MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4408.12.31Management, the BSP will evaluate howthe Board and Senior Management carryout the above functions/responsibilities.Further, sound management practices arehighly related to the quality of other areas/elements of risk management system.Thus, even if Board and SeniorManagement exhibit active oversight, theFI’s policies, procedures, measurementmethodologies, limits structure,monitoring and information systems,controls and audit should be adequatebefore quality of Board and SeniorManagement can be considered“satisfactory”.Lines of Responsibility and AuthorityManagement of liquidity risk generallyrequires collaboration from variousbusiness areas of the FI, thus a cleardelineation of responsibilities is necessary.The management structure should clearlydefine the duties of senior levelcommittees, members of which haveauthority over the units responsible forexecuting liquidity-related transactions.There should be a clear delegation of dayto-dayoperating responsibilities toparticular departments such as theTreasury Department.To ensure proper management ofliquidity risk, the FI should designate anindependent unit responsible formeasuring, monitoring and controllingliquidity risk. Said unit should take acomprehensive approach and directlyreport to the board of directors or acommittee thereof.B. Adequate risk management policiesand proceduresAn FI’s liquidity risk policies andprocedures should be comprehensive,clearly defined, documented and dulyapproved by the board of directors. Policiesand procedures should cover the FI’sliquidity risk management system in orderto provide appropriate guidance tomanagement. These policies should beapplied on a consolidated basis and, asappropriate, at the level of individualaffiliates, especially when recognizinglegal distinctions and possible obstacles tocash movements among affiliates.Liquidity risk policies should identifythe quantitative parameters used by the FIto define the acceptable level of liquidityrisk such as risk limits and financial ratiosas well as describe the measurement toolsand assumptions used. Qualitativeguidelines should include description ofthe FI’s acceptable products and activities,including off-balance sheet transactions,desired composition of assets andliabilities, and approach towards managingliquidity in different currencies,geographies and across subsidiaries andaffiliates. Where appropriate, a large FIshould apply these policies on aconsolidated basis to address riskexposures resulting from inter-connectedfunding structures and operations amongmembers of an FI’s corporate group.It is essential that policies include thedevelopment of a formal liquidity riskmeasurement system that addressesbusiness-as-usual scenarios and acontingency funding plan that addresses avariety of stress scenarios. FIs shouldlikewise have specific procedures foraddressing breaches in policies andimplementation of corrective actions.Management should periodicallyreview its liquidity risk policies and ensurethat these remain consistent with the leveland complexity of the FI’s operations.Policies should be updated to incorporateeffects of new products/activities, changesin corporate structure and in light of itsliquidity experience.C. Appropriate risk measurementmethodologies, limits structure, monitoring,and management information systemManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-44 - Page 5