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  • LM-2 LM-2 Systems and Controls

    • LM-2.1 LM-2.1 Liquidity Policy

      • LM-2.1.1

        Prudent liquidity management is the primary responsibility of senior management based on the authority and limits approved by the licensee's Board of Directors. Senior management must continuously review information on the liquidity developments and report to the board of directors on a quarterly basis.

        January 2014

      • LM-2.1.2

        Licensees must ensure that they have in place systems and controls to ensure the prudent management of liquidity. Licensees must identify and manage their liquidity risk across all their operations, and document their policies and procedures for achieving this in a liquidity risk policy.

        January 2014

      • LM-2.1.3

        On annual basis, a licensee's board of directors must review and approve the structure, strategy, policies and practices related to liquidity management (including contingency planning) and must also ensure that senior management manages and monitors liquidity risk effectively.

        January 2014

      • LM-2.1.4

        Licensees must formulate a statement of their liquidity management policies that is to be reviewed and discussed with the CBB. The objective of this review is to agree to minimum liquidity standards for the licensees. The policy statement must be properly documented, reviewed annually and approved by the Board of Directors to ensure that it remains valid under changing circumstances. While specific details of the policy statement will differ, at a minimum, it must refer to the liquidity management strategy, responsibilities, systems and contingency planning.

        January 2014

      • Stress Testing

        • LM-2.1.5

          Licensees are encouraged to carry out stress testing to assess the resilience of their financial resources to any identified areas of material liquidity risk. This stress testing may take into account the general characteristics, and licensee's experience, and any mitigating factors that it considers relevant such as the ability to sell assets quickly and the options available to re-schedule the payment of liabilities.

          January 2014

        • LM-2.1.6

          Where the licensee considers that the nature of its assets or liabilities and the matching of its liabilities result in no significant liquidity risk exposure, it will not be expected to carry out stress testing. The CBB will expect it to document the reasons for its decision and be prepared to discuss these during an on-site visit.

          January 2014

        • LM-2.1.7

          When assessing liquidity risk, the licensee should consider the extent of mismatch between assets and liabilities and the amount of assets held in highly liquid, marketable forms should unexpected cash flows lead to a liquidity problem. The price concession of liquidating assets is a prime concern when assessing such liquidity risk and should be built into any assessment of liquidity risk management.

          January 2014