1.

2.

3.

4.

5.

6.

7.

8.

9.

. [9th February2009] Supplement to Official Gazette ll1

S.I. 22 of 2009

FINANCIAL INSTITUTIONS ACT, 2004

(Act 14 of 2004)

Financial Institutions (Liquidity Risk Management)Regulations, 2009

Arrangement of Regulations

Citation

Interpretation

Application

Liquid assets requirements.

Risk Management Committee

Liquidity risk management policy

Liquidity strategy, management plan and process

Management of liquidity

Reports to the Central Bank

112 Supplement to Official Gazette [9th February 2009] .[9th February 2009]

S.I. 22 of 2009 .

FINANCIAL INSTITUTIONS ACT, 2004

(Act 14 of 2004)

Financial Institutions (Liquidity Risk Management)Regulations, 2009I

I

In exercise of the powers conferred by section 69(a) of the .

Financial Institutions Act, 2004, the Central Bank makes thefollowing Regulations-

1. These Regulations may be cited as the FinancialInstitutions(LiquidityRiskManagement)Regulations,2009.

2. IntheseRegulations-

"Board of Directors" means the highest body ofauthority in a bank responsible for strategicallyguiding, effectively monitoring management of,and properly accounting to shareholders of, thebank;

"Committee" means the Risk ManagementCommittee established under regulation 5( I);

"liabilities" means future sacrifices of economicbenefits that an entity is presently obliged to maketo other entities as a result of past transactions orother events;

"liquid assets" means-

(a) cashon hand;

(b) bdances with the Central Bank excluding

Citation

Interpretation

Supplement to Official Gazette 113

minimum reserve requirements;

(c) balances with domestic banks;

(d) balances with banks abroad;

(e) treasury bills and other securities issued by theGovernment or the Central Bank and maturingwithin 365 days;

(f) foreign treasury bills and other securities issuedby the government of a member country of theOrganisation for E'conomic Co-operation andDevelopment and maturing within 365 days;

(g) negotiable instruments approved by the CentralBank that are payable within 180days; and

(h) other unencumbered, freely transferable assetsapproved by the Central Bank;

"liquidity" means the ability of a bank to fund assetgrowth and meet contractual obliga~ionsincluding-

(a) collateral needs; and

(b) obligations to fund loan and investmentcommitments, deposit withdrawals and othermaturing liabilities,

as they come due;

"liquidity risk" means the risk that a bank will not beable to efficiently meet expected and unexpectedcash flow and collateral needs without affectingeither the daily operations or the financial condition

Supplement to Official Gazette 115

114 Supplement to Official Gazette [9th February 2009]

[9th February 2009]

.ofthe bank;

"liquidity risk management" means the process ofmanaging liquidity on both a day-to-day and longterm basis to ensure that a bank's need for funds, inorder to maintain the required level of liquidity andmeet expected and contingent cash needs, can beregularly met at a reasonable cost;

"net funding requirements" means the liquid assetsnecessary to fund a bank's cash obligations andcommitments in the future, determined byperforming a cash flow analysis in which all cashinflows are measured against all cash outflows toidentify potential net shortfalls and the timing ofthese shortfalls;

"senior officer" includes the chief executive officer,deputy chief executive officer, chief operatingofficer, chief financial officer, treasurer, secretary tothe Board of Directors, chief internal auditor,manager of a significant unit within a financialinstitution and any other person with an equivalentposition or similar responsibilities regardless of thatperson's official title.

3. (1) These Regulations apply to banks licensed by theCentral Bank under section 6 of the Act to engage in domesticbanking business or offshore banking business and areapplicable to each bank individually and where applicable, ona fully consolidated basis to a bank, holding company andbanking group, as required by the Central Bank.

(2) When a banking operation is conducted by a branchof a foreign bank, the role of the Board of Directors shall beassumed by the head office of that foreign bank, which shallensure that its branch is in compliance with applicable laws,

Liquid AssetsRequirements

RiskManagementCommittee

Application

Liquidity RiskManagementPolicy

regulations, guidelines and other prudential directives.

4. (1) A bank shall maintain liquid assets in an amountwhich shall not, as a daily average each month, be less thantwentypercent(20%)ofthe bank'stotal liabilities.

(2) If a bank fails to meet the liquid asset requirementspecified by sub-regulation (1), the bank shall pay to the CentralBank a charge at an annual rate, not exceeding twice the highesteffective lending rate of the bank charged to any ofits customerSduring the period of deficiency, for each. day on which thedeficiency occurs, in line with section 25(3) of the Act.

s. (1) TheBoardof Directorsof eachbankshallestablishaRisk Management Committee consisting of at least threemembers of the Board and such other membersas determinedbythe Boar(j.

