• BANK Part 9.6 BANK Part 9.6 Net stable funding ratio — liquidity risk group B banking business firms

    Note for Part 9.6

    This Part applies only to liquidity risk group B banking business firms — see rule 9.1.4.

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

    • BANK Division 9.6.A BANK Division 9.6.A General

      • BANK 9.6.1 Introduction — Part 9.6

        (1) The requirement for a 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 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 9.5.
        Inserted by QFCRA RM/2018-1 (as from 1st May 2018).

      • BANK 9.6.2 Definitions for Part 9.6

        Expressions used in this Part that are defined in Part 9.3 or 9.5 have the same respective meanings in this Part as in Part 9.3 or 9.5, as the case may be.

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

      • BANK 9.6.3 What NSFR is

        (1) A liquidity risk group B 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/2018-1 (as from 1st May 2018).

      • BANK 9.6.4 Obligation to maintain NSFR

        A liquidity risk group B 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/2018-1 (as from 1st May 2018).

      • BANK 9.6.5 BANK 9.6.5 Obligation to notify Regulatory Authority if NSFR requirement not met

        (1) A liquidity risk group B 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/2018-1 (as from 1st May 2018).

        • BANK 9.6.5 Guidance

          A 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/2018-1 (as from 1st May 2018).

      • BANK 9.6.6 Application of certain rules in Part 9.5

        For calculating its NSFR, a liquidity risk group B banking business firm must apply rules 9.5.7 to 9.5.13 (so far as relevant).

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

      • BANK 9.6.7 Calculating ASF — liquidity risk group B banking business firms

        The amount of a liquidity risk group B 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 9.6.7 for a capital item or liability of that kind and maturity (giving the weighted amounts);
        (b) finally, add up the weighted amounts.

        Table 9.6.7 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/2018-1 (as from 1st May 2018).

      • BANK 9.6.8 Calculating RSF — liquidity risk group B banking business firms

        The amount of a liquidity risk group B 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 9.6.8A or 9.6.8B for an asset or item of that kind and maturity (giving the weighted amounts);
        (b) finally, add up the weighted amounts.

        Table 9.6.8A 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 9.6.8B 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 credit facilities and liquidity facilities 5 5 5 5
        2 Undrawn portions of unconditionally revocable credit 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/2018-1 (as from 1st May 2018).

    • BANK Division 9.6.B BANK Division 9.6.B Treatment of branches

      • BANK 9.6.9 Global net stable funding concession — branches

        (1) A liquidity risk group B banking business firm that is a branch may apply to the Regulatory Authority for a global net stable funding ratio 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) 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
        (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 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 the firm's exposure to liquidity risk or 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, 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) On the basis of the Authority's assessment of the firm's stable funding 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/2018-1 (as from 1st May 2018).