Instruction No. 2009-08 of December 14, 2009, regarding the application dossier for the advanced approach to liquidity risk (repealed)

Bulletin Officiel of the CECEI and the Banking Commission • No. 22 • December 2009 39 Instruction No. 2009-08 Regarding the application dossier for authorization to apply the advanced approach to liquidity risk

The Banking Commission, Having regard to the Monetary and Financial Code, particularly Articles L. 511-41, L. 613-8 and following; Having regard to the Order of May 5, 2009, relating to the identification, measurement, management and control of liquidity risk; Having regard to Regulation No. 97-02 amended of February 21, 1997, relating to the internal control of credit institutions and investment firms; Decides:

Article 1 This instruction applies to institutions subject to the aforementioned Order that request authorization from the Banking Commission to apply the advanced approach to liquidity risk pursuant to Article 24 of the Order, hereinafter referred to as "subject institutions".

Article 2 Subject institutions shall transmit to the General Secretariat of the Banking Commission an application dossier for authorization written in French in two copies to the following address: General Secretariat of the Banking Commission 73, rue de Richelieu 75002 Paris and in electronic form to the address sgcb.controle@banque-france.fr.

The application dossier for authorization shall be accompanied by a letter signed by one of the responsible executives of the institution within the meaning of Article L. 511-13 of the Monetary and Financial Code. The letter shall specify the desired implementation date of the advanced approach to liquidity risk and the institution's commitment that the documents and information provided present an accurate and faithful summary and omit no material facts.

Article 3 The application dossier for authorization shall include the internal validation report of the independent internal control unit mentioned in Article 25 n) of the Order on the advanced approach to liquidity risk envisaged, the status report of action plans resulting therefrom, as well as all elements mentioned in Annex 1. The authorization dossier may be supplemented by any other document that the institution considers useful for the Banking Commission's assessment.

Article 4 When the application dossier for authorization is incomplete, its processing is suspended until receipt of the missing elements.

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Article 5 Subject institutions shall keep at the disposal of the General Secretariat of the Banking Commission and, where applicable, the on-site inspection mission, the elements listed in Annex 2. The list in Annex 2 does not prejudice other documents that may be requested by the General Secretariat of the Banking Commission.

Article 6 This instruction enters into force on December 14, 2009.

Paris, December 14, 2009 The President of the Banking Commission, Jean-Paul REDOUIN

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Annex 1 List of documents to be attached to the application dossier for authorization to apply the advanced approach to liquidity risk

• Decisions taken concerning: – the risk tolerance level, in particular the survival horizon retained and the justifications for its appropriateness in the event of a crisis, where applicable with regard to the systemic nature of the institution or group; – the general policy resulting from the chosen tolerance level, in particular the justifications for its appropriateness relative to the size and nature of the activities of the institution or group; – the management perimeter and any sub-perimeters understood as the entities, geographical zones, activity lines or business lines within the management perimeter on which global limits can be broken down; – the procedures, limits, systems and tools for identifying, measuring, managing and controlling liquidity risk implemented within the framework of the general policy; as well as the elements on the basis of which they were taken and the minutes of the deliberations of the governing body concerning them.

• A description of the articulation of the liquidity risk identification, measurement, management and control system (hereinafter referred to as the liquidity risk management system) with the overall risk management system of the institution or group.

• A description of the governance of the advanced approach liquidity risk management system accompanied by relevant texts (charter, internal procedures, etc.).

• Management perimeter mapping: a detailed map of the entities, business lines and currencies entering the liquidity management perimeter, whether these entities are located in France or abroad: – banking and financial entities, – insurance companies, – asset management companies for third-party accounts, – special purpose vehicles, – all other activities likely to require support or injection of liquidity. This mapping includes, for all listed entities, the following minimum information in the form of a summary table usable in Excel: – name, – country, – nature (credit institution/non-credit institution), – activity, – accounting currency or operational currency (if different), – total balance sheet (in euros or euro equivalent),

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– average lending or borrowing position (excluding retail customer activity) over the year in euro equivalent, – membership in the accounting consolidation perimeter, – membership in the liquidity risk management perimeter, – subject to local liquidity regulation, – existence of legal or operational constraints that could hinder fund transfers (detail them). The listed entities are classified into the two categories below and then, within each, in descending order of total balance sheet: – entities included in the accounting consolidation perimeter and in the liquidity management perimeter; – entities not included in the accounting consolidation perimeter but included in the liquidity management perimeter.

• Exclusions from the liquidity management perimeter

1. The following information relating to entities excluded from the management perimeter: – name, – country, – nature (credit institution/non-credit institution), – activity, – accounting currency or operational currency (if different), – total balance sheet (in euros or euro equivalent), – average lending or borrowing position (excluding retail customer activity) over the year in euro equivalent, – membership in the accounting consolidation perimeter;
2. The regulatory regime applied to them: – for French entities subject to liquidity regulation, the liquidity regime followed (standard or advanced approach); – for foreign entities, specify if they are subject to local regulatory requirements;
3. The reasons for excluding entities or currencies.

• Indicators and liquid asset buffers: – the different classes of assets the institution intends to include in its liquid asset buffer by currency and the principles determining their inclusion (time horizon considered, calculation of haircuts); – a description of the use made of the liquid asset buffer in the liquidity risk management system: management rules, indicators and limits.