(2). Thefunctionsofthe Committeeareto-

(a) overseethe effortsof the senior officersof thebank to manage risk including liquidity risk;and

(b) ensure that the responsibility for managingliquidity needs and risk is assigned to specificpersons.

6. (1) TheBoardof Directorsof eachbankshallensurethatthe senior officers of the bank formulate a policy for themanagement of the bank's liquidity risk which shall includestrategiesandbebasedoncertainunderlyingassumptions.

(2) The policy shall be in writing and communicatedthroughouttheb~.

(3) At regular times during the year, the senior officers

116 Supplement to Official Gazette [9th February 2009] [9th February 2009]

shall review the strategies and underlying asslJmptions of thepolicy to ensure that the policy remains valid, and recommendchanges that they consider necessary.

(4) The Board of Directors shall review the liquidityposition of the bank to ascertain adherence by the senior'officers to the strategies and policy on a regular basis.

(5) At least annually, the Board of Directors shallreview the policy, strategies and underlying assumptions andapprove revisions thereto that they consider necessary.

7. The liquidityrisk managementpolicy referredto inregulation6 shall-

(a) include a strategy for the day to daymanagement of the bank's liquidity and aliquidity management plan to monitor, controland limit liquidity risk overall, and for eachcurrency in which the bank is materiallyactive; ,;

(b) set limits on the size of the bank's liquidity -position over a particular time frame, such as

. limits on cumulative cash flow mismatches orrequired ratio ofliquid assets to total and short-term liabilities;

(c) provide for method~Jo ensure proper oversightof the bank's liquidity risk management bysenior officers, the Committee and the Boardof Directors;

(d) establish requirements and parameters withinwhich the senior officers are to operate whenmanaging liquidity;

(e) require that ~he senior officers develop

LiquidityStrategy,ManagementPlan and Process

Management ofLiquidity

8.

117Supplement to Official Gazette

processes to implement the strategy referred toin paragraph (a) and ensure adherence toestablished controls and limits;

(f) require that a crisis plan be developed andready for implementation in case of. anoccurrenceof a liquiditycrisissuchasadepositrun-offfroma specificeventor a collateralcalltriggeredbyacreditdowngrade;

(g) ensure that the liquidity risk managementprocess of the bank is adequatelycovered bythe internal control system of the bank andreviewed by both internal and externalauditors;and

(h) provide for a reporting mechanism to seniorofficers and the Board of Directors on thebank's liquidity position, both on a regularbasisand inemergencies.

Abankshall-

(a) measure, project and monitor its net fundingrequirementsovervarious specifiedperiodsoftime and under alternative, includingadversescenarios with consideration given to howother risks such as credit, market andoperational risks, may impact the overallliquiditystrategyofthebank;

(b) have diverse funding sources and avoid undueconcentrations based on providers and types ofinstruments and the bank shall regularly assessits reliance on such providers and instrumentsunder normal and alternative, includingadverse scenarios;

118 Supplement to Officia] Gazette [9th February 2009] [9th February 2009] Supplement to Official Gazette 119

(c) analyze the bank's liquidity and its liquiditymanagement plan under various scenarios thatdiffer from the normally expected scenariowhich address both internal (bank specific)and external (market related) stress factors andsuch analysis should be conducted in eachcurrency in which the bank is materiallyactive;

(iv) compare current liquidity exposures withlimits established by the Board ofDirectors; and

(d) have a written plan for managing liquidityduring a crisis that shall include-

(v) show evidence of compliance with thebank's board-approved policies,procedures, and limits and the CentralBank's liquidity requirements pursuant tosection 25 of the Act and theseRegulations.

(i) methods to cover shortfalls in liquidity;Reports to theCentral Bank

9. (1) By or before noon on Tuesday of each week, eachbank shall submit to the Financial Services SupervisionDivision of the Central Bank the Return Ll, contained inSchedule 1, showing the bank's daily compliance with theminimum requir~ment for liquid assets during the previousweek.

(ii) clearly defined duties, responsibilitiesand plan of action; and

(iii) timely and consistent communicationwith the Central Bank, media, analysts,customers and~mployees.

(2) Each bank shall provide to the Central Bank, data onthe contractual maturity of its assets and liabilities, within 15days after the end ofthe reference month -

(e) establish and maintain a managementinformation system that provides the seniorofficers with adequate and timely informationto-

(a) for domestic banks, using ReturnA3 as set outin Schedule 2 together with a breakdown forthe categories other liabilities and other assets;and

(i) track the bank's liquidity positions,including trends, in all currencies inwhich the bank has material activity;

(b) for offshore bariks, using the Form OB (iii) assetout in Schedule 3.

(ii) project the bank's liquidity position overdifferent time periods, including dailyand longer-term~ and under alternativescenarios including stress scenarios;. "'

1<) }

(iii) review risk measures,pp a timely basis;?

11

120 Supplement to Official Gazette,Supplement to Official Gazette [9th February 2009] [9th February 2009] 121

SCHEDULE I

(r~gul~tion 9(1»REPORT ON LIQUID ASSETS REQUIREMENTS

To: Financial Services Supervision DivisionCentral Bank of Seychelles

REPORTING BANK]

Return:Ll

I

IREPORT ON LIQUID ASSETS REQUIREMENTS

For tbe week ending:

A Reaulrecl Llauld Ass'"

1. Total Liabilities

2. 20% of total liabilities

B Liquid Asset Held

1. Cash on hand

2. Balances with the Central Bank

excluding minimum reserve requirement

3. Balances with domestic' banks

4. Balances with banks abroad

5. reasury bills and oII1er ~riIies Issuedby the Govemmentof Seychelles or \he

Central Bank and maturing within 365

days

- - - - -I 0:::::::::::::::::::::::::::::::::1'::::::::::::::::::::::::::::::::1'::::::::::::::::::::::::::::::::]:::::::::::::::::::::::::::::::::::1'::::::::::::::::;=:=:::=:::::::

- - - - -- - - - -

..~

j

!

...'-1...:I~='-1

~

c0.Ii!';;

~i5:I 8i:1iJf ~Aoog->,CI:I

i::J~'E~J!...

$!~Oic ::,- c~e0I-

~ .

IiJ~ ~

J ~"'.-.~&!~;jO

~j';:1:~J!

~j~

st..."~::S

at~:E

':i-.~::s

;-1.,'s:

.,E-"",

j!

l! i!! .J:!

f

,Ii 0 - 8,.<:.J:!'- ..- -< ~- >-j~~.!!. 'J; ~ ~i. e:a8~. ,~= 5 ~ ~~

t i ;! I ~i i I~ ~ I H ~ ~ ~! 0~ I - 1 ~ I) ~ -<~~ ~ ~ ~ ~ ~

122 Supplement to Official Gazette [9th February 2009][9tl). February 2009] Supplement to Official Gazette 123

:0.

~!:~:"0

:a:u

1~:Q:U1

SCHEDULE 3

(regulation 9(2»MA TURITY LADDER - FORM OB(iii)

IDA"":I Asat:

Exchange Rate :

MA111RITYlADDER

A. USESOFFUI;DS U.s.OOIlARS

VI-

IC"tillc:of

~.s.....0

"5..8-~'"t

IIj II -,ij1 'ao ~ J0:0.<

1

1

1

11

I

g I.ft] ~ <.( ~

.:1 ~! i j i i .2 I iE2 E2.3 \.I.. III 0 11;.;;;~:;: ~~ ~~ l d

a.sj0c:

i]::s'"u.D~

B.SOIJRCESOFFUNDS U.s.OOIlARS

fu:From LnsAdn&Bil Others Off-Balance

Banks NCDs/kid Inves1ment Dimmted SheetItems Total

Pto7Days

Over7DaysToI month

DverlToJMmIhs

OverHo6Mmlhs

Over6To9Monlhs

Over9To12MJJJlhs

OverI ToJYeaIS

OverJTo5YeaIS

OverHoIOYeaIS

Over10YeaIS

ixellassetsIIntemalAceoums

otal

DepJsitsofNno- fu: toBanks NCDs Others Off-Balance Net umulativeBankCustomersandBillsRedimmted hIued SheetItems ]Xa] Position n

to7Days

er7DaysToI month

erIToJMmIhs

erH06 Mmlhs

er6T09Mmlhs

er9ToI2Modhs

OverI T03YeaIS

OverH05YeaIS

OverHolOYeaIS

erlOYeaIS '

apltalllntemalAces............. .....

alaI ............ .....

124 Supplement to Official Gazette [9th February 2009]

MADE this 9th day ofFebruary,,2009

P. LAPORTEGOVERNOR

III

:1

.

.....