• 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).