MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4408.12.31that credit lines and other off-balancesheet sources of funding may becancelled or may be unavailable atreasonable cost.Management should define specificprocedures for the prompt reporting anddocumentation of limit exceptions andthe management approval and actionrequired in such cases.Liquidity risk monitoring and reportingAn adequate managementinformation system is critical in the riskmonitoring process. The system shouldbe able to provide the Board, seniormanagement and other personnel withtimely information on the FI’s liquidityposition in all the major currencies it dealsin, on an individual and aggregate basis,and for various time periods.Effective liquidity risk monitoringrequires frequent routine liquidityreviews and more in-depth andcomprehensive reviews on a periodicbasis. In general, monitoring shouldinclude sufficient information and a clearpresentation such that the reader candetermine the FI’s ongoing degree ofcompliance with risk limits. For example,reports should address fundingconcentrations, funding costs, projectedfunding needs and available fundingsources.Monitoring and board reportingshould be robust. It is not unreasonableto expect complex FIs or FIs engaged incomplex activities to monitor liquidity ona daily basis. Board reporting should beno less frequent than monthly. However,the BSP would expect Board-levelcommittees or sub-committees to receivemore frequent reporting.Comprehensive and accurate internalreports analyzing an FI’s liquidity riskshould be regularly prepared andreviewed by senior management andsubmitted to the board of directors.D. Risk controls and auditAn FI should have adequate internalcontrols in place to protect the integrity ofits liquidity risk management process.Fundamental to the internal control systemis for the Board to prescribe independentreviews to evaluate the effectiveness of therisk management system and checkcompliance with established limits,policies and procedures.An effective system of internal controlsfor liquidity risk includes:1. A strong internal controlenvironment;2. An adequate process for identifyingand evaluating liquidity risk;3. Adequate information systems; and4. Continual review of adherence toestablished policies and procedures.To ensure that risk managementobjectives are achieved, managementneeds to focus on the following areas:appropriate approval processes, limitsmonitoring, periodic reporting, segregationof duties, restricted access to informationsystems and the regular evaluation andreview by independent competentpersonnel.Internal audit reviews should cover allaspects of the liquidity risk managementprocess, including determining theappropriateness of the risk managementsystem, accuracy and completeness ofmeasurement models, reasonableness ofassumptions and stress testingmethodology. Audit staff should have theskills commensurate with thesophistication of the FI’s risk managementsystems. Audit results should be promptlyreported to the board. Deficiencies shouldbe addressed in a timely manner andmonitored until resolved/corrected.E. Foreign currency liquiditymanagementThe principles described in thisAppendix also apply to the managementManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-44 - Page 9