• PRU 9.2.1 PRU 9.2.1

    (1) An Authorised Person must establish and maintain a Liquidity Risk policy which is in writing and is approved at least annually by its Governing Body.
    (2) The policy must set out the level of Liquidity Risk the Authorised Person is willing to tolerate and include the strategy for the daily and long-term management of Liquidity Risk appropriate to the nature, scale and complexity of the activities conducted and the strategy must include the matters referred to in (3), (4), and (5).
    (3) The strategy must include a system for identifying and assessing Liquidity Risk in accordance with Rule 9.2.4.
    (4) The strategy must include a process for the measurement and monitoring of Liquidity Risk using a robust and consistent method which enables the Authorised Person to implement the requirements set out in Rule 9.2.5.
    (5) The strategy must include a system for controlling Liquidity Risk which enables the Authorised Person to implement the requirements set out in Rule 9.2.6.
    (6) An Authorised Person must ensure that it has risk management systems to implement the policy.

    • Guidance

      1. The Regulator expects that an Authorised Person's Liquidity Risk strategy will set out the approach that the Authorised Person will take to Liquidity Risk management, including various quantitative and qualitative targets. It should be communicated to all relevant functions and staff within the organisation and be set out in the Authorised Person's Liquidity Risk policy.
      2. The Regulator expects that an Authorised Person's strategy for managing Liquidity Risk will take into account the need to:
      a. develop a liquidity management strategy, policies and processes in accordance with the Authorised Person's stated Liquidity Risk tolerance;
      b. ensure that the Authorised Person maintains sufficient liquidity at all times;
      c. determine the structure, responsibilities and controls for managing Liquidity Risk and for overseeing the liquidity positions of all branches and subsidiaries in the jurisdictions in which the Authorised Person is active, and outline these elements clearly in the Authorised Person's liquidity policies;
      d. have in place adequate internal controls to ensure the integrity of its Liquidity Risk management processes;
      e. ensure that stress tests, contingency funding plans and holdings of HQLA are effective and appropriate for the Authorised Person;
      f. establish a set of reporting criteria, specifying the scope, manner and frequency of reporting to various recipients (such as the Governing Body, senior management and the Asset and Liability Committee (ALCO)) and who is responsible for preparing the reports;
      g. establish the specific procedures and approvals necessary for exceptions to policies and limits, including the escalation procedures and follow-up actions to be taken for breaches of limits;
      h. monitor closely current trends and potential market developments that may present significant, unprecedented and complex challenges for managing Liquidity Risk so that appropriate and prompt changes to the liquidity management strategy can be made as needed; and
      i. continuously review information on the Authorised Person's liquidity developments and report regularly to the Governing Body.