are rated no lower than BBB- (long-term) or A-3 (short-term) by Standard & Poor's (or the equivalent by another ECRA);
          (iii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 20% decline in price (or 20 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
          (c) Shari'a-compliant equity shares that meet all of the following conditions:
          (i) they were not issued by a financial institution nor a related party of a financial institution;
          (ii) they are exchange-traded and centrally cleared;
          (iii) they are a constituent of the QE Index or of an index that the Regulatory Authority accepts as a major stock index for the recognised exchange on which the shares are listed;
          (iv) they are denominated in the currency of the firm's home jurisdiction or the currency of the jurisdiction where the firm's liquidity risk is taken;
          (v) they are traded in large, deep and active repo or cash markets with a low level of concentration;
          (vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 40% decline in price (or 40 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
          (d) sukuk and other Shari'a-compliant marketable securities that are issued by a sovereign or a central bank, are rated BBB+ to BBB- by an ECRA, and are not level 1 HQLA.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.13 Regulatory Authority approval of other types of HQLA

          (1) The Regulatory Authority may approve assets of types that do not fall within rules 8.4.10 to 8.4.12 as being eligible to be included in an Islamic banking business firm's HQLA portfolio to meet the firm's LCR requirement.
          (2) If the Authority approves assets under subrule (1), it must specify whether they are to be treated as level 1, level 2A or level 2B HQLA.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.14 Make-up of HQLA portfolio

          (1) The whole of an Islamic banking business firm's HQLA portfolio may be made up of level 1 HQLA.
          (2) In the portfolio the firm may include level 2 HQLA only up to the following limits:
          (a) level 2 HQLA (including both level 2A HQLA and level 2B HQLA) — no more than 40% of the total value of the portfolio;
          (b) level 2B HQLA — no more than 15% of the total value of the portfolio.
          (3) For calculating the total value of the portfolio and the percentages of its value made up of each category of HQLA, the value of an asset is taken to be its market value and is subject to the appropriate haircut set out in rule 8.4.15.
          (4) If an asset is involved in a transaction that matures within 30 calendar days and involves the exchange of HQLA:
          (a) the transaction may be treated as having been unwound; and
          (b) the asset may be included in the portfolio.
          (5) Only assets held or owned by the firm on the day of calculation may be included in the calculation, regardless of their residual maturity.
          (6) If an asset in the firm's portfolio that was formerly eligible as HQLA becomes ineligible (for example, because of a rating downgrade), the firm may continue to treat the asset as HQLA for a further 30 calendar days after it ceases to be eligible as HQLA, to allow the firm time to adjust its portfolio.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.15 Haircuts for assets in HQLA portfolio

          For calculating the value of an Islamic banking business firm's HQLA portfolio:

          (a) level 1 HQLA must be valued at their market value;
          (b) level 2A HQLA must be valued at 85% of their market value; and
          (c) level 2B HQLA must be valued at the following percentages of their market value:
          (i) sukuk and other Shari'a-compliant securities that are backed by Shari'a-compliant residential mortgages — 75%;
          (ii) other level 2B HQLA referred to in rule 8.4.12 — 50%;
          (iii) other assets approved by the Regulatory Authority as level 2B HQLA — the percentage that the Authority specifies.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.C IBANK Division 8.4.C Liquidity coverage ratio

        • IBANK Subdivision 8.4.C.1 IBANK Subdivision 8.4.C.1 Liquidity coverage ratio generally

          • IBANK 8.4.16 Liquidity coverage ratios required

            (1) Subject to rule 8.4.18, a liquidity risk group A Islamic banking business firm must maintain its LCR:
            (a) in the calendar year 2018 — at 90% or higher; and
            (b) in each subsequent calendar year — at 100% or higher.
            Note Rule 8.4.18 allows an Islamic banking business firm to monetise part of its HQLA portfolio during a period of liquidity stress.

            Guidance
            Rule 8.4.16 sets minimum levels and is not intended to limit the generality of the requirements in rule 8.4.6.
            (2) The requirement for the firm to maintain the LCR required by subrule (1) is called the firm's LCR requirement.

            Guidance
            An authorised firm must be continually aware of its LCR because of the requirements for the firm to maintain its LCR, and to report to the Regulatory Authority if the LCR falls below the firm's LCR requirement. How often the firm needs to calculate its LCR depends on the nature of the firm's business. Some relevant factors would be:
            •    how volatile the values of the firm's assets and exposures are
            •    how actively the firm trades.
            For the requirement to report if the firm's LCR falls below its LCR requirement, see rule 8.4.19.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.17 Adjustment of firms' LCR by Regulatory Authority

            The Regulatory Authority may, by written notice to an Islamic banking business firm, do any 1 or more of the following:

            (a) change the firm's LCR requirement;
            (b) change the method for calculating the LCR requirement, or the assumptions or parameters for the purposes of that calculation;
            (c) impose additional requirements based on the Authority's assessment of the firm's exposure to liquidity risk.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.18 Monetising HQLA during periods of liquidity stress

            During a period of liquidity stress, an Islamic banking business firm may monetise part of its HQLA portfolio, and may use the cash so generated to cover cash outflows. It may allow its LCR to fall below the level required by rule 8.4.16 to the extent necessary to deal with cash outflows during that period.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.19 IBANK 8.4.19 Obligation to notify Regulatory Authority if LCR requirement not met

            (1) An Islamic banking business firm must notify the Regulatory Authority in writing immediately (but within 3 business days) if the firm ceases to meet its LCR requirement (or becomes aware of circumstances that may result in its ceasing to meet that requirement).
            (2) In the notification the firm must clearly explain:
            (a) why it ceased to meet, or thinks it may cease to meet, the requirement;
            (b) when it expects to again be able to meet the requirement; and
            (c) what it has done, and will do, to ensure that it meets the requirement in future, or continues to meet it, as the case requires.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

            • IBANK 8.4.19 Guidance

              An Islamic banking business firm that gives such a notification should discuss with the Regulatory Authority what further steps it should take to deal with the situation.

              Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.2 IBANK Subdivision 8.4.C.2 Calculating LCR

          • IBANK 8.4.20 IBANK 8.4.20 How to calculate LCR

            (1) An Islamic banking business firm's LCR is calculated by means of the following formula:

            where:
            TC30 is the firm's total net cash outflow over the next 30 calendar days (all outflows, or outflows in the relevant currency, as the case requires), calculated in accordance with rule 8.4.21.
            VP is the total value of the assets in the firm's HQLA portfolio, calculated in accordance with rule 8.4.15.

            Note For calculating the value of the portfolio, the market value of an asset in the portfolio is taken to be the asset's market value, subject to a haircut — see rule 8.4.15.

            (2) The firm must calculate its LCR both overall, and separately for each significant currency in which it has liabilities. A currency is significant for the firm if the firm's liabilities denominated in it amount to 5% or more of the firm's total liabilities.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

            • IBANK 8.4.20 Guidance

              An Islamic banking business firm that is active in several currencies:

              •    should maintain an HQLA portfolio consistent with the distribution of its liquidity needs by currency
              •    should assess its aggregate foreign currency liquidity needs and determine an acceptable level of currency mismatches
              •    should separately analyse its strategy for each significant currency, considering possible constraints during a period of liquidity stress.
              Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.21 How to calculate total net cash outflow over next 30 calendar days

            (1) On any day, an Islamic banking business firm's total net cash outflow over the next 30 calendar days is the difference between:
            (a) its total expected gross cash outflow over that 30-calendar-day period; and
            (b) the lesser of:
            (i) 75% of its total expected gross cash outflow over that period; and
            (ii) its total expected cash inflow over that period.

            Guidance
            Subrule (1) (b) ensures that, for the purposes of the calculation, the firm's cash inflow can never be greater than 75% of its total expected gross cash outflow.
            (2) For that calculation:
            (a) the firm's total expected gross cash outflow is to be calculated in accordance with Subdivisions 8.4.C.3 to 8.4.C.5; and
            (b) the firm's total expected cash inflow is to be calculated in accordance with Subdivisions 8.4.C.6 to 8.4.C.8.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.3 IBANK Subdivision 8.4.C.3 Calculating total expected gross cash outflows — general

          • IBANK 8.4.22 How to calculate total expected gross cash outflow

            (1) Total expected gross cash outflow over a period is calculated by:
            (a) first, multiplying the outstanding balance of each category of liability or off-balance-sheet commitment by the rate at which it is expected to run off or be drawn down during the period; and
            (b) then, adding up the balances so calculated.

            Note Rules 8.4.23 to 8.4.42 specify runoff rates for many kinds of cash outflow and give interpretative provisions. Those rules are based on Basel III LCR, IFSB—12 and IFSB GN 6. The interpretive provisions provide only minimal explanation of the reasons why particular kinds of outflow receive the runoff rates specified. For a fuller explanation, consult Basel III LCR (in particular, paragraphs 69–141), IFSB—12 and IFSB GN 6.
            (2) For that calculation, if profit is payable on the outstanding balance of a liability or off-balance-sheet commitment, any profit that is expected to be paid during the relevant period must be added to the balance.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.4 IBANK Subdivision 8.4.C.4 Calculating total expected gross cash outflows — runoff rates for retail deposits, wholesale unsecured funding and secured funding

          • IBANK 8.4.23 Treatment of retail deposits generally

            (1) The runoff rates for retail deposits generally are as set out in table 8.4.23.
            (2) However, this rule does not apply to:
            (a) a PSIA (whether restricted or unrestricted) (see rule 8.4.24);
            (b) a deposit or PSIA that falls within rule 8.4.26; or
            (c) unsecured wholesale funding that falls within rule 8.4.27.

            Note Rule 8.4.25 allows the Regulatory Authority to direct that a higher runoff rate must be applied to deposits or PSIAs that would otherwise fall within rule 8.4.23 or 8.4.24 but have unusual features.
            (3) In the case of a deposit or PSIA that is pledged as security for a financing facility, this rule is subject to rule 8.4.28.

            Table 8.4.23 Retail deposits — runoff rates

            Kind of deposit Runoff rate (%)
            Retail demand deposits (other than CMT-based deposits), and term deposits with maturity of 30 calendar days or less:  
            •    stable deposits (see subrule (4)) covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in subrule (7)
            3
            •    other stable deposits
            5
            •    less stable deposits (see subrules (8), (9))
            10
            CMT-based deposits from retail and small business customers 20

            Note 1 CMT-based deposits from non-financial corporates, sovereigns, central banks, MDBs and public sector entities are treated as unsecured wholesale funding — see rule 8.4.27 (16).

            Note 2 CMT-based deposits create particular liquidity risks:

            "In such transactions, the customer first buys a commodity and sells it to [an Islamic banking business firm] on a deferred payment basis at an agreed price with a profit margin. As the funds raised by [the firm] on the basis of CMT effectively require it to pay back the principal and agreed profit to the customer on maturity, the [firm] may be exposed to liquidity risk....If CMT-based funds, which are usually short-term in nature, are used by the [firm] to finance longer-term assets, a maturitymismatch will result. Such a mismatch may become acute if [the firm] has a high reliance on such deposits to fund its assets." (IFSB–12, paragraph 51).

            For the meaning of IFSB–12, see the note at the beginning of Part 8.4.

            (4) Stable deposits are deposits that are fully insured (see subrule (5)) (or are covered by a public guarantee that provides equivalent protection), and for which either of the following is true:
            (a) the depositor has other established relationships with the firm that make withdrawal highly unlikely;
            (b) the deposit is in a transactional account (for example, an account into which the depositor's salary is automatically deposited).
            (5) A deposit is fully insured if 100% of the deposit amount, up to the applicable deposit insurance limit, is covered by an effective (see subrule (6)) Shari'a-compliant deposit insurance scheme. Deposit balances up to the limit are treated as fully insured even if the depositor's balance is over the limit. However, any amount over the limit is to be treated as a less stable deposit.

            Guidance
            For example, if a depositor has a deposit of 150 that is covered by a deposit insurance scheme that has a limit of 100, so that the depositor would receive at least 100 from the scheme if the firm were unable to pay, then 100 would be considered fully insured and treated as a stable deposit, and 50 would be treated as a less stable deposit. However, if the scheme covered only a percentage of the deposit amount (for example, 90% of the deposit amount up to a limit of 100), the entire 150 deposit would be treated as a less stable deposit.
            (6) A Shari'a-compliant deposit insurance scheme is effective if all of the following are true:
            (a) the scheme guarantees that it can make payouts promptly;
            (b) its coverage is clearly defined;
            (c) the provider has formal legal powers to fulfil the scheme's mandate, and is operationally independent, transparent and accountable;
            (d) public awareness of the scheme is high.

            Guidance
            For Shari'a-compliant deposit insurance, see IFSB–12 paragraph 162, and IFSB GN 6, section 2.3.1.2, para 57.
            (7) The additional criteria (for a Shari'a-compliant deposit insurance scheme) mentioned in table 8.4.23 are the following:
            (a) the scheme is pre-funded by periodic levies on entities with insured deposits;
            (b) the scheme has access to additional funding in the event of a large call on its reserves (for example, an explicit and legally binding guarantee from its government, or a standing authority to borrow from its government);
            (c) depositors have access to insured deposits quickly if the scheme is called on.
            (8) A deposit that does not fall within subrule (4) is a less stable deposit.
            (9) If the firm cannot readily identify a term deposit as stable, it must treat the full amount of the deposit as less stable.
            (10) The firm may exclude, from total expected cash outflows, the cash outflow related to a term deposit with residual maturity, or a notice period for withdrawal, longer than 30 calendar days only if:
            (a) the depositor has no legal right to withdraw the deposit within the 30-calendar-day period; or
            (b) early withdrawal would result in a significant reduction of profit that is materially greater than the loss of profit for the period.
            (11) However, if the practice of the firm is to allow depositors to withdraw such deposits within the 30-calendar-day period without imposing the corresponding reduction of profit, each such deposit must be treated in full as a demand deposit unless the Regulatory Authority approves otherwise.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.24 Treatment of maturing PSIAs

            (1) The runoff rates for PSIAs that mature with the relevant 30-calendarday period are as set out in table 8.4.24.

