MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4408.12.31A. Active and Appropriate Board andSenior Management Oversight 1Effective liquidity risk managementrequires that the Board and seniormanagement be fully informed of the levelof liquidity risk assumed by the FI andensure that the activities undertaken arewithin the prescribed risk tolerance. Seniormanagement should have a thoroughunderstanding of how other risks such ascredit, market, operational and reputationrisks impact the FI’s overall liquiditystrategy. 1Responsibilities of the board of directorsThe Board has the ultimateresponsibility for understanding the natureand level of liquidity risk assumed by theFI and the processes used to manage it.The board of directors should:1. Establish and guide the FI’s strategicdirection and tolerance for liquidity risk byadopting a formal written liquidity/fundingpolicy that specifies quantitative andqualitative targets;2. Approve policies that govern orinfluence the FI’s liquidity risk, includingreasonable risk limits and clear guidelineswhich are adequately documented andcommunicated to all concerned;3. Identify the Senior Managementstaff who has the authority andresponsibility for managing liquidity riskand ensure that this staff takes thenecessary steps to monitor and controlliquidity risk;4. Monitor the FI’s performance andoverall liquidity risk profile in a timelymanner by requiring frequent reports thatoutline the liquidity position of the FI alongwith information sufficient to determine ifthe FI is complying with established risklimits;5. Mandate and track theimplementation of corrective action ininstances of breaches in policies andprocedures;6. Establish, review and to the extentpossible, test contingency plans for dealingwith potential temporary and long-termliquidity disruptions; and7. Ensure that the FI has sufficientcompetent personnel, including internal auditstaff, and adequate measurement systemsto effectively manage liquidity risk.Responsibilities of senior managementSenior management is responsible foreffectively executing the liquidity strategyand overseeing the daily and long-termmanagement of liquidity risk. In managingthe FI’s activities, Senior Managementshould:1. Develop and implementprocedures and practices that translate theBoard’s goals, objectives, and risktolerances into operating standards that aretransmitted to and well understood bypersonnel. Operating standards should beconsistent with the Board’s intent;2. Plan for adequate sources of liquidityto meet current and potential fundingneeds and establish guidelines for thedevelopment of contingency funding plans;3. Adhere to the lines of authority andresponsibility that the Board has establishedfor managing liquidity risk;4. Oversee the implementation andmaintenance of management informationand other systems that identify, measure,monitor, and control the FI’s liquidity risk;and5. Establish effective internal controlsover the liquidity risk management process.In evaluating the quality of oversightprovided by the Board and Senior1This section refers to a management structure composed of a board of directors and senior management. The BSP is awarethat there may be differences in some FIs as regards the organizational framework and functions of the board of directorsand senior management. For instance, branches of foreign banks have board of directors located outside of the Philippinesand are overseeing multiple branches in various countries. In this case, “board-equivalent” committees are appointed.Owing to these differences, the notions of the board of directors and the senior management are used in these guidelinesnot to identify legal constructs but rather to label two decision-making functions within a FI.Q RegulationsAppendix Q-44 - Page 4Manual of Regulations for Non-Bank Financial Institutions