Document ID: chunk:federal_register_of_legislation:F2022L01620:front:0:p5
Version: federal_register_of_legislation:F2022L01620
Segment Type: other
Provision Reference: 
Character Range: 11483–14749

the ADI maintains sufficient liquidity, including a cushion of unencumbered liquid assets, to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. The source of liquidity stress could be specific to the ADI or market‑wide or a combination of the two.

    27.         An ADI's liquidity risk management framework must be well integrated into the ADI's overall risk management process.

    28.         An ADI's liquidity risk management oversight function must be operationally independent and staffed with personnel who have the skills and authority to challenge the ADI's treasury and other liquidity risk management businesses.

    29.         The liquidity management strategy must include specific policies on liquidity management, such as:

       (a)          the composition and maturity of assets and liabilities;

       (b)          the diversity and stability of funding sources;

       (c)          the approach to managing liquidity in different currencies, across borders, and across business lines and legal entities; and

       (d)          the approach to intraday liquidity management.

    30.         The liquidity management strategy must take account of the ADI's liquidity needs under normal conditions as well as periods of liquidity stress. The strategy must include quantitative and qualitative targets.

    31.         The liquidity management strategy must be appropriate for the nature, scale and complexity of the ADI. In formulating this strategy, the ADI must consider its legal structure, key business lines, the breadth and diversity of markets, products and jurisdictions in which it operates and home and host regulatory requirements.

    32.         The liquidity management strategy, key policies for implementing the strategy and the liquidity risk management structure must be communicated throughout the organisation by senior management.

    33.         An ADI must have adequate policies, procedures and controls in place to ensure that the Board and senior management are informed immediately of new and emerging liquidity concerns. These include increasing funding costs or concentrations, increases in any funding requirements, the lack of availability of alternative sources of liquidity, material and/or persistent breaches of limits, a significant decline in the cushion of unencumbered liquid assets or changes in external market conditions that could signal future difficulties.

    34.         Senior management must be satisfied that all business units conducting activities that have an impact on liquidity are fully aware of the liquidity management strategy and operate in accordance with approved policies, procedures, limits and controls.

    35.         The liquidity risk management framework must be subject to effective review on an ongoing basis, in addition to a comprehensive review as part of the review of the risk management framework under Prudential Standard CPS 220 Risk Management (CPS 220).

Management of liquidity risk

    36.         An ADI must have a sound process for identifying, measuring, monitoring and controlling liquidity risk. This process must include a robust framework for