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• Limits The list of limits (and possible sub-limits) specifying for each: – its objective, – its calculation method and periodicity, – the justification for the level retained, – the units responsible for: ◦ its calculation, ◦ its compliance, ◦ its monitoring, ◦ and procedures in case of breach, – the circuit (recipient bodies) and reporting periodicity. The evolution of the institution's situation regarding the proposed limits over the last 12 months.

• Information obligations towards the Banking Commission: any element likely to allow an assessment of the institution's ability to meet its information obligations, in particular: – the model of information, status reports and reporting produced internally at different levels of its organization (treasury, ALM committee, financial direction, risk direction) for the management and monitoring of its liquidity (including its transformation) within the framework of the advanced approach; – the periodicity at which the different information relating to the management of its liquidity (including its transformation) in the advanced approach is produced internally (gaps, cash flow schedules, indicators, limits, liquid asset buffers, etc.); – the time frame for the release of this same information from the date on which they are finalized.

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Annex 2 List of documents to be kept at the disposal of the General Secretariat of the Banking Commission and, where applicable, of the inspection conducted by the Banking Commission

Regarding general provisions – The history, over the last three financial years, of liquidity indicators or limits and the explanation of the origin of significant variations. In particular: • the liquidity coefficient as declared by the main French entities of the management perimeter as well as the conditions under which the main foreign entities, both subsidiaries and branches, have respected local liquidity standards; • the history of other internal and/or external indicators for measuring, monitoring and framing liquidity, including transformation or permanent resources, used up to the date of the authorization request by the main French or foreign entities. – A retrospective, and prospective if applicable, calendar of the operational deployment of the different parts of the proposed measurement, control and management system for liquidity risk, as well as, where applicable, developments in progress or envisaged. – A description of the physical and IT organization and human resources supporting the system as well as the detailed role of the different actors.

Regarding the governance of the system – A description of the governance of the management, monitoring and control system for liquidity risk in the advanced approach, specifying in particular the different committees (and their composition) called upon to intervene on the subject within the framework of the system's development and its subsequent life. – The letter of mandate, or any equivalent document, investing the audit committee with a role in the analysis of the liquidity risk management system. – A description of the internal control units responsible for ensuring initial validation, annual reviews and permanent monitoring of the liquidity management system as well as their insertion into the existing internal control architecture of the units of the liquidity management perimeter as well as the central steering unit, accompanied by procedures or any equivalent document investing these units with their task and setting their responsibility in terms of liquidity risk management.

Regarding the management perimeter – The list of entities or business lines or activities forming the possible sub-perimeters of management that the institution or group intends to distinguish within its management perimeter for liquidity management (setting sub-limits, etc.). – A global assessment of the Eurozone perimeter specifying what it represents relative to the liquidity management perimeter as a whole (in terms of total balance sheet and funding needs excluding retail customers).

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– A description of the methods for collecting and transmitting information between the entities of the management perimeter and their different components and a synthesis in the form of a diagram.

Regarding liquid asset buffers and other indicators – The different definitions of the liquid asset buffer according to the horizon concerned and/or the crisis scenario envisaged. – The evolution of liquid asset buffers over the last three closed financial years and the current financial year. – A description of how the identification and listing of assets within the management perimeter and/or in information systems is ensured. – A description of the methodology retained for the internal allocation of the cost of liquidity between the entities of the management perimeter. – The envelope of liquid assets that the institution proposes to isolate within its liquid asset buffers for the needs of covering intra-day risk resulting from the analysis of its risks and vulnerability in this matter. – The detailed distribution of assets mobilizable with the Eurosystem central banks between: • pledged private claims with a central bank: these must be distributed by residual maturity between less than and more than one year; • collateralized and uncollateralized securities distinguishing those that are actually liquid from those that are not. – The location of assets mobilizable with the Eurosystem central banks among the different Member States of the Eurosystem. – A distribution by country of assets mobilizable with other central banks.

Measurement of funding costs: the institution specifies how it intends to account for its funding costs and their evolution: segmentation by instruments and currencies, maturity bands, methodology for developing indicators, formats and periodicity of information and document transmissions.

Intra-day liquidity risk: a description of the intra-day credit risk approach and a table of the main payment systems to which the institution is a member in each of the significant currencies of the management perimeter accompanied by the following information: – whether the system concerned is gross or net; – group entity(ies) member(s) and their status within these systems; – the average amounts per business day as well as the maximum and minimum amounts of payments issued, on the one hand, and received, on the other, over the last 12 months on each system and for each member entity; – the amount and nature of the guarantees required by the system to cover intra-day risk.

Regarding the diversification of funding sources Structure of funding sources – The evolution of the funding sources of the liquidity management perimeter over the three previous financial years as well as its breakdown by significant currency; it will be necessary to isolate the funding sources of the management perimeter coming from group entities located outside this perimeter. This evolution will be based either on the average of quarterly statements, or, preferably, on average figures; it must notably clearly show the distinction between financing from retail customers and other funding sources; among these, secured and unsecured financing must notably be distinguished. – Similarly, the evolution of the structure of funding sources of the management perimeter over the short-term liquidity management horizon (same as above). – The general policy for diversifying the institution's resources: objectives sought, system implemented to achieve them, steering and control means, etc. – The definition and calculