Risk Measurement and Monitoring
RM-3.1.8
An
investment firm licensee must establish and maintain a process for the measurement, monitoring and controlling of liquidity risk, using a robust and consistent method which should be described in its liquidity risk policy statement.Adopted: July 2007RM-3.1.9
An
investment firm licensee's monitoring framework must include a system of management reporting which provides clear, concise, timely and accurate liquidity risk reports to relevant functions within the firm. These reports must alert management when theinvestment firm licensee approaches, or breaches, predefined thresholds or limits, including quantitative limits imposed by the CBB.Adopted: July 2007RM-3.1.10
Reports on liquidity risk should be provided on a timely basis to the
investment firm licensee's governing body, senior management and other appropriate personnel. The appropriate content and format of reports depends on alicensee's liquidity management practices and the nature, scale and complexity of thelicensee's business. Reports to theinvestment firm licensee's governing body may be less detailed and less frequent than reports to senior management with responsibility for managing liquidity risk.Adopted: July 2007RM-3.1.11
For the purposes of testing liquidity risk,
licensees must carry out appropriate stress testing and scenario analysis, including taking reasonable steps to identify an appropriate range of realistic adverse circumstances and events in which liquidity risk might occur or crystallise.Licensees should normally consider scenarios based on varying degrees of stress and both firm-specific and market-wide difficulties. In developing any scenario of extreme market-wide stress that may pose systemic risk, it may be appropriate for aninvestment firm licensee to make assumptions about the likelihood and nature of CBB intervention.Adopted: July 2007RM-3.1.12
A scenario analysis in relation to liquidity risk should include a cash-flow projection for each scenario tested, based on reasonable estimates of the impact (both on and off balance sheet) of that scenario on the firm's funding needs and sources.
Adopted: July 2007
