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).