            Table 8.4.24 Maturing PSIAs — runoff rates

            Item Kind of PSIA Runoff rate (%)
            1 Restricted PSIAs:  
             
            •    stable (covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in rule 8.4.23 (7))
            3
             
            •    other stable (according to the criteria in rule 8.4.23 (4))
            5
             
            •    less stable
            10
            2 Unrestricted PSIAs:  
             
            •    stable (covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in rule 8.4.23 (7))
            3
             
            •    other stable (according to the criteria in rule 8.4.23 (4))
            5
             
            •    less stable
            10
            (2) If a firm cannot readily identify a PSIA as stable in accordance with the criteria in rule 8.4.23 (4), it must treat the full amount of the PSIA as less stable. A PSIA of which the returns are not subject to treated as less stable.
            (3) The firm may exclude from total expected cash outflows the cash outflows related to PSIAs with residual maturity, or a notice period for withdrawal, longer than 30 calendar days only if:
            (a) the IAH concerned has no legal right to withdraw the PSIA within the 30-calendar-day period; or
            (b) early withdrawal would result in a significant reduction of profit that is materially greater than the loss of profit for the period.
            (4) However, if the practice of the firm is to allow IAHs to withdraw such PSIAs within the 30-calendar-day period without imposing the corresponding reduction of profit, each such PSIA must be treated in full as a demand deposit unless the Regulatory Authority approves otherwise.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.25 Treatment of deposits and PSIAs with unusual features

            Despite anything in rule 8.4.23 or 8.4.24, the Regulatory Authority may direct that a higher run-off rate must be applied to a deposit or PSIA, or a class of deposits or PSIAs, that falls within either of those rules but presents unusual features.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.26 Treatment of deposits and PSIAs not in Qatari riyals, and deposits by non-residents of Qatar

            (1) This rule applies to:
            (a) deposits by, and PSIAs held by, residents of Qatar, not denominated in Qatari riyals; and
            (b) deposits by, and PSIAs held by, non-residents of Qatar, regardless of the currency of denomination.
            (2) The run-off rate for deposits and PSIAs to which this rule applies is the rate that the Regulatory Authority directs.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.27 Treatment of unsecured wholesale funding

            (1) The runoff rates for unsecured wholesale funding are as set out in table 8.4.27.
            (2) In the case of a deposit or PSIA that is pledged as security for a financing facility, this rule is subject to rule 8.4.28.
            (3) Wholesale funding consists of liabilities and general obligations, raised from legal entities, of which any 1 or more of the following is true:
            (a) the funding is callable within 30 calendar days;
            (b) the funding has its earliest possible contractual maturity date within 30 calendar days (for example, a maturing term deposit or an unsecured debt security); or
            (c) the funding has an undetermined maturity.

            Guidance
            Wholesale funding includes funding that the provider has the option of withdrawing within the 30-calendar-day period (but not funding that is callable by the funds provider subject to a contractually defined and binding notice period longer than 30 calendar days).
            (4) Unsecured wholesale funding is wholesale funding that is not collateralised by legal rights to specifically designated assets. Unsecured wholesale funding does not include obligations related to Shari'a-compliant hedging contracts.

            Table 8.4.27 Unsecured wholesale funding — runoff rates

            Item Kind of funding Runoff rate (%)
            1 Demand and term deposits (other than operational deposits), with maturity of 30 calendar days or less, provided by small business customers:  
             
            •    stable deposits (see subrule (5))
            5
             
            •    less stable deposits (see subrule (5))
            10
            2 Operational deposits (see subrules (6)–(11)) (including CMT-based deposits):  
             
            •    any part covered by Shari'a-compliant deposit insurance
            5
             
            •   otherwise
            25
            3 Unsecured wholesale funding from cooperative banks in an institutional network (qualifying deposits with the central institution) (see subrules (12)–(14)) 25
            4 Unsecured wholesale funding provided by non-financial corporates, and sovereigns, central banks, MDBs, and public sector enterprises (see subrule (15)):  
             
            •    if the entire amount is fully covered by Shari'a-compliant deposit insurance
            20
             
            •    otherwise
            40
            5 CMT-based deposits (other than operational deposits) from non-financial corporates, sovereigns, central banks, MDBs and public sector entities:  
             
            •    if the entire amount is fully covered by Shari'a-compliant deposit insurance
            20
             
            •    otherwise
            40
            6 CMT-based deposits (other than operational deposits) from financial institutions 100
            7 Unsecured wholesale funding provided by other legal entity customers (see subrules (16)–(19)) 100

            Note For an explanation of the particular treatment of CMT-based deposits, see note 2 following table 8.4.23.

            (5) In table 8.4.27, stable deposit and less stable deposit have the same respective meanings as in rule 8.4.23. However, a PSIA of which the returns are not subject to smoothing (by, for example, the use of a PER or an IRR) must be treated as a less stable deposit.
            (6) Operational deposits are deposits placed or left with the firm by a customer to facilitate the customer's access to, and ability to use, payment and settlement systems and otherwise make payments for the purposes of clearing, custody or cash management services that meet all of the following criteria:
            (a) the customer is reliant on the firm to perform the services as an independent third party intermediary;

            Guidance
            This condition would not be met if the firm were aware that the customer had adequate back-up arrangements.
            (b) the services are provided under a legally binding agreement;
            (c) the termination of the agreement is subject to:
            (i) a notice period of 30 calendar days or more; or
            (ii) significant costs (such as transaction costs, costs related to information technology, or early termination or legal costs) that must be borne by the customer if the deposit is moved before the end of 30 calendar days.

            Guidance
            1 Clearing is a service that enables customers to transfer funds (or securities) indirectly through direct participants in domestic settlement systems to final recipients. Such services are limited to the following activities:
            •    transmission, reconciliation and confirmation of payment orders
            •    daylight overdraft, overnight financing and maintenance of postsettlement balances
            •    determination of intra-day and final settlement positions.
            2 Custody is the provision of safekeeping, reporting and processing of assets, or the facilitation of the operational and administrative elements of related activities on behalf of customers in the process of their transacting and retaining financial assets. Such services are limited to the settlement of securities transactions, the transfer of contractual payments, the processing of collateral, and the provision of custody-related cash management services.
            3 Custody also includes the receipt of dividends and other income and client subscriptions and redemptions, and extends to asset and corporate trust servicing, treasury, escrow, funds transfer, stock transfer and agency services, (including payment and settlement services, but not correspondent banking), and depository receipts.
            4 Cash management is the provision of cash management and related services to customers — that is, services provided to a customer to manage its cash flows, assets and liabilities, and conduct financial transactions necessary to its operations. Such services are limited to payment remittance, collection and aggregation of funds, payroll administration, and control over the disbursement of funds.
            5 Correspondent banking is an arrangement under which a bank holds deposits owned by other banks, and provides payment and other services to settle foreign currency transactions.
            (7) The firm may treat a deposit as an operational deposit only if the deposit meets all of the following requirements:
            (a) it is a by-product of the underlying services provided by the firm;
            (b) it is not offered by the firm in the wholesale market for the sole purpose of offering profit income;
            (c) it is held in a specifically-designated account;
            (d) it is priced so as not to give customers an economic incentive to leave excess funds in the account.
            (8) Excess balances that could be withdrawn without jeopardising those clearing, custody or cash management activities are not to be treated as operational deposits.
            (9) The firm must determine how to identify such excess balances. If the firm is unable to identify how much of a deposit is an excess balance, the firm must assume that the entire deposit is excess and therefore not operational.

            Guidance
            The identification should be sufficiently granular to adequately assess the risk of withdrawal in an idiosyncratic stress situation. The method should take into account relevant factors such as the likelihood that wholesale customers have above-average balances in advance of specific payment needs, and should consider appropriate indicators (for example, ratios of account balances to payment or settlement volumes or to assets under custody) to identify customers that are not actively managing account balances efficiently.
            (10) A deposit that arises out of correspondent banking, or from the provision of prime brokerage services, is not to be treated as an operational deposit.

            Guidance
            Prime brokerage services is a package of services offered to large active investors, particularly institutional hedge funds. The services usually include:
            •    clearing, settlement and custody
            •    consolidated reporting
            •    financing (margin, repo or synthetic)
            •    securities lending
            •    capital introduction
            •    risk analytics.
            (11) Any part of an operational deposit that is fully covered by Shari'a compliant deposit insurance may be treated as a stable retail deposit.
            (12) An institutional network of cooperative banks is a group of legally separate banks with a statutory framework of cooperation with a common strategic focus and brand, in which certain functions are performed by a central institution or a specialised service provider.
            (13) A qualifying deposit is a deposit by a member institution with the central institution or specialised central service provider:
            (a) because of statutory minimum deposit requirements; or
            (b) in the context of common task-sharing and legal, statutory or contractual arrangements (but only if both the depositor and the bank that receives the deposit participate in the network's scheme of mutual protection against illiquidity and insolvency).
            (14) The following are not qualifying deposits:
            (a) deposits resulting from correspondent banking activities;
            (b) deposits placed at the central institution or a specialised service provider for any reason other than those set out in subrule (13);
            (c) deposits for the operational purposes of clearing, custody, or cash management.
            (15) Unsecured wholesale funding provided by non-financial corporates and sovereigns, central banks, MDBs, and public sector enterprises comprises all deposits and other extensions of unsecured funding (other than those specifically for operational purposes) from:
            (a) non-financial corporate customers (except small business customers); and
            (b) domestic and foreign customers that are sovereigns, central banks, MDBs and public sector enterprises.
            (16) Unsecured wholesale funding provided by other legal entity customers consists of deposits and other funding (other than operational deposits) not falling within subrules (1) to (15), such as funding provided by:
            (a) another financial institution; or
            (b) a related party of the firm.
            (17) All sukuk issued by the firm are to be treated as unsecured wholesale funding provided by other legal entity customers regardless of the holder.
            (18) However, securities that are sold exclusively in the retail market and held in retail accounts (or small business customer accounts), may be treated in the appropriate retail or small business customer deposit category. For securities to be treated in that way, there must be limitations preventing them being bought and held other than by retail or small business customers.
            (19) Customers' cash balances arising from the provision of prime brokerage services must be treated as separate from any balances required to be segregated under a statutory client protection regime, and must not be netted against other customer exposures. Such offsetting balances held in segregated accounts are to be treated as inflows and must not be counted as HQLA.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.28 Treatment of deposits and PSIAs pledged as security

            (1) This rule applies to a deposit or PSIA that is pledged as security for a financing facility if:
            (a) the facility will not mature or be settled within the relevant 30-calendar-day period; and
            (b) the pledge is subject to a legally enforceable contract under which the deposit cannot be withdrawn before the facility is fully settled or repaid.
            (2) If no part of the facility has been drawn, the runoff rate is the higher of:
            (a) the rate that would apply under rule 8.4.23 or 8.4.27 (as the case requires); and
            (b) a rate equal to the rate applicable to the facility under rule 8.4.39.
            (3) However, if some part of the facility has been drawn, only that part of the deposit or PSIA in excess of the outstanding balance of the facility is to be counted. The applicable runoff rate is the rate that applies under rule 8.4.23 or 8.4.27 (as the case requires).
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.29 Treatment of maturing secured funding

            (1) The runoff rates for secured funding that matures within the relevant 30-calendar-day period are as set out in table 8.4.29.
            (2) Secured funding is an Islamic banking business firm's liabilities and general obligations collateralised by the grant of legal rights to specific assets owned by the firm.

            Guidance
            This scenario assumes that the firm has lost its secured funding on short-term financing transactions. In this scenario, the firm could continue to transact securities financing transactions only if the transactions were backed by HQLA or were with the firm's domestic sovereign, public sector enterprise or central bank.

            Table 8.4.29 Maturing secured funding — runoff rates

              Kind of funding Runoff rate (%)
            1 Backed by level 1 HQLA 0
            2 Backed by level 2A HQLA 15
            3 Backed by assets that are not level 1 HQLA or level 2A HQLA, and the counterparty is any of the following:
            •    a domestic sovereign;
            •    an MDB
            •    a domestic public sector enterprise that has a risk-weight of 20% or lower
            25
            4 Backed by Shari'a-compliant residential-mortgage-backed securities that are eligible as level 2B HQLA 25
            5 Backed by other level 2B HQLA 50
            6 All other maturing secured funding 100
            (3) Collateral swaps, and any other transactions of a similar form, are to be treated as repo or reverse repo agreements. Collateral lent to the firm's customers to effect short positions is to be treated as secured funding.
            (4) The firm must apply the factors to all outstanding secured funding transactions with maturities within 30 calendar days, including customer short positions that do not have a specified contractual maturity.
            (5) The amount of outflow is the amount of funds raised through the transaction, and not the value of the underlying collateral.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.5 IBANK Subdivision 8.4.C.5 Calculating total expected gross cash outflows — runoff rates for other funding

          • IBANK 8.4.30 Treatment of net Shari'a-compliant hedging cash outflows

            (1) The runoff rate for net Shari'a-compliant hedging cash outflows is 100%.
            (2) The firm must calculate those outflows in accordance with its usual valuation methods. The outflows may be calculated on a net basis by counterparty (that is, inflows offsetting outflows) only if a valid master netting agreement exists.
            (3) From the calculation, the firm must exclude liquidity needs that would result from increased collateral needs because of falls in the value of collateral lodged or market value movements.

            Note For how to treat such liquidity needs, see rules 8.4.32 and 8.4.36.
            (4) The firm must assume that an option will be exercised if it is in the money.
            (5) If Shari'a-compliant hedging payments are collateralised by HQLA, the cash outflows are to be calculated net of any corresponding cash or collateral inflows that would result, all other things being equal, from contractual obligations to lodge cash or collateral with the firm.
            (6) However, subrule (5) applies only if, after the collateral were received, the firm would be legally entitled and operationally able to re-hypothecate it.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.31 Treatment of increased liquidity needs related to downgrade triggers

            (1) The runoff rate for increased liquidity needs related to downgrade triggers in financing transactions, Shari'a-compliant hedging instruments and other contracts is 100% of the amount of collateral that the firm would be required to lodge for, or the contractual cash outflow associated with, any downgrade up to and including a 3-notch downgrade.

            Guidance
            A downgrade trigger is a contractual condition that requires an Islamic banking business firm to lodge additional collateral, draw down a contingent facility or repay existing liabilities early if an ECRA downgrades the firm. Contracts governing Shari'a-compliant hedging instruments and other transactions often have such conditions. The scenario therefore requires a firm to assume that for each contract that contains downgrade triggers, 100% of the additional collateral or cash outflow will have to be lodged for a downgrade up to and including a 3-notch downgrade of the firm's long-term credit rating.
            (2) The firm must assume that a downgrade trigger linked to the firm's short-term rating will be triggered at the corresponding long-term rating.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.32 IBANK 8.4.32 Treatment of increased liquidity needs related to possible valuation changes on lodged collateral

            The runoff rate for increased liquidity needs related to possible valuation changes on collateral lodged by an Islamic banking business firm to secure Shari'a-compliant hedging instruments and other transactions is 20% of the value of any lodged collateral that is not level 1 HQLA (net of collateral received on a counterparty basis, if the collateral received is not subject to restrictions on re-use or rehypothecation).

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

            • IBANK 8.4.32 Guidance

              Most counterparties to Shari'a-compliant hedging transactions are required to secure the mark-to-market valuation of their positions. If level 1 HQLA are lodged as collateral, no additional stock of HQLA need be maintained for possible valuation changes. However, if the firm secures such an exposure with other collateral, 20% of the value of such lodged collateral will be added to the firm's required stock of HQLA to cover the possible loss of market value on the collateral.

              Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.33 Treatment of increased liquidity needs related to excess non-segregated collateral

            The runoff rate for increased liquidity needs related to excess nonsegregated collateral that is held by an Islamic banking business firm, and could contractually be recalled at any time by a counterparty, is 100% of the value of the excess collateral.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.34 Treatment of increased liquidity needs related to contractually-required collateral when counterparty has not yet demanded that collateral be lodged

            The runoff rate for increased liquidity needs related to contractuallyrequired collateral, due from an Islamic banking business firm on transactions for which the counterparty has not yet demanded that the collateral be lodged, is 100% of the value of the collateral that is contractually due.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.35 Treatment of increased liquidity needs related to contracts that allow substitution of non-HQLA collateral

            (1) This rule applies to the following kinds of transaction:
            (a) transactions where:
            (i) an Islamic banking business firm holds HQLA collateral;
            (ii) the counterparty has the right to substitute non-HQLA collateral for some or all of the HQLA collateral without the firm's consent; and
            (iii) the collateral is not segregated;
            (b) transactions where:
            (i) an Islamic banking business firm has the right to receive HQLA collateral;
            (ii) the counterparty has the right to deliver non-HQLA collateral instead of some or all of the HQLA collateral without the firm's consent; and
            (iii) the collateral is not segregated.
            (2) The runoff rate for increased liquidity needs related to such a transaction is 100% of the value of HQLA collateral for which non- HQLA collateral can be substituted or delivered, as the case requires.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.36 Treatment of increased liquidity needs related to market valuation changes on Shari'a-compliant hedging instruments

            (1) The runoff rate for increased liquidity needs related to market valuation changes on Shari'a-compliant hedging instruments is 100% of the largest absolute net collateral flow (based on both realised outflows and inflows) in a 30-calendar-day period during the previous 24 months.

            Guidance
            Market practice requires collateralisation of mark-to-market exposures on Shari'acompliant hedging instruments. Islamic banking business firms face potentially substantial liquidity risk exposures to changes in the market valuation of such instruments.
            (2) Inflows and outflows of transactions executed under the same master netting agreement may be treated on a net basis.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.37 IBANK 8.4.37 Treatment of loss of funding on maturing asset-backed securities and other structured financing instruments

            The runoff rate for loss of funding on asset-backed securities and other structured financing instruments that mature within the relevant 30-calendar-day period is 100% of the maturing amount.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

            • IBANK 8.4.37 Guidance

              The scenario assumes that there is no refinancing market for the maturing instruments.

              Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.38 IBANK 8.4.38 Treatment of loss of funding on maturing asset-backed commercial paper, conduits, structured investment vehicles etc

            The runoff rate for loss of funding on asset-backed commercial paper, conduits, structured investment vehicles and other similar financing arrangements that mature within the relevant 30-calendar-day period is 100% of the total of:

            (a) the maturing amount;
            (b) if the arrangement allows assets to be returned within that period — the value of the returnable assets; and
            (c) if under the arrangement the firm could be obliged to provide liquidity within that period — the total amount of liquidity that the firm could be obliged to provide.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

            • IBANK 8.4.38 Guidance

              Islamic banking business firms that use asset-backed commercial paper, conduits, structured investment vehicles and other similar financing arrangements should fully consider the associated liquidity risk. The risks include:

              •    being unable to refinance maturing debt
              •    Shari'a-compliant hedging instruments that would allow the return of assets, or require the firm to provide liquidity, within the 30-calendar-day period.

              If the firm's structured financing activities are carried out through a special purpose entity (such as a conduit or structured investment vehicle), the firm should, in determining its HQLA requirements, look through to the maturity of the instruments issued by the entity and any embedded options in financing arrangements that could trigger the return of assets or the need for liquidity, regardless of whether the entity is consolidated.

              Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.39 Treatment of drawdowns on committed financing and liquidity facilities

            (1) The runoff rates for drawdowns on committed financing and liquidity facilities are as set out in table 8.4.39.
            (2) A financing facility is a Shari'a-compliant contractual agreement or obligation to extend funds in the future to a retail or wholesale counterparty. For this rule, a facility that is unconditionally revocable is not a financing facility.

            Note Unconditionally revocable facilities (in particular, those without a precondition of a material change in the borrower's credit condition) are included in contingent funding obligations (see rule 8.4.41).
            (3) A liquidity facility is an irrevocable, undrawn financing facility that would be used to refinance the debt obligations of a customer if the customer were unable to roll over the obligations in financial markets.

            Guidance
            General working capital facilities for corporate borrowers (for example, revolving financing facilities for general corporate or working capital purposes) are to be treated as financing facilities.

            Table 8.4.39 Drawdowns on committed financing and liquidity facilities — runoff rates

            Item Kind of facility Runoff rate (%)
            1 Financing and liquidity facilities provided to retail and small business customers 5
            2 Financing facilities provided to nonfinancial corporates, sovereigns, central banks, MDBs, and public sector enterprises 10
            3 Liquidity facilities provided to nonfinancial corporates, sovereigns, central banks, MDBs, and public sector enterprises (see subrule (7)) 30
            4 Financing and liquidity facilities provided to banks that are subject to prudential supervision (see subrule (7)) 40
            5 Financing facilities provided to other financial institutions 40
            6 Liquidity facilities provided to other financial institutions (see subrule (7)) 100
            7 Financing and liquidity facilities provided to legal entities of any other kind (see subrule (7)) 100
            (4) For a facility, the relevant runoff rate is to be applied to the undrawn part of it.
            (5) The undrawn portion of a financing facility or liquidity facility is to be calculated net of any HQLA lodged or to be lodged as collateral if:
            (a) the HQLA have al been lodged, or the counterparty is contractually required to lodge them when drawing down the facility;
            (b) the firm is legally entitled and operationally able to rehypothecate the collateral in new cash-raising transactions once the facility is drawn down; and
            (c) there is no undue correlation between the probability of drawing down the facility and the market value of the collateral.
            (6) The firm may net the collateral against the outstanding amount of the facility to the extent that the collateral is not al counted in the firm's HQLA portfolio.
            (7) The amount of a liquidity facility is to be taken as the amount of outstanding debt issued by the customer concerned (or a proportionate share of a syndicated facility) that matures within the relevant 30-calendar-day period and is backstopped by the facility. Any additional capacity of the facility is to be treated as a committed financing facility.
            (8) The firm must treat a facility provided to a hedge fund, money market fund or SPE, or an entity used to finance the firm's own assets, in its entirety as a liquidity facility to a financial institution.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.40 Treatment of other contractual obligations to extend funds within 30 calendar days

            (1) The runoff rate for other contractual obligations to extend funds within 30 calendar days is 100%.
            (2) Other contractual obligations to extend funds within 30 calendar days covers all contractual obligations to extend funds within 30 calendar days that do not fall within rules 8.4.23 to 8.4.39.
            (3) The runoff rate of 100% is to be applied to:
            (a) for obligations owed to financial institutions — the whole amount of such obligations; and
            (b) for obligations owed to customers that are not financial institutions — the difference between:
            (i) the total amount of the obligations; and
            (ii) 50% of the contractual inflows from those customers over the relevant 30-calendar-day period.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.41 Treatment of other contingent funding obligations

            (1) The runoff rates for other contingent funding obligations are as set out in table 8.4.41.
            (2) Contingent funding obligations covers obligations arising from guarantees, letters of credit, unconditionally revocable financing and liquidity facilities, outstanding debt securities with remaining maturity of more than 30 calendar days, and trade finance (see subrule (3)). It also covers non-contractual obligations, including obligations arising from any of the following:
            (a) potential liquidity draws from joint ventures or minority investments in entities;
            (b) debt-buy-back requests (including related conduits);
            (c) structured products;
            (d) managed funds;
            (e) the use of customers' collateral to cover other customers' short positions.

            Table 8.4.41 Contingent funding obligations — runoff rates

            Item Kind of obligation Runoff rate (%)
            1 Unconditionally revocable uncommitted financing and liquidity facilities 5
            2 Non-contractual obligations related to potential liquidity drawdowns from joint ventures or minority investments in entities 100
            3 Trade-finance-related obligations (including letters of guarantee and letters of credit) (see subrules (3) and (4)) 5
            4 Guarantees and letters of credit not related to trade finance obligations 5
            5 Sukuk (more than 30 calendar days maturity) 5
            6 Non-contractual obligations where customer short positions are covered by other customers' collateral 50
            7 Any other non-contractual obligations not captured above (such as expected returns on profit-sharing accounts) 5
            (3) Trade finance means trade-related obligations directly related to the movement of goods or the provision of services, such as the following:
            (a) documentary trade letters of credit, documentary collection and clean collection, import bills, and export bills;
            (b) guarantees directly related to trade finance obligations, such as shipping guarantees.
            (4) However, lending commitments, such as direct import or export financing for non-financial corporate entities, are to be treated as committed financing facilities (see rule 8.4.39).
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.42 Treatment of other contractual cash outflows

            (1) The runoff rate to be applied to other contractual cash outflows is 100%.
            (2) Other contractual cash outflows includes outflows to cover unsecured collateral borrowings and uncovered short positions, and outflows to cover dividends and contractual profit payments, but does not include outflows related to operating costs.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.6 IBANK Subdivision 8.4.C.6 Calculating total expected cash inflow

          • IBANK 8.4.43 How to calculate total expected cash inflow

            (1) Total expected cash inflow over a period is calculated by, for each contracted cash inflow over the period, multiplying it by the applicable inflow rate (giving the adjusted inflow), and then taking the total of all the adjusted inflows over the period.

            Note Rules 8.4.44 to 8.4.48 specify inflow rates for many kinds of cash inflow, and give any necessary interpretative provisions. Those rules are based on Basel III LCR, IFSB–12 and IFSB GN 6. The interpretive provisions include only minimal explanation of why a particular kind of inflow receives the rate specified. For a fuller explanation, consult Basel III LCR (in particular, paragraphs 142–160), IFSB–12 and IFSB GN 6.

            Guidance
            An inflow rate does not represent an assumption about the risk of a default — instead, it represents the likelihood that the relevant obligation will be rolled over (so that the firm does not actually receive the cash) or that no cash will be received for some other reason. (The possibility of default is excluded by rule 8.4.43 (2) (a), which allows only inflows from performing exposures to be included.) Inflows for which an inflow rate of 0% is specified are effectively treated as not being receivable.
            (2) When an Islamic banking business firm is calculating its cash inflows:
            (a) it may include a contractual inflow from an exposure only if the exposure is classified under rule 4.3.3 as performing, and there is no reason to expect a default within the relevant period;

            Note In rule 4.3.3, the category performing excludes exposures classified as special mention.
            (b) it must not include any contingent inflow; and

            Guidance for subrule (2) (b)
            Contingent inflow would include expected returns on profit-sharing instruments.
            (c) it must not include any inflow that would be received from an asset in the firm's HQLA portfolio.

            Guidance for subrule (2) (c)
            In a stressed situation, the assets in the firm's HQLA portfolio would al have been monetised. That is the purpose of those assets — to be monetised to provide liquidity. Consequently, in a scenario of liquidity stress, the contracted cash inflows from them would no longer be available to the firm.

            Note When a firm calculates its total net cash outflows over a period for the purpose of calculating its LCR, it cannot include cash inflows over 75% of its total gross cash outflows over the period — see rule 8.4.21 (1) (b).
            (3) The firm may include, in cash inflows during a period, profit payments that it expects to receive during the period.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.7 IBANK Subdivision 8.4.C.7 Calculating total expected cash inflows — inflow rates for secured lending and committed facilities

          • IBANK 8.4.44 Treatment of maturing secured lending

            The inflow rates for secured lending that matures during the relevant 30-calendar-day period are as set out in table 8.4.44.

            Table 8.4.44 Maturing secured lending — inflow rates

            Item Source of inflow Inflow rate (%)
                if collateral not rehypothecated if collateral rehypothecated
            1 Maturing secured lending transactions (including margin lending) backed by:    
             
            •    level 1 HQLA
            0 0
             
            •    level 2A HQLA
            15 0
             
            •    level 2B HQLA that are Shari'a-compliant residential-mortgage-backed securities
            25 0
             
            •    other level 2B HQLA
            50 0
            2 Maturing margin lending backed by any other collateral 50 0
            3 Maturing secured lending (other than margin lending) backed by collateral that is not HQLA 100 0

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.45 Treatment of financing and liquidity facilities

            (1) The inflow rate for financing facilities and liquidity facilities provided to the firm is 0%.
            (2) Financing facility and liquidity facility have the same respective meanings as in rule 8.4.39.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.C.8 IBANK Subdivision 8.4.C.8 Calculating total expected cash inflows — inflow rates for other cash inflows

          • IBANK 8.4.46 Treatment of operational deposits

            (1) The inflow rate for operational deposits by the firm held at other financial institutions (including deposits held at the centralised institution of a network of co-operative banks) is 0%.
            (2) Operational deposit has the same meaning as in rule 8.4.27 (6).
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.47 Treatment of net Shari'a-compliant hedging cash inflows

            (1) The inflow rate for net Shari'a-compliant hedging cash inflows is 100%.
            (2) The firm must calculate those inflows in accordance with its usual valuation methods. The inflows may be calculated on a net basis by counterparty (that is, inflows offset outflows) only if a valid master netting agreement exists.
            (3) From the calculation, the firm must exclude liquidity needs that would result from increased collateral needs because of market value movements or falls in the value of collateral lodged.
            (4) The firm must assume that an option will be exercised if it is in the money to the buyer.
            (5) If Shari'a-compliant hedging cash inflows are collateralised by HQLA, the inflows are to be calculated net of any corresponding cash or collateral outflows that would result from contractual obligations for the firm to lodge cash or collateral.
            (6) However, subrule (5) applies only if, after the collateral were received, the firm would be legally entitled and operationally able to re-hypothecate it.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.48 Treatment of other contractual inflows

            (1) The inflow rates for other contractual inflows are as set out in table 8.4.48.

            Table 8.4.48 Other contractual inflows — inflow rates

            Item Source of inflow Inflow rate (%)
            1 Amounts to be received from retail counterparties 50
            2 Amounts to be received from non-financial wholesale counterparties 50
            3 Amounts to be received from financial institutions and central banks 100
            4 Other contractual cash inflows 100
            (2) The firm must assume that inflows will be received at the latest possible date, based on the contractual rights available to counterparties.
            (3) The following inflows are not to be included:
            (a) inflows (except for minimum payments of principal, fee or profit) from loans that have no specific maturity;
            (b) inflows related to non-financial revenues.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.D IBANK Division 8.4.D Treatment of special cases

        • IBANK Subdivision 8.4.D.1 IBANK Subdivision 8.4.D.1 Firms with unduly concentrated cash flows

          • IBANK 8.4.49 What if firm's cash inflows are unduly concentrated

            If the Regulatory Authority considers that an Islamic banking business firm is overly reliant on cash inflows from a single wholesale counterparty or a small number of wholesale counterparties, the Authority may direct the firm as to how such cash flows are to be treated in the calculation of its LCR.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK Subdivision 8.4.D.2 IBANK Subdivision 8.4.D.2 Firms with access to parent entities' funds

          • IBANK 8.4.50 Use of funding facility from parent entity

            The Regulatory Authority may allow an Islamic banking business firm that is a branch, or is a subsidiary of an entity established outside the QFC, to recognise, as cash inflow, access to its parent entity's funds by way of a committed funding facility, up to a limit specified in the facility documentation. The facility:

            (a) must be an irrevocable commitment; and
            (b) must be appropriately documented.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.E IBANK Division 8.4.E Alternative liquidity approaches

        • IBANK 8.4.51 IBANK 8.4.51 Introduction — Division 8.4.E

          (1) This Division sets out certain other ways in which an Islamic banking business firm can meet its LCR requirement.
          (2) This Division is intended to be applied by an Islamic banking business firm only if there is a shortage of HQLA denominated in Qatari riyals compared to the total stock of firms' liabilities denominated in that currency.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.4.51 Guidance

            An Islamic banking business firm is required to hold an HQLA portfolio that is similar in composition (in terms of currencies) to its liabilities (see rule 8.4.6 (3)). Apart from any other considerations, the Regulatory Authority would not approve the application of an option described in this Division by an Islamic banking business firm unless the Authority were satisfied that the supply of HQLA denominated in Qatari riyals was insufficient to meet the demand for such assets from Islamic banking business firms when compared to the total of firms' liabilities denominated in that currency.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.52 Regulatory Authority approval required

          An Islamic banking business firm may apply an option described in this Division only if the Regulatory Authority so approves.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.53 References to Qatari riyals — Division 8.4.E

          Each reference in this Division to Qatari riyals may be read as a reference to United States dollars while the exchange rate between the Qatari riyal and the United States dollar is fixed.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.54 Option 1 — contractual committed liquidity facility from central bank

          (1) Option 1 is for an Islamic banking business firm to have a liquidity facility that complies with subrule (2).
          (2) A liquidity facility complies with this subrule if it meets all of the following conditions:
          (a) it is established by a Shari'a-compliant contract between the firm and a central bank;
          (b) on any day, its maturity date falls outside the 30-calendar-day period for the relevant LCR calculation;
          (c) the contract is irrevocable before its maturity;
          (d) there is no requirement for any financing decision by the central bank;
          (e) there is a fee or profit share for the facility;
          (f) the fee is set so that the net profit return on the assets used to secure the facility is not higher than the net profit return on a representative portfolio of level 1 HQLA and level 2 HQLA, after adjusting for any material differences in credit risk.
          (3) If the Regulatory Authority approves an Islamic banking business firm's application of option 1, then:
          (a) the firm may treat the liquidity facility as providing no more than a percentage directed by the Authority of the value of the firm's HQLA portfolio required to be denominated in Qatari riyals; and
          (b) the remainder of the firm's HQLA portfolio denominated in Qatari riyals must be level 1 HQLA denominated in that currency.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.55 Option 2 — HQLA in foreign currency to cover liquidity needs in Qatari riyals

          (1) Option 2 is for an Islamic banking business firm:
          (a) to hold, as part of its HQLA portfolio, HQLA denominated in a particular foreign currency in an amount that is significantly greater than the amount of its liabilities that are denominated in that currency; and
          (b) to match the excess of HQLA denominated in the foreign currency against liabilities denominated in Qatari riyals.

          Guidance
          When considering whether to approve a firm's use of option 2, the Regulatory Authority would take into account:
          •    whether the levels of relevant HQLA are consistent with the firm's foreign exchange risk management capacity and needs
          •    whether the foreign currency is freely and reliably convertible into Qatari riyals
          •    whether the firm is effectively managing its positions in the HQLA, and the positions would not pose undue risk to its financial strength.
          (2) If the Regulatory Authority approves an Islamic banking business firm's application of option 2, then:
          (a) for calculating the value of the firm's HQLA portfolio, the excess of HQLA denominated in the foreign currency is subject to the haircut directed by the Authority;

          Guidance
          The minimum haircut for HQLA denominated in a currency other than United States dollars would be 8%, as required by Basel III LCR, paragraph 60. A lower haircut might be permitted for HQLA denominated in United States dollars because the Qatari riyal is pegged to the dollar.
          (b) the firm may treat HQLA denominated in the foreign currency as providing no more than a percentage directed by the Authority of the required value of the firm's HQLA portfolio denominated in Qatari riyals; and
          (c) the remainder of the firm's HQLA portfolio must be level 1 HQLA denominated in Qatari riyals.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.56 Option 3 — level 2A HQLA in part-substitution for level 1 HQLA

          (1) Option 3 is for an Islamic banking business firm to hold, as part of its HQLA portfolio denominated in Qatari riyals, level 2A HQLA to a greater extent than is permitted by rule 8.4.14 (2) (a).
          (2) If the Regulatory Authority approves an Islamic banking business firmfs application of option 3, then:
          (a) for calculating the value of the firm's HQLA portfolio, the additional level 2A HQLA are subject to a haircut of 20%;

          Guidance
          Therefore, the haircuts applicable to level 2A HQLA in the firmfs HQLA portfolio are as follows:
          •    15% for level 2A HQLA up to 40% of the value of the portfolio
          •    20% for additional level 2A HQLA.
          (b) the firm may treat level 2A HQLA as providing no more than a percentage directed by the Authority of the required value of its HQLA portfolio denominated in Qatari riyals; and
          (c) the remainder of the firmfs HQLA portfolio denominated in that currency must be level 1 HQLA.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.57 Combinations of options 1, 2 and 3

          If the Regulatory Authority approves an Islamic banking business firm's application of more than 1 of options 1, 2 and 3 in relation to its HQLA portfolio denominated in Qatari riyals, level 1 HQLA must make up at least the percentage that the Authority directs of the value of the firm's HQLA portfolio denominated in that currency.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.4.F IBANK Division 8.4.F Treatment of branches

        • IBANK 8.4.58 Global liquidity concession — branches

          (1) A liquidity risk group A Islamic banking business firm that is a branch may apply to the Regulatory Authority for a global liquidity concession.
          (2) In its application the firm must satisfy the Authority that:
          (a) the firm complies with all the applicable requirements in Parts 8.1 and 8.3 in relation to liquidity systems and controls;
          (b) in the jurisdiction where the firm's head office is established, there are no legal constraints on the provision of liquidity to the firm; and
          (c) the head office is subject to liquidity requirements that are equivalent to, or more restrictive than, those imposed under these rules.

          Guidance
          1 In considering whether to grant such a concession, the Authority would take into account:
          •    the requirements, as to managing, monitoring and controlling liquidity risk, of the regulator responsible for the firm's head office
          •    the systems and controls used by the head office to ensure that the firm's liquidity remains adequate
          •    any written assurance from the head office that:
          •    it will ensure that, at all times, enough liquidity is available to support the firm
          •    it will notify the Authority, at the same time as it notifies its home regulator, of any material issues concerning the firm's exposure to liquidity risk or its compliance with applicable liquidity limits, including its liquidity coverage ratio
          •    in the event of a liquidity crisis, it will give the Authority all relevant information on the whole firm's liquidity, and a list of any known constraints (legal or otherwise) on the head office's providing the firm with liquidity
          •    any notification from the head office's home regulator:
          •    either stating that the regulator has no objection to the firm's obtaining the concession, or acknowledging that the application has been made
          •    giving information about, and confirming, the quality of the liquidity risk systems and controls and the liquidity exposures at the head office.
          2 Under rule 8.4.58 (2) (b), the Authority would take into account restrictions (for example, ring-fencing measures, non-convertibility of local currency, or foreign exchange controls) that would affect the transfer of HQLA and funds within the firm or its group.
          (3) If the Authority grants the concession, the firm need not comply with a requirement of this Part specified by the Authority.
          (4) The Authority may specify the period for which the concession is valid. If no period is so specified, the concession is valid until the Authority revokes it.
          (5) The firm:
          (a) must give the Authority, at least quarterly, a copy of the LCR calculation for the firm, as submitted by its head office to its home regulator;
          (b) must notify the Authority immediately (but within 3 business days), in writing, of:
          (i) the results of every assessment by its home regulator that relates to the quality of liquidity systems and controls at the firm's head office;
          (ii) any adverse finding or action taken by the firm's home regulator;
          (iii) any change or potential change in the firm's funding strategy or business model, or material change or material potential change in the structure of its balance-sheet; and
          (iv) any changes that affect its compliance with the requirements referred to in subrule (2).
          (6) On the basis of the Authority's assessment of the firm's liquidity risk exposures, the Authority may, at any time, by written notice, do any 1 or more of the following:
          (a) modify or exclude any of the requirements under subrule (5);
          (b) impose additional requirements;
          (c) revoke the concession.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.5 IBANK Part 8.5 Minimum liquidity ratio — liquidity risk group B Islamic banking business firms

      Note for Part 8.5

      This Part applies only to liquidity risk group B Islamic banking business firms — see rule 8.1.4.

      • IBANK Division 8.5.A IBANK Division 8.5.A Minimum liquidity ratio — general

        • IBANK 8.5.1 Introduction — Part 8.5

          (1) This Part sets out alternative approaches to maintaining liquidity that are intended to be appropriate for liquidity risk group B Islamic banking business firms. Such firms, because of their business model, could not meet a requirement to maintain a liquidity coverage ratio in accordance with Part 8.4.
          (2) For certain liquidity risk group B Islamic banking business firms that are branches, rule 8.5.17 provides for a global liquidity concession.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.2 How to calculate MLR

          The minimum liquidity ratio or MLR for an Islamic banking business firm is calculated as follows:

          where:

          NLA means the firm's net liquefiable assets.

          Note For how to calculate the firm's net liquefiable assets, see rule 8.5.13.

          NQL means the firm's net qualifying liabilities.

          Note For how to calculate the firm's net qualifying liabilities, see rule 8.5.16.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.3 When firms must calculate MLR

          A liquidity risk group B Islamic banking business firm must calculate its MLR for each working day.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.4 Requirement to maintain MLR

          A liquidity risk group B Islamic banking business firm must maintain, during each calendar month, an MLR of at least the percentage that the Regulatory Authority directs the firm to maintain.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.5 Valuation of assets, liabilities, off-balance-sheet items and cash flows measured at fair value

          (1) If under this Part an Islamic banking business firm is required to value an asset, liability, off-balance-sheet item or cash flow at fair value, the firm must establish and maintain systems, controls and procedures that are effective to ensure that such a valuation is prudent and reliable.
          (2) For subrule (1), the firm must, if appropriate, adjust such a valuation to account for:
          (a) the limitations of the valuation model or methodology and the data used in the valuation process;
          (b) the liquidity of the asset, liability, off-balance-sheet item or cash flow; and
          (c) other factors that might reasonably be expected to affect the prudence and reliability of the valuation.
          (3) To avoid doubt, adjustments that the firm makes in accordance with this rule may exceed adjustments that it makes in accordance with the firm's financial reporting standards.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.6 IBANK 8.5.6 Interbank assets and liabilities

          (1) For a liquidity risk group B Islamic banking business firm, net due from banks and net due to banks are ways of expressing the difference between:
          (a) the total of the firm's 1-month assets due from Islamic banking business firms and banks outside the QFC; and
          (b) the total of the firm's 1-month liabilities due to Islamic banking business firms and banks.
          (2) If the calculation described in subrule (1) shows that a net amount is due to the firm, the firm is said to have net due from banks. If the calculation shows that a net amount is due from the firm, the firm is said to have net due to banks.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.5.6 Guidance

            Interbank assets and liabilities (of an Islamic banking business firm due from other banks, or vice versa) would include:

            •    deposits and placements of funds
            •    loans and advances.
            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.5.B IBANK Division 8.5.B Net liquefiable assets

        • IBANK 8.5.7 Assets that are liquefiable assets

          (1) Assets of the following kinds are liquefiable assets:
          (a) assets that fall within a class of assets specified in table 8.5.9A or 8.5.9B;
          (b) for an Islamic banking business firm that has net due from banks — all or part of the net due from banks, in accordance with subrule (2);
          (c) assets of another kind approved by the Regulatory Authority as liquefiable assets.
          (2) An Islamic banking business firm that has net due from banks may treat as a liquefiable asset no more of the net due from banks than an amount equal to 40% of the total weighted principal amount of the firm's qualifying liabilities.
          (3) An Islamic banking business firm must treat any amount of net due from banks greater than the amount permitted by subrule (2) as a deduction from the firm's net qualifying liabilities.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.8 Assets that can be counted for calculating MLR

          (1) An Islamic banking business firm must not include an asset in its liquefiable assets for calculating its MLR unless the asset meets all of the following criteria:
          (a) it is readily monetisable;
          (b) it is not overdue nor in default;
          (c) it is unencumbered and there are no regulatory, legal, contractual or other restrictions that prevent it being liquidated, sold, transferred or assigned;
          (d) its value is readily identifiable and measurable;
          (e) subject to subrule (2), it is freely transferable and available to the firm and is not subject to any liquidity transfer restriction;
          (f) it is not a subordinated debt security;
          (g) if it is a structured financial instrument, its structure is simple and standardised;
          (h) it is denominated in Qatari riyals or in a currency that is freely convertible into Qatari riyals.
          (2) If an asset is held by a member of the financial group of a liquidity risk group B Islamic banking business firm and is subject to a liquidity transfer restriction, the firm may include the asset in its liquefiable assets for the calculation of its MLR only to the extent that the qualifying liabilities (after deductions) of the member are also included in the calculation.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.9 Liquidity conversion factors for liquefiable assets

          (1) The liquidity conversion factors for liquefiable assets (other than net due from banks) are as set out in tables 8.5.9A and 8.5.9B.
          (2) In table 8.5.9A:

          marketable debt security means a debt security for which there is an established secondary market on which the security can be readily monetised. To avoid any doubt, sukuk are debt securities for the purposes of this definition.

          qualifying ECRA issuer rating for the issuer of an asset means a long-term rating no lower than BBB-, or a short-term rating no lower than A-3, by Standard & Poor's (or the equivalent by another ECRA).

          qualifying ECRA issue-specific rating for an asset means a longterm rating no lower than BBB-, or a short-term rating no lower than A-3, by Standard & Poor's (or the equivalent by another ECRA).

          Table 8.5.9A Liquidity conversion factors—marketable debt securities

          Item Kind of asset Liquidity conversion factor (%)
          1 Marketable debt securities issued or guaranteed by the State, the Qatar Central Bank, or a domestic public sector entity:  
           
          (a) with a remaining term to maturity of not more than 1 year
          100
           
          (b) with a remaining term to maturity of more than 1 year
          95
          2 Marketable debt securities issued or guaranteed by an Islamic banking business firm or a bank in the State:  
           
          (a) with a remaining term to maturity of not more than 30 calendar days
          100
           
          (b) with a remaining term to maturity of more than 30 calendar days but not more than 1 year
          95
           
          (c) with a remaining term to maturity of more than 1 year
          90
          3 Marketable debt securities issued or guaranteed by the central bank or central government of a country, a multilateral development bank, if the security has a qualifying ECRA issue-specific rating, or its issuer or guarantor has a qualifying ECRA issuer rating, and the security has a remaining term to maturity of:  
           
          (a) not more than 1 year
          100
           
          (b) more than 1 year
          95
          4 Marketable debt securities with a qualifying ECRA issue-specific rating, issued or guaranteed by a bank outside the QFC, with a remaining term to maturity of:  
           
          (a) not more than 30 calendar days;
          100
           
          (b) more than 30 calendar days, but not more than 1 year;
          95
           
          (c) more than 1 year;
          90
          5 Marketable debt securities with a qualifying ECRA issue-specific rating, issued or guaranteed by a regional government of a country or other entity, with a remaining term to maturity of:  
           
          (a) not more than 1 year;
          90
           
          (b) more than one year but not more than 5 years;
          85
           
          (c) more than 5 years;
          80
          6 Marketable debt securities without a qualifying ECRA issue-specific rating, issued or guaranteed by a bank outside the QFC, if the debt security or instrument has a remaining term to maturity of not more than 30 calendar days 100
          7 Marketable debt securities without a qualifying ECRA issue-specific rating, issued or guaranteed by a bank outside the QFC that has a qualifying ECRA issuer rating 80
          8 Marketable debt securities without a qualifying ECRA issue specific rating, issued or guaranteed by a regional government of a country that has a qualifying ECRA issuer rating 80
          9 Marketable debt securities not included elsewhere in this table that are rediscountable with the Qatar Central Bank or the central bank of a country that has a qualifying ECRA issuer rating 80
          10 Marketable debt securities not included elsewhere in this table with a remaining term to maturity of not more than 30 calendar days 80
          11 Residential mortgage-backed securities approved as liquefiable assets by the Authority 80
          12 Other marketable debt securities approved as liquefiable assets by the Authority 80

          Table 8.5.9B Liquidity conversion factors—other liquefiable assets

          Item Kind of asset Liquidity conversion factor (%)
          1 Currency notes and coins 100
          2 Gold bullion 90
          3 Claims on, or reserves maintained with, the Qatar Central Bank or another central bank that are repayable overnight, on demand, or on notice that expires on the first day of the relevant MLR period 100
          4 Net due from banks that is treated as a liquefiable asset (see rule 8.5.7 (2))

          Note rule 8.5.7 (2) (2) allows an amount (up to 40% of the amount of the firm's qualifying liabilities) of the firm's net due from banks to be included as a liquefiable asset.
          80
          5 Export bills:  
           
          (a) if payable within 30 calendar days and either drawn under letters of credit issued by Islamic banking business firms or accepted and payable by such firms; or
          90
           
          (b) if covered by irrevocable rediscounting facilities approved by the Authority
          90

          Amended by QFCRA RM 2019-1 (as from 28th March 2019).

        • IBANK 8.5.10 Approval of other assets as liquefiable assets

          (1) An Islamic banking business firm may apply to the Regulatory Authority for approval to include, in the firm's calculation of its MLR, an asset that is:
          (a) a residential mortgage-backed security; or
          (b) a marketable debt security of a kind not mentioned in table 8.5.9A or 8.5.9B.
          (2) The Authority may approve the inclusion of the asset if it is satisfied that:
          (a) the asset meets the criteria in rule 8.5.8 (1) applicable to it; and
          (b) the treatment of the asset as a liquefiable asset would not adversely affect the firm's calculation of its MLR, taking into account the risks associated with holding the asset.
          (3) The Authority may grant such an approval subject to any condition that the Authority thinks appropriate.
          (4) The Authority may at any time impose a condition on such an approval, or amend or revoke a condition al imposed.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.11 Management of liquefiable assets and related risks by Islamic banking business firm

          (1) An Islamic banking business firm must have, and must maintain, adequate systems and controls, and procedures, for the on-going assessment and management of its liquefiable assets to ensure that:
          (a) each asset satisfies all the requirements of this Division (so far as applicable);
          (b) an asset that ceases to satisfy a requirement of this Division applicable to it is identified as soon as is practicable; and
          (c) an asset so identified is promptly excluded from the firm's liquefiable assets.
          (2) An Islamic banking business firm must have, and must maintain, adequate systems and controls, and procedures, to monitor and control the risks (in particular, liquidity risk) associated with its holdings in liquefiable assets.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.12 Regulatory Authority directions about liquefiable assets

          (1) The Regulatory Authority may by written notice direct Islamic banking business firms generally not to treat, as a liquefiable asset, a specified asset, or assets in a specified class of assets, if the Authority is satisfied that the asset or such an asset:
          (a) is not capable of generating liquidity for an Islamic banking business firm within 30 calendar days; or
          (b) is not, or is no longer, sufficiently liquid in private markets, or readily monetisable by other means, to be treated as a liquefiable asset.
          (2) The Authority may by written notice direct a particular Islamic banking business firm:
          (a) to cease treating a specified asset as a liquefiable asset if the Authority is satisfied that the asset does not satisfy a specified provision of this Division; or
          (b) to make specified changes to its liquefiable assets if the Authority is satisfied that:
          (i) the firm has failed to comply with rule 8.5.11; and
          (ii) the changes are necessary to mitigate the liquidity risk associated with the firm's failure.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.13 Calculating net liquefiable assets

          (1) An Islamic banking business firm's net liquefiable assets is the difference between:
          (a) the total value of its liquefiable assets, minus the total value of the assets that are to be deducted (see subrule (3)); and
          (b) the total value of its net qualifying liabilities.

          Note For how to calculate the firm's net qualifying liabilities, see rule 8.5.16.
          (2) For this rule, the value of an asset is taken to be its principal amount multiplied by the appropriate liquidity conversion factor. The principal amount of an asset on a day is taken to be:
          (a) for gold bullion or a marketable security — the asset's fair value at the close of business on the previous working day; and

          Note In relation to an asset's fair value and adjustments that may be required, see rule 8.5.5.
          (b) for any other asset—its book value (including accrued interest, if any) at the close of business on the previous working day.
          (3) The kinds of asset whose values must be deducted are the following:
          (a) every debt security issued by the firm that has a remaining term to maturity of 30 calendar days or less and will not, on maturity, be rolled over or refinanced;
          (b) any asset that the Regulatory Authority has directed the firm to deduct;
          (c) if the Authority has approved the deduction of an asset — that asset.
          (4) The liquidity conversion factor to be applied to the assets that are to be deducted is 100%.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.5.C IBANK Division 8.5.C Net qualifying liabilities

        • IBANK 8.5.14 Liabilities that are qualifying liabilities

          (1) Liabilities of the following kinds are qualifying liabilities for an Islamic banking business firm:
          (a) 1-month liabilities to the Qatar Central Bank or another central bank;
          (b) if the firm has net due to banks, the total amount of the firm's 1-month liabilities to other banking business firms, and to banks outside the QFC;

          Note For net due to banks, see rule 8.5.6.
          (c) other 1-month liabilities.
          (2) The liquidity conversion factor for a qualifying liability is 100%.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.15 Deduction from qualifying liabilities if net due to banks

          If an Islamic banking business firm has net due to banks, the firm must treat, as a deduction from the firm's qualifying liabilities, the total amount of the 1-month liabilities, due and payable within 24 hours, to the firm of:

          (a) other Islamic banking business firms; and
          (b) banks outside the QFC.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.5.16 Calculating net qualifying liabilities

          (1) An Islamic banking business firm's net qualifying liabilities is the difference between the total value of its qualifying liabilities and the total of the amounts that it must deduct from that total value (see rule 8.5.15 and table 8.5.16).
          (2) For this rule, the principal amount of a liability on a day is taken to be its book value (including accrued interest, if any) at the close of business on the previous working day.

          Note In relation to the fair value of a liability and adjustments that may be required, see rule 8.5.5.

          Table 8.5.16 Deductions from qualifying liabilities and liquidity conversion factors

          Item Deduction from qualifying liabilities Liquidity conversion factor (%)
          1 Total 1-month liabilities of the Qatar Central Bank and other central banks to the firm (other than any amount that falls within item 3 of table 8.5.9B) 100
          2 If the firm has net due to banks, the total amount of the firm's 1-month assets due from other Islamic banking business firms and banks outside the QFC 100
          3 Any amount of the firm's net due from banks that must be treated as a deduction under rule 8.5.15 100
          4 Eligible loan repayments 80
          (3) In table 8.5.16: eligible loan repayment means a loan repayment in relation to which all of the following conditions are met:
          (a) the date on which the repayment is due is fixed, and is within 30 calendar days;
          (b) the firm is not committed to continuing the loan, by renewal or otherwise;
          (c) the loan is fully performing and the firm has no reason to expect a default.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.5.D IBANK Division 8.5.D Treatment of branches

        • IBANK 8.5.17 Global liquidity concession — branches

          (1) A liquidity risk group B Islamic banking business firm that is a branch may apply to the Regulatory Authority for a global liquidity concession.
          (2) In its application the firm must satisfy the Authority that:
          (a) because of its business model and in the market conditions prevailing at the time of application, the firm has no reasonable prospect of being able to comply with the other requirements of this Part;
          (b) the firm complies with all the applicable requirements in Parts 8.1 and 8.3 in relation to liquidity systems and controls;
          (c) in the jurisdiction where the firm's head office is established, there are no legal constraints on the provision of liquidity to the firm; and
          (d) the head office is subject to liquidity requirements that are equivalent to, or more restrictive than, those imposed under these rules.

          Guidance
          1 In considering whether to grant such a concession, the Authority would take into account:
          •    the requirements, as to managing, monitoring and controlling liquidity risk, of the regulator responsible for the firm's head office
          •    the systems and controls used by the head office to ensure that the firm's liquidity remains adequate
          •    any written assurance from the head office that:
          •    it will ensure that, at all times, enough liquidity is available to support the firm
          •    it will notify the Authority, at the same time as it notifies its home regulator, of any material issues concerning the firm's exposure to liquidity risk or its compliance with applicable liquidity limits, including its liquidity coverage ratio
          •    in the event of a liquidity crisis, it will give the Authority all relevant information on the whole firm's liquidity, and a list of any known constraints (legal or otherwise) on the head office's providing the firm with liquidity
          •    any notification from the head office's home regulator:
          •    either stating that the regulator has no objection to the firm's obtaining the concession, or acknowledging that the application has been made
          •    giving information about, and confirming, the quality of the liquidity risk systems and controls and the liquidity exposures at the head office.
          2 Under rule 8.5.17 (2) (b), the Authority would take into account restrictions (for example, ring-fencing measures, non-convertibility of local currency, or foreign exchange controls) that would affect the transfer of HQLA and funds within the firm or its group.
          (3) If the Authority grants the concession, the firm need not comply with a requirement of this Part specified by the Authority.
          (4) The Authority may specify the period for which the concession is valid. If no period is so specified, the concession is valid until the Authority revokes it.
          (5) The firm must notify the Authority immediately (but within 3 business days), in writing, of:
          (i) the results of every assessment by its home regulator that relates to the quality of liquidity systems and controls at the firm's head office;
          (b) the results of every assessment by its head office that relates to the quality of liquidity systems and controls at the firm;
          (c) any adverse finding or action taken by the firm's home regulator or head office;
          (d) any change or potential change in the firm's funding strategy or business model, or material change or material potential change in the structure of its balance-sheet; and
          (e) any changes that affect its compliance with the requirements referred to in subrule (2).
          (6) On the basis of the Authority's assessment of the firm's liquidity risk exposures, the Authority may, at any time, by written notice, do any 1 or more of the following:
          (a) modify or exclude any of the requirements under subrule (5);
          (b) impose additional requirements;
          (c) revoke the concession.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.6 IBANK Part 8.6 Net stable funding ratio — liquidity risk group A Islamic banking business firms

      Notes for Part 8.6

      1 This Part applies only to liquidity risk group A Islamic banking business firms — see rule 8.1.4.
      2 For more detail and explanation see:
      •   the document Basel III: the Net Stable Funding Ratio, published by the Basel Committee on Banking Supervision in October 2014 and available at http://www.bis.org/bcbs/publ/d295.pdf
      •   IFSB GN 6, referred to in the note at the beginning of Part 8.4.

      • IBANK Division 8.6.A IBANK Division 8.6.A General

        • IBANK 8.6.1 Introduction — Part 8.6

          (1) The requirement for an Islamic banking business firm to maintain a net stable funding ratio is one of the Basel Committee's key reforms to promote a more resilient banking sector. The requirement will oblige firms to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities.
          (2) A stable funding profile is intended to reduce the likelihood that disruptions to a firm's regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure, and might lead to broader systemic stress.
          (3) The requirement is intended to limit firms' reliance on short-term wholesale funding, promote funding stability, and encourage better assessment of funding risk on and off firms' balance-sheets.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.2 Definitions for Part 8.6

          (1) In this Part:
          ASF for a liquidity risk group A Islamic banking business firm means the amount of its available stable funding, calculated in accordance with this Part.
          carrying value of a capital instrument, liability or asset is the value given for the instrument, liability or asset in the prudential returns of the firm concerned.
          net stable funding ratio has the meaning given by rule 8.6.3.
          NSFR means net stable funding ratio.
          RSF for a liquidity risk group A Islamic banking business firm means the amount of its required stable funding, calculated in accordance with this Part.
          (2) Expressions used in this Part that are defined in Part 8.4 have the same respective meanings in this Part as in Part 8.4.
          Note The following expressions, used in this Part, are defined in Part 8.4:
          •   encumbered and unencumbered (see rule 8.4.4)
          •   financial institution (see rule 8.4.3)
          •   financing facility (see rule 8.4.39)
          •   HQLA (and references to levels of HQLA) (see rule 8.4.3 and rules 8.4.10 to 8.4.13)
          •   liquidity facility (see rule 8.4.39).
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.3 What NSFR is

          (1) A liquidity risk group A Islamic banking business firm's NSFR, expressed as a percentage, is:

          (2) The ASF and RSF are to be calculated in accordance with this Part.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.4 Obligation to maintain NSFR

          A liquidity risk group A Islamic banking business firm must maintain an NSFR of at least 100%. That is, its ASF must always be equal to or greater than its RSF.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.5 IBANK 8.6.5 Obligation to notify Regulatory Authority if NSFR requirement not met

          (1) A liquidity risk group A Islamic banking business firm must notify the Regulatory Authority in writing immediately (but within 3 business days) if the firm ceases to meet its NSFR requirement (or becomes aware of circumstances that may result in its ceasing to meet that requirement).
          (2) In the notification the firm must clearly explain:
          (a) why it ceased to meet, or thinks it may cease to meet, the requirement;
          (b) when it expects to again be able to meet the requirement; and
          (c) what it has done and will do to ensure that it meets the requirement in future, or continues to meet it, as the case requires.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.6.5 Guidance

            An Islamic banking business firm that gives such a notification should discuss with the Regulatory Authority what further steps it should take to deal with the situation.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.6 IBANK 8.6.6 Application of NSFR to financial group

          (1) For calculating a consolidated NSFR for a financial group, assets held to meet an Islamic banking business firm's NSFR may be included in the parent entity's stable funding only so far as the related liabilities are reflected in the parent entity's NSFR. Any surplus of assets held at the firm may be treated as forming part of the parent entity's stable funding only if those assets would be freely available to the parent entity during a period of stress.
          (2) When calculating its NSFR on a consolidated basis, a cross-border Islamic banking group must apply the rules of its home jurisdiction to all the legal entities being consolidated, except for the treatment of retail and small business deposits. Such deposits for a consolidated entity must be treated according to the rules in the jurisdiction in which the entity operates.
          (3) A cross-border Islamic banking group must not take excess stable funding into account in calculating its consolidated NSFR if there is reasonable doubt about whether the funding would be available during a period of stress.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.6.6 Guidance

            Asset transfer restrictions (for example, ring-fencing measures, non-convertibility of local currency, foreign exchange controls) in jurisdictions in which an Islamic banking group operates would affect the availability of liquidity by restricting the transfer of assets and funding within the group. The consolidated NSFR should reflect the restrictions consistently with this Part. For example, assets held to meet a local NSFR requirement by a subsidiary that is being consolidated can be included in the consolidated NSFR to the extent that the assets are used to cover the funding requirements of that subsidiary, even if the assets are subject to restrictions on transfer. If the assets held in excess of the total funding requirements are not transferable, the firm should not count that funding.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.7 Determining maturity of instruments when calculating NSFR

          (1) When an Islamic banking business firm is determining the maturity of an equity or liability instrument, it must assume that a call option will be exercised at the earliest possible date that is permissible under Shari'a.
          (2) In particular, if the market expects a liability to be exercised before its legal final maturity date, the firm must assign the liability to the category that is consistent with the market expectation.
          (3) For long-dated liabilities, the firm may treat only the part of cash flows falling at or beyond the 6-month and 1-year time horizons as having an effective residual maturity of 6 months or more and 1 year or more, respectively.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.8 Calculating NSFR Shari'a-compliant hedging liability amounts

          (1) An Islamic banking business firm must calculate the value of a Shari'a-compliant hedging liability based on the replacement cost for the contract (obtained by marking to market) if the contract has a negative value.
          (2) If there is a netting agreement with the counterparty that satisfies both of the conditions in subrule (3), and all of the other conditions in subrule (4) are met, the replacement cost for the set of exposures covered by the agreement is taken to be the net replacement cost.
          (3) The conditions for the netting agreement are as follows:
          (a) under the agreement the firm would have a claim to receive, or an obligation to pay, only the net amount of the mark-to-market values of the transactions if the counterparty were to fail to perform;
          (b) the agreement does not contain a walkaway clause.
          (4) The other conditions are as follows:
          (a) the firm holds a written, reasoned legal opinion that the relevant courts and administrative authorities would find the firm's exposure to be the net amount referred to in subrule (3) (a) under each of the following laws:
          (i) the law of the jurisdiction in which the counterparty is established;
          (ii) if a foreign branch of the counterparty is involved, the law of the jurisdiction in which the branch is located;
          (iii) the law that governs the individual transactions;
          (iv) the law that governs the netting agreement (and any other agreement necessary to effect the netting);
          (b) the firm has procedures to ensure that netting arrangements are kept under review in the light of possible changes in the relevant law;
          (c) the Regulatory Authority is satisfied that the netting agreement is enforceable under all of the laws referred to in paragraph (a).
          (5) Collateral lodged in the form of variation margin in connection with Shari'a-compliant hedging contracts, regardless of the asset type, must be deducted from the negative replacement cost amount.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.9 Determining maturity of assets

          (1) When determining the maturity of an asset, an Islamic banking business firm must assume that any option to extend that maturity will be exercised.
          (2) In particular, if the market expects the maturity of an asset to be extended, the firm must assign the asset to the category that is consistent with the market expectation.
          (3) For an amortising loan, the firm may treat the part that comes due within 1 year as having residual maturity of less than 1 year.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.10 What assets should be included

          (1) Subject to subrule (2), when determining its RSF, an Islamic banking business firm:
          (a) must include financial instruments, foreign currencies and commodities for which a purchase order has been executed; but
          (b) must not include financial instruments, foreign currencies and commodities for which a sales order has been executed;
          even if the transactions have not been reflected in the firm's balance-sheet under a settlement-date accounting model.
          (2) Subrule (1) applies only if:
          (a) the relevant transactions are not reflected as Shari'a-compliant hedging or secured financing transactions in the firm's balance-sheet; and
          (b) the effects of the transactions will be reflected in the firm's balance-sheet when settled.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.11 Treatment of securities financing transactions

          (1) When determining its RSF, an Islamic banking business firm must not include securities that the firm has borrowed in securities financing transactions (such as reverse repos and collateral swaps) if the firm does not have beneficial ownership.
          (2) However, the firm must include securities that it has lent in securities financing transactions if it retains beneficial ownership of them.
          (3) The firm must also not include securities that it has received through collateral swaps if those securities do not appear on the firm's balance-sheet.
          (4) The firm must include securities that it has encumbered in repos or other securities financing transactions, if the firm has retained beneficial ownership of the securities and they remain on the firm's balance-sheet.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.12 IBANK 8.6.12 Netting of securities financing transactions with a single counterparty

          When determining its RSF, an Islamic banking business firm may net securities financing transactions with a single counterparty only if all of the following conditions are met:

          (a) the transactions have the same explicit final settlement date;
          (b) the right to set off the amount owed to the counterparty with the amount owed by the counterparty is legally enforceable both currently in the normal course of business and in the event of default, insolvency or bankruptcy;
          (c) one of the following applies:
          (i) the counterparties intend to settle net;
          (ii) the counterparties intend to settle simultaneously;
          (iii) the transactions are subject to a settlement mechanism that results in the functional equivalent of net settlement.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.6.12 Guidance

            Functional equivalent of net settlement means that the cash flows of the transactions are equivalent to a single net amount on the settlement date. To achieve that equivalence, both transactions are settled through the same settlement system and the settlement arrangements are supported by cash or intraday financing facilities intended to ensure that settlement of both transactions will occur by the end of the business day and that the linkages to collateral flows do not result in the unwinding of net cash settlement.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.13 Calculating NSFR Shari'a-compliant hedging asset amounts

          (1) When determining its RSF, an Islamic banking business firm must calculate the value of a Shari'a-compliant hedging asset first based on the replacement cost for the contract (obtained by marking to market) if the asset has a positive value.
          (2) If there is a netting agreement with the counterparty that satisfies both of the conditions in rule 8.6.8 (3), and all of the other conditions in rule 8.6.8 (4) are met, the replacement cost for the set of exposures covered by the agreement is taken to be the net replacement cost.
          (3) Collateral received in connection with a Shari'a-compliant hedging contract does not offset the positive replacement cost amount, regardless of whether or not netting is permitted under the bank's accounting or risk-based framework, unless:
          (a) the collateral is received in the form of cash variation margin; and
          (b) all of the conditions in subrule (4) are met.
          (4) The conditions are the following:
          (a) either:
          (i) the trades are cleared through a qualifying central counterparty (see subrule (6)); or
          (ii) the cash received by the counterparty is not segregated;
          (b) the variation margin is calculated and exchanged every day, based on mark-to-market valuation of the relevant positions;
          (c) the variation margin is received in the same currency as the currency of settlement of the contract;
          (d) the variation margin exchanged is the full amount that would be necessary to fully extinguish the mark-to-market exposure of the contract subject to the threshold and minimum transfer amounts applicable to the counterparty;
          (e) Shari'a-compliant hedging transactions and variation margins are covered by a single master netting agreement (MNA) between the counterparties;
          (f) the MNA explicitly stipulates that the counterparties agree to settle net any payment obligations covered by the agreement, taking into account any variation margin received or provided if a credit event occurs involving either counterparty;
          (g) the MNA is legally enforceable and effective in all the relevant jurisdictions, including in the event of default, bankruptcy or insolvency.
          (5) Any remaining balance-sheet liability associated with:
          (a) variation margin received that does not meet all of the conditions in subrule (4); or
          (b) initial margin received; does not offset Shari'a-compliant hedging assets and receives a 0% ASF factor.
          (6) For subrule (4) (a) (i), a qualifying central counterparty is an entity that meets all of the following requirements:
          (a) it is licensed or authorised to operate as a central counterparty in relation to the instruments concerned;
          (b) the financial regulator that is responsible for its prudential supervision:
          (i) has established rules and regulations for central counterparties that are consistent with Principles for Financial Market Infrastructures, published by the International Organization of Securities Commissions in July 2011; and
          (ii) has publicly indicated that it applies those rules and regulations to the entity on an ongoing basis.
          Note The Principles is available at: http://www.iosco.org/library/pubdocs/pdf/IOSCOPD350.pdf.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.14 Calculating ASF

          The amount of a liquidity risk group A Islamic banking business firm's ASF is calculated as follows:

          (a) first, assign each of the firm's capital items and liabilities to 1 of the 5 categories set out in rules 8.6.15 to 8.6.19;
          (b) next, for each category add up the carrying values of all the capital items and liabilities assigned to the category;
          (c) next, for each category multiply the total carrying values of the capital items and liabilities assigned to the category by the category's ASF factor (also set out in rules 8.6.15 to 8.6.19), giving the weighted amounts;
          (d) finally, add up the weighted amounts.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.15 Category 1: liabilities and capital that receive 100% ASF factor

          (1) The following liabilities and capital receive a 100% ASF factor:
          (a) the total amount of the firm's regulatory capital (as set out in Divisions 3.2.B and 3.2.C), excluding any tier 2 instrument with residual maturity of less than 1 year, before the application of capital deductions;
          (b) any other capital instrument that has an effective residual maturity of 1 year or more (except any instrument with an explicit or embedded option that, if exercised, would reduce the expected maturity to less than 1 year);
          (c) the total amount of secured and unsecured borrowings and liabilities (including deposits and unrestricted PSIAs) with effective residual maturities of 1 year or more.
          (2) For subrule (1) (c), cash flows falling within the 1-year horizon but arising from liabilities with final maturity of more than 1 year do not qualify for the 100% ASF factor.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.16 Category 2: Liabilities that receive 95% ASF factor

          The liabilities that receive a 95% ASF factor are stable (as defined in rule 8.4.23 (4)) deposits and unrestricted PSIAs with residual maturities of less than 1 year provided by retail and small-business customers.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.17 Category 3: Liabilities that receive 90% ASF factor

          The liabilities that receive a 90% ASF factor are less stable (as defined in rule 8.4.23 (8)) deposits and unrestricted PSIAs with residual maturities of less than 1 year provided by retail and small-business customers.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.18 Category 4: Liabilities that receive 50% ASF factor

          The following liabilities receive a 50% ASF factor:

          (a) funding (secured and unsecured) with residual maturity of less than 1 year, from corporate customers that are not financial institutions;
          (b) operational deposits (as defined in rule 8.4.27 (6));
          (c) funding with residual maturity of less than 1 year from sovereigns, public sector entities, MDBs and national development banks;
          (d) other funding (secured or unsecured) not falling within paragraphs (a) to (c), with residual maturity of between 6 months and 1 year, including funding from central banks and financial institutions.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.19 Category 5: Liabilities that receive 0% ASF factor

          The following liabilities receive a 0% ASF factor:

          (a) capital not falling within rule 8.6.15;
          (b) liabilities and equity not falling within rules 8.6.15 to 8.6.18;

          Guidance
          Funding from central banks and financial institutions with residual maturity of less than 6 months would fall within paragraph (b).
          (c) other liabilities without a stated maturity, except that:
          (i) a deferred tax liability must be categorised according to the nearest possible date on which it could be realised; and
          (ii) minority interest must be treated according to the term of the instrument, usually in perpetuity.

          Guidance for paragraph (c)
          1 Other liabilities without a stated maturity could include short positions, positions with open maturity and deferred tax liabilities.
          2 A liability referred to in paragraph (c) would receive either a 100% ASF factor if its effective maturity were 1 year or more (see rule 8.6.15), or a 50% ASF factor if its effective maturity were between 6 months and 1 year (see rule 8.6.18).
          (d) NSFR Shari'a-compliant hedging liabilities net of NSFR Shari'a-compliant hedging assets, if NSFR Shari'a-compliant hedging liabilities are greater than NSFR Shari'a-compliant hedging assets;

          Note For how to calculate NSFR Shari'a-compliant hedging liabilities, see rule 8.6.8. For how to calculate NSFR Shari'a-compliant hedging assets, see rule 8.6.13.
          (e) trade-date payables arising from purchases of financial instruments, foreign currencies and commodities that:
          (i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or
          (ii) have failed to settle, but are still expected to do so.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.20 Calculating RSF

          The amount of an Islamic banking business firm's RSF is calculated as follows:

          (a) first, assign each of the firm's assets to 1 of the 8 categories set out in rules 8.6.21 to 8.6.28;
          (b) next, for each category add up the carrying values of all the assets assigned to the category;
          (c) next, for each category multiply the total carrying values of the assets assigned to the category by the category's RSF factor (also set out in rules 8.6.21 to 8.6.28), giving the weighted amounts;
          (d) next, multiply the amounts of each of the firm's off-balance-sheet exposures by the exposure's RSF factor (set out in rule 8.6.31), giving the OBS weighted amounts;
          (e) finally, add the weighted amounts and the OBS weighted amounts.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.21 Category 1: assets that receive 0% RSF factor

          Subject to rule 8.6.29 (for certain encumbered assets), assets of the following kinds receive a 0% RSF factor:

          (a) currency notes and coins immediately available to meet obligations;
          (b) central bank reserves (including required reserves and excess reserves);
          (c) claims on central banks with residual maturities of less than 6 months;
          (d) trade-date receivables arising from sales of financial instruments, foreign currencies and commodities that:
          (i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or
          (ii) have failed to settle, but are still expected to do so.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.22 Category 2: assets that receive 5% RSF factor

          The assets that receive a 5% RSF factor are unencumbered level 1 HQLA (except assets that receive a 0% RSF under rule 8.6.21).

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.23 Category 3: assets that receive 10% RSF factor

          The assets that receive a 10% RSF factor are unencumbered loans to financial institutions, with residual maturities of less than 6 months, that are secured against level 1 HQLA that the firm can freely re-hypothecate during the loans' life.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.24 Category 4: assets that receive 15% RSF factor

          Assets of the following kinds receive a 15% RSF factor:

          (a) unencumbered level 2A HQLA;
          (b) unencumbered loans to financial institutions, with residual maturities of less than 6 months, that do not fall within rule 8.6.23.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.25 Category 5: assets that receive 50% RSF factor

          Assets of the following kinds receive a 50% RSF factor:

          (a) unencumbered level 2B HQLA;
          (b) HQLA that are encumbered for between 6 months and 1 year;
          (c) loans, with residual maturity of between 6 months and 1 year, to financial institutions and central banks;
          (d) operational deposits (as defined in rule 8.4.27 (6)) held at other financial institutions;
          (e) all other non-HQLA with residual maturity of less than 1 year, including loans to non-financial corporate clients, loans to retail customers and small business customers, and loans to sovereigns and public sector entities.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.26 Category 6: assets that receive 65% RSF factor

          Assets of the following kinds receive a 65% RSF factor:

          (a) unencumbered residential-real-estate-secured financing, with residual maturity of 1 year or more, that qualify under rule 4.4.7 for a risk weight of 35% or lower;
          (b) other unencumbered loans (except loans to financial institutions), with residual maturity of 1 year or more, that qualify under rule 4.4.7 for a risk weight of 35% or lower.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.27 Category 7: assets that receive 85% RSF factor

          (1) Subject to rule 8.6.29 (for certain encumbered assets), assets of the following kinds receive an 85% RSF factor:
          (a) cash, securities or other assets lodged as initial margin for Shari'a-compliant hedging contracts, and cash or other assets provided to contribute to the default fund of a central counterparty;
          (b) unencumbered performing loans (except loans to financial institutions), with residual maturity of 1 year or more, that do not qualify under rule 4.4.7 for a risk weight of 35% or lower;
          (c) unencumbered securities with residual maturity of 1 year or more;
          (d) exchange-traded equities that are not in default and do not qualify as HQLA;
          (e) physical traded commodities, including gold.
          (2) Despite subrule (1) (a), if securities or other assets lodged as initial margin for Shari'a-compliant hedging contracts would otherwise receive a higher RSF factor than 85%, they retain that higher factor.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.28 Category 8: assets that receive 100% RSF factor

          Assets of the following kinds receive a 100% RSF factor:

          (a) assets that are encumbered for 1 year or more;
          (b) NSFR Shari'a-compliant hedging assets, net of NSFR Shari'a-compliant hedging liabilities, if NSFR Shari'a-compliant hedging assets are greater than NSFR Shari'a-compliant hedging liabilities;
          Note For how to calculate NSFR Shari'a-compliant hedging liabilities, see rule 8.6.8. For how to calculate NSFR Shari'a-compliant hedging assets, see rule 8.6.13.
          (c) all other assets not falling within categories 1 to 7 (including non-performing loans, loans to financial institutions with residual maturity of 1 year or more, non-exchange-traded equities, fixed assets, items deducted from regulatory capital, retained profit, insurance assets, subsidiary interests and defaulted securities);
          (d) 20% of NSFR Shari'a-compliant hedging liabilities as calculated in accordance with rule 8.6.8 (before deducting variation margin lodged).
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.29 Treatment of encumbered assets

          (1) Assets encumbered for between 6 months and 1 year that would, if unencumbered, receive an RSF factor of 50% or lower receive a 50% RSF factor.
          (2) Assets encumbered for between 6 months and 1 year that would, if unencumbered, receive an RSF factor higher than 50% receive that higher RSF factor.
          (3) Assets encumbered for less than 6 months receive the same RSF factor as an unencumbered asset of the same kind.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.30 IBANK 8.6.30 Treatment of encumbered assets — exceptional central bank liquidity operations

          The Regulatory Authority may direct an Islamic banking business firm that, for the purposes of calculating the firm's NSFR, assets that are encumbered for exceptional central bank liquidity operations receive a specified lower RSF factor than would otherwise apply.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.6.30 Guidance

            In general, exceptional central bank liquidity operations are considered to be non-standard, temporary operations conducted by a central bank to achieve its mandate at a time of market-wide financial stress or exceptional macroeconomic challenges.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.6.31 Off-balance-sheet exposures — RSF factors

          The RSF factors for off-balance-sheet exposures are as follows:

          (a) irrevocable and conditionally revocable financing and liquidity facilities — 5% of the undrawn portion;
          (b) contingent funding obligations — as set out in table 8.6.31.

          Table 8.6.31 Contingent funding obligations — RSF factors

          Item Kind of obligation RSF
          factor
          (%)
          1 Irrevocable or conditionally revocable liquidity
          facilities
          5
          2 Irrevocable or conditionally revocable
          financing facilities
          5
          3 Unconditionally revocable liquidity facilities 0
          4 Unconditionally revocable financing facilities 0
          5 Trade-finance-related obligations (including
          guarantees and letters of credit)
          3
          6 Guarantees and letters of credit unrelated to
          trade finance obligations
          5
          7 Other non-contractual obligations including:  
           
          •   potential requests related to sukuk and
          other Shari'a-compliant structured
          investment vehicles and other such
          financing arrangements
          0
           
          •   structured products where customers
          anticipate marketability
          0
           
          •   managed funds that are marketed with
          the objective of maintaining a stable
          value
          0

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.6.B IBANK Division 8.6.B Treatment of branches

        • IBANK 8.6.32 Global net stable funding concession — branches

          (1) A liquidity risk group A Islamic banking business firm that is a branch may apply to the Regulatory Authority for a global net stable funding concession.
          (2) In its application the firm must satisfy the Authority that:
          (a) in the jurisdiction where the firm's head office is established, there are no legal constraints on the provision of funding to the firm; and
          (b) its head office is subject to net stable funding requirements that are equivalent to, or more restrictive than, those imposed under these rules.

          Guidance
          In considering whether to grant such a concession, the Authority would take into account:
          •    the requirements, as to managing, monitoring and controlling stable funding, of the regulator responsible for the firm's head office
          •    the systems and controls used by the head office to ensure that the firm's stable funding remains adequate
          •    any written assurance from the head office that:
          •    it will ensure that, at all times, enough stable funding is available to support the firm
          •    it will notify the Authority, at the same time as it notifies its home regulator, of any material issues concerning its exposure to liquidity risk and any issues in relation to its compliance with applicable stable funding limits, including its required NSFR
          •    in the event of a stable funding crisis, it will give the Authority all relevant information on the whole firm's stable funding situation, and a list of any known constraints (legal or otherwise) on the head office's providing the firm with stable funding
          •    any notification from the head office's home regulator:
          •    either stating that the supervisor has no objection to the firm's obtaining the concession, or acknowledging that the application has been made
          •    giving information about, and confirming, the quality of the stable funding at the head office.
          (3) If the Authority grants the concession, the firm need not comply with a requirement of this Part specified by the Authority.
          (4) The Authority may specify the period for which the concession is valid. If no period is so specified, the concession is valid until the Authority revokes it.
          (5) The firm:
          (a) must give the Authority, at least quarterly, a copy of the NSFR calculation for the firm, as submitted by its head office to its home regulator;
          (b) must notify the Authority immediately (but within 3 business days), in writing, of:
          (i) the results of every assessment by its home regulator of the quality of stable funding at the firm's head office;
          (ii) any adverse finding or action taken by that regulator;
          (iii) any change or potential change in the firm's funding strategy or business model, or material change or material potential change in the structure of its balance-sheet; and
          (iv) any changes that affect its compliance with the requirements referred to in subrule (2).
          (6) The Authority may at any time, by written notice, do any 1 or more of the following (based on its assessment of the firm's stable funding situation):
          (a) modify or exclude any of the requirements under subrule (5);
          (b) impose additional requirements;
          (c) revoke the concession.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.7 IBANK Part 8.7 Net stable funding ratio — liquidity risk group B Islamic banking business firms

      Note for Part 8.7

      This Part applies only to liquidity risk group B Islamic banking business firms — see rule 8.1.4.

      • IBANK Division 8.7.A IBANK Division 8.7.A General

        • IBANK 8.7.1 Introduction — Part 8.7

          (1) The requirement for an Islamic banking business firm to maintain a net stable funding ratio is one of the Basel Committee's key reforms to promote a more resilient banking sector. The requirement will oblige firms to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities.
          (2) A stable funding profile is intended to reduce the likelihood that disruptions to a firm's regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and might lead to broader systemic stress.
          (3) The requirement is intended to limit firms' reliance on short-term wholesale funding, promote funding stability, and encourage better assessment of funding risk on and off firms' balance-sheets.
          (4) This Part sets out an alternative approach to the maintenance of stable funding that is intended to be appropriate for certain Islamic banking business firms that, because of their business model, could not meet a requirement to maintain a net stable funding ratio in accordance with Part 8.6.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.2 Definitions for Part 8.7

          Expressions used in this Part that are defined in Part 8.4 or 8.6 have the same respective meanings in this Part as in Part 8.4 or 8.6, as the case may be.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.3 What NSFR is

          (1) A liquidity risk group B Islamic banking business firm's NSFR, expressed as a percentage, is:
          (2) The ASF and RSF are to be calculated in accordance with this Part.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.4 Obligation to maintain NSFR

          A liquidity risk group B Islamic banking business firm must maintain, during each calendar month, an average NSFR of at least the percentage that the Regulatory Authority directs the firm to maintain.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.5 IBANK 8.7.5 Obligation to notify Regulatory Authority if NSFR requirement not met

          (1) A liquidity risk group B Islamic banking business firm must notify the Regulatory Authority in writing immediately (but within 3 business days) if the firm ceases to meet its NSFR requirement (or becomes aware of circumstances that may result in its ceasing to meet that requirement).
          (2) In the notification the firm must clearly explain:
          (a) why it ceased to meet, or thinks it may cease to meet, the requirement;
          (b) when it expects to again be able to meet the requirement; and
          (c) what it has done and will do to ensure that it meets the requirement in future, or continues to meet it, as the case requires.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.7.5 Guidance

            An Islamic banking business firm that gives such a notification should discuss with the Regulatory Authority what further steps it should take to deal with the situation.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.6 Application of certain rules in Part 8.6

          For calculating its NSFR, a liquidity risk group B Islamic banking business firm must apply rules 8.6.7 to 8.6.13 (so far as relevant).

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.7 Calculating ASF — liquidity risk group B Islamic banking business firms

          The amount of a liquidity risk group B Islamic banking business firm's ASF is calculated as follows:

          (a) first, for each of the firm's capital items and liabilities, multiply its carrying value by the ASF factor set out in table 8.7.7 for a capital item or liability of that kind and maturity (giving the weighted amounts);
          (b) finally, add up the weighted amounts.

          Table 8.7.7 ASF Factors

          Item no. Kind of capital item or liability ASF factor (%)
              With maturity (months) no maturity
              < 6 6 – < 12 > 12  
          1 Capital items and instruments:        
            (a) regulatory capital (excluding tier 2 instruments) 100 100 100 100
            (b) other capital instruments not included in item (a) 0 50 100 100
            (c) minority interest 0 50 100 100
          2 Marketable debt securities 0 50 100 100
          3 Non-bank-customer deposits 80 90 100 100
          4 Other types of funding 0 50 100 100
          5 Trade debts payable 0 0 0 0
          6 Net derivative liabilities 0 0 0 0
          7 Other liabilities not listed above 0 50 100 100

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.7.8 Calculating RSF — liquidity risk group B Islamic banking business firms

          The amount of a liquidity risk group B Islamic banking business firm's RSF is calculated as follows:

          (a) first, for each of the firm's assets and off-balance-sheet items, multiply its carrying value by the RSF factor set out in table 8.7.8A or 8.7.8B for an asset or item of that kind and maturity (giving the weighted amounts);
          (b) finally, add up the weighted amounts.

          Table 8.7.8A RSF factors — on-balance-sheet assets

          Item no. Kind of asset RSF factor (%)
              With maturity (months) no maturity
              < 6 6 – < 12 > 12  
          1 On-balance-sheet assets (excluding assets treated as liquefiable assets for the calculation of the firm's MLR) 0 50 100 100
          2 Defaulted securities and non-performing loans 100 100 100 100
          3 Net derivative assets 100 100 100 100
          4 Other assets 0 50 100 100

          Table 8.7.8B RSF factors — off-balance-sheet items

          Item no. Kind of item RSF factor (%)
              With maturity (months) no maturity
              < 6 6 – < 12 > 12  
          1 Undrawn portions of irrevocable and conditionally revocable financing facilities and liquidity facilities 5 5 5 5
          2 Undrawn portions of unconditionally revocable financing facilities and liquidity facilities 0 0 0 0
          3 Trade-related contingencies 3 3 3 3
          4 Non-trade-related contingencies (including guarantees and letters of credit not included in item 3) 10 10 10 10
          5 Other off-balance-sheet items 0 0 0 0

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.7.B IBANK Division 8.7.B Treatment of branches

        • IBANK 8.7.9 Global net stable funding concession — branches

          (1) A liquidity risk group B Islamic banking business firm that is a branch may apply to the Regulatory Authority for a global net stable funding concession.
          (2) In its application the firm must satisfy the Authority that:
          (a) in the jurisdiction where the firm's head office is established, there are no legal constraints on the provision of funding to the firm; and
          (b) its head office is subject to net stable funding requirements that are equivalent to, or more restrictive than, those imposed under these rules.

          Guidance
          In considering whether to grant such a concession, the Authority would take into account:
          •   the requirements, as to managing, monitoring and controlling stable funding, of the regulator responsible for the firm's head office
          •  the systems and controls used by the head office to ensure that the firm's stable funding remains adequate
          •  any written assurance from the head office that:
          •  it will ensure that, at all times, enough stable funding is available to support the firm
          •  it will notify the Authority, at the same time as it notifies its home regulator, of any material issues concerning its exposure to liquidity risk and any issues in relation to its compliance with applicable stable funding limits, including its required NSFR
          •  in the event of a stable funding crisis, it will give the Authority all relevant information on the whole firm's stable funding situation, and a list of any known constraints (legal or otherwise) on the head office's providing the firm with stable funding
          •  any notification from the head office's home regulator:
          •  either stating that the regulator has no objection to the firm¡¦s obtaining the concession, or acknowledging that the application has been made
          •  giving information about, and confirming, the quality of the stable funding at the head office.
          (3) If the Authority grants the concession, the firm need not comply with a requirement of this Part specified by the Authority.
          (4) The Authority may specify the period for which the concession is valid. If no period is so specified, the concession is valid until the Authority revokes it.
          (5) The firm:
          (a) must give the Authority, at least quarterly, a copy of the NSFR calculation for the firm, as submitted by its head office to its home regulator;
          (b) must notify the Authority immediately (but within 3 business days), in writing, of:
          (i) the results of every assessment by its home regulator of the quality of stable funding at the firm's head office;
          (ii) any adverse finding or action taken by that regulator;
          (iii) any change or potential change in the firm's funding strategy or business model, or material change or material potential change in the structure of its balance-sheet; and
          (iv) any changes that affect its compliance with the conditions referred to in subrule (2).
          (6) The Authority may at any time, by written notice, do any 1 or more of the following (based on its assessment of the firm's stable funding situation):
          (a) modify or exclude any of the requirements under subrule (5);
          (b) impose additional requirements;
          (c) revoke the concession.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.8 IBANK Part 8.8 Limits on net cumulative maturity mismatch

      Note for Part 8.8

      This Part applies to all Islamic banking business firms — see rule 8.1.4.

      • IBANK 8.8.1 IBANK 8.8.1 Introduction — Part 8.8

        The maturity mismatch approach set out in this Part assesses an Islamic banking business firm's liquidity by measuring the maturity mismatch between its assets and its liabilities (in each case, with a specified maturity of 30 calendar days or less) within the time-bands:

        (a) sight-7 calendar days; and
        (b) 8-30 calendar days.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.8.1 Guidance

          1 A liability is said to be payable at sight if payment is due immediately on presentation. For example, a cheque is usually payable at sight.
          2 On a particular day, the sight-7 calendar days time-band covers assets maturing, or liabilities payable, on presentation or within 7 calendar days. The 8-30 calendar days time-band covers assets maturing, or liabilities payable, from 8 to 30 calendar days later.
          3 This Part takes no account of assets or liabilities with an unspecified maturity, or a specified maturity that is more than 30 calendar days in the future.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.2 Application — Part 8.8

        This Part applies to all Islamic banking business firms.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.3 Determining net cumulative maturity mismatch

        An Islamic banking business firm determines its net cumulative maturity mismatch for each time-band by:

        (a) determining what assets and liabilities are to be taken into account, and their maturities;
        (b) assigning each asset and each liability to a time-band;
        (c) adding up the values of the assets and the liabilities assigned to each time-band; and
        (d) subtracting liabilities from assets in each time-band.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.4 IBANK 8.8.4 Assigning liabilities to time-bands

        (1) A liability must be assigned to a time-band according to its earliest contractual maturity.
        (2) A contingent liability must be included in the firm's liabilities unless the conditions necessary to crystallise it are unlikely to be fulfilled.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.8.4 Guidance for subrule (2)

          In deciding whether it is likely that the conditions necessary to crystallise a contingent liability will be fulfilled, an authorised firm could rely on general market information, its knowledge of the counterparty and general behavioural analysis.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.5 Assigning assets to time-bands

        (1) An asset must be assigned to a time-band according to its latest contractual maturity, except that:
        (a) an undrawn committed standby facility provided by another Islamic banking business firm is to be treated as being at sight;
        (b) readily marketable assets (see subrule (2)) are to be treated as being at sight; and
        (c) assets that have been lodged as collateral are not to be included.
        (2) An asset is readily marketable if all of the following are true:
        (a) the currency in which it is denominated is freely tradeable;
        (b) prices are regularly quoted for it;
        (c) it is regularly traded;
        (d) it can readily be monetised on a recognised exchange.
        (3) On a case by case basis, the Regulatory Authority may allow an Islamic banking business firm to include, in the sight-7 calendar days time-band, a longer-term asset that is relatively easy to monetise.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.6 Haircuts for readily marketable assets

        (1) The haircuts to be applied to readily marketable assets of each kind are as set out in table 8.8.6. The haircut for an asset is to be applied to the mark-to-market value of the asset.
        (2) For the table, an asset is investment grade if it is rated no lower than BBB- (long-term) or A-3 (short-term) by Standard & Poor's (or the equivalent by another ECRA).
        (3) In the table:
        MDB means multilateral development bank.

        Note For a list of multilateral development banks that qualify for 0% risk weight, and examples of other multilateral development banks that do not, see the note following table 4.4.7A.
        PSE means public sector enterprise.

        Table 8.8.6 Haircuts for assets

        Item Kind of asset Haircut (%)
        A. Sovereign, central bank, non-commercial PSE and MDB investment-grade securities
        A.1 Marketable securities with 12 months' or less residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 0
        A.2 Marketable securities with more than 12 months' but not more than 5 years' residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 5
        A.3 Marketable securities with more than 5 years' residual maturity, issued or guaranteed by a sovereign, a central bank, a non-commercial PSE or an MDB 10
        B. Sovereign, central bank, non-commercial PSE and MDB non-investment-grade securities
        B.1 Marketable securities issued by a sovereign, a central bank, a non-commercial PSE or an MDB, where the credit exposure is to the issuer, regardless of maturity 20
        B.2 Marketable securities issued by a sovereign, a central bank, a non-commercial PSE or an MDB, where the credit exposure is not to the issuer, regardless of maturity 40
        C. Non-government investment-grade securities
        C.1 Marketable securities, issued by a corporate issuer or commercial PSE, with 6 months' or less residual maturity 5
        C.2 Marketable securities, issued by a corporate issuer or commercial PSE, with more than 6 months', but 5 years' or less, residual maturity 10
        C.3 Marketable securities, issued by a corporate issuer or commercial PSE, with more than 5 years' residual maturity 15
        D. Non-government non-investment-grade securities
        D.1 Marketable securities, issued by a corporate issuer or commercial PSE, regardless of maturity 60
        E. Equities
        E.1 Equities that qualify for a risk weight of 4% or less 20
        (4) The Regulatory Authority may vary the haircut for an asset to reflect the conditions of a particular market or institution.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.7 Calculating net cumulative maturity mismatch position

        An Islamic banking business firm must determine its net cumulative maturity mismatch position in relation to deposits (including unrestricted PSIAs) as follows:

        where:

        NCM is the net cumulative maturity mismatch.

        TD is the firm's total deposits (including unrestricted PSIAs).

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.8 Limit on net cumulative maturity mismatch position

        (1) The limits on an Islamic banking business firm's net cumulative maturity mismatch position are as follows:
        (a) for the sight-7 calendar days time-band — negative 15%;
        (b) for the sight-30 calendar days time-band — negative 25%.
        (2) If an Islamic banking business firm's net cumulative maturity mismatch position exceeds the relevant limit set out in subrule (1), the firm must notify the Regulatory Authority about the matter in writing immediately (but within 3 business days), clearly explaining what steps it will take to bring the position back within the limit.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.8.9 Recognition of funding facility from parent entity

        (1) This rule applies to an Islamic banking business firm that is a branch, or is a subsidiary of an entity established that is outside the QFC.
        (2) The Regulatory Authority may allow such a firm to recognise, as an asset, access to its parent entityfs funds by way of a committed funding facility, up to a limit specified in the facility documentation. The facility:
        (a) must be an irrevocable commitment; and
        (b) must be appropriately documented.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Part 8.9 IBANK Part 8.9 Monitoring

      Note for Part 8.9

      This Part applies to all Islamic banking business firms — see rule 8.1.4.

      • IBANK Division 8.9.A IBANK Division 8.9.A Introductory

        • IBANK 8.9.1 Introduction — Part 8.9

          (1) This Part imposes requirements for Islamic banking business firms to monitor certain indicators of their liquidity.
          (2) The indicators are:
          (a) contractual maturity mismatches;
          (b) concentration of funding;
          (c) available unencumbered assets; and
          (d) LCR by significant currencies.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.2 What monitoring requires

          A requirement in this Part for an Islamic banking business firm to monitor an indicator requires the firm to be continuously aware of the indicator, and to re-evaluate it as often as necessary, given:

          (a) the nature, scale and complexity of the firm's business; and
          (b) the prevailing market conditions.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.9.B IBANK Division 8.9.B Monitoring maturity mismatches

        • IBANK 8.9.3 Purpose of monitoring

          The monitoring of an Islamic banking business firm's contractual maturity mismatches is intended to identify gaps between contractual inflows and outflows in particular time-bands, and to reveal the extent to which the firm relies on maturity transformation.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.4 Contractual maturity mismatch

          (1) An Islamic banking business firm:
          (a) must monitor its contractual maturity mismatches, according to time-bands directed by the Regulatory Authority; and
          (b) must carry out its own maturity mismatch analyses, based on realistic, going-concern assumptions about the behaviour of inflows and outflows of funds in both normal situations and stress situations.
          (2) The analyses should be based on the firm's strategic and business plans and must be shared with, and discussed with, the Authority.
          (3) The firm must be able to show how it plans to bridge any identified gaps in its internally generated maturity mismatches, and to explain any differences between the assumptions applied and the contractual terms.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.9.C IBANK Division 8.9.C Monitoring concentration of funding

        • IBANK 8.9.5 Purpose of monitoring

          The monitoring of the concentration of an Islamic banking business firm's funding is meant:

          (a) to identify sources of the firm's wholesale funding that are of such significance that the withdrawal of that funding could cause liquidity problems for the firm; and
          (b) therefore, to encourage the firm to diversify its sources of such funding.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.6 What is to be monitored

          An Islamic banking business firm must monitor:

          (a) concentration of funding by counterparty;
          (b) concentration of funding by instrument or product; and
          (c) concentration of funding by currency.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.7 IBANK 8.9.7 Concentration of funding by counterparty

          (1) An Islamic banking business firm must calculate its concentration of funding by counterparty as a percentage for each significant counterparty or significant group of connected counterparties, by means of the following formula:

          where:

          N is the total, for the counterparty or group, of:

          (a) all liabilities to the counterparty or group; and
          (b) all other direct borrowings, both secured and unsecured (such as by overnight commercial paper or certificates of deposit) from the counterparty or group.

          T is the firm's total balance-sheet.
          (2) For subrule (1):
          (a) a counterparty or group is significant if liabilities to it account in total for more than 1% of the firm's total liabilities; and
          (b) a group of connected counterparties is 2 or more counterparties that are connected (as defined in rule 5.1.3).
          (3) For this rule, if the firm is a member of a corporate group, the firm must treat intra-group deposits and deposits from related parties as deposits by a single counterparty.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

          • IBANK 8.9.7 Guidance

            Deposits from within the group and from related parties are to be identified because of the possible limitations on intra-group transactions under stressed conditions.

            Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.8 Concentration of funding by instrument or product

          (1) An Islamic banking business firm must calculate its concentration of funding by instrument or product as a percentage for each significant instrument or significant product (or significant type of instrument or significant type of product), by means of the following formula:

          where:

          N is the total, for the instrument or product (or type of instrument or type of product) of all liabilities arising from the instrument, product or type of instrument or product.

          T is the firm's total balance-sheet.

          (2) For subrule (1), an instrument or product, or a type of instrument or product, is significant if it accounts in total for more than 1% of the firm's total liabilities.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.9 Concentration of funding by currency

          (1) An Islamic banking business firm must monitor its concentration of funding by currency by maintaining a list of its liabilities, maturing in each time-band, denominated in each significant currency.
          (2) For subrule (1):
          (a) a currency is significant for the firm if liabilities denominated in it account in total for more than 5% of the firm's total liabilities; and
          (b) the time-bands are as follows:
          (i) less than 1 month;
          (ii) 1-3 months;
          (iii) 3-6 months;
          (iv) 6-12 months;
          (v) more than 12 months;
          (vi) unspecified maturity.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.9.D IBANK Division 8.9.D Monitoring available unencumbered assets

        • IBANK 8.9.10 Purpose of monitoring

          The monitoring of an Islamic banking business firm's available unencumbered assets and collateral is meant to track assets and collateral:

          (a) that could be used in secondary markets as collateral to raise additional HQLA (as defined in rule 8.4.3) or secured funding; or
          (b) that would be eligible as collateral for a central bank's standing facility.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.11 What is to be monitored

          (1) In this rule:

          unencumbered has the meaning given by rule 8.4.4.
          (2) An Islamic banking business firm must monitor all of the following:
          (a) the amount, type and location of the firm's available unencumbered assets that are useable as collateral in secondary markets;
          (b) collateral, received from customers, that the firm is permitted to deliver or re-pledge, and how much of such collateral it is delivering or re-pledging;
          (c) the firm's available unencumbered assets that are eligible as collateral for central banks' standing facilities;
          (d) the estimated haircut that the secondary market or relevant central bank would require for each asset;
          (e) the costs likely to be involved.
          (3) In doing so, the firm must categorise its available unencumbered assets and collateral by significant currency. A currency is significant if the firm's stock of available unencumbered assets and collateral denominated in the currency amounts to 5% or more of the firm's total amount of such assets and collateral.
          (4) The firm must monitor:
          (a) the expected monetised value of such assets and collateral (rather than their notional amount); and
          (b) where the assets or collateral are held (in terms of both their location and what business lines have access to them).
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK Division 8.9.E IBANK Division 8.9.E Monitoring LCR by significant currencies

        • IBANK 8.9.12 Purpose of monitoring

          The monitoring of an Islamic banking business firm's LCR (as defined in rule 8.4.3) by significant currencies is meant to track possible currency mismatches.

          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.9.13 What is to be monitored

          (1) An Islamic banking business firm must monitor:
          (a) its stock of HQLA (as defined in rule 8.4.3) in each significant currency; and
          (b) its expected total net cash outflows (net of any hedges) in each such currency over the next 30 calendar days.
          (2) For subrule (1):
          (a) the firm's total net cash outflows over the next 30 calendar days are to be calculated in accordance with rule 8.4.21; and
          (b) a currency is significant for the firm if liabilities denominated in it amount to 5% or more of the firm's total liabilities.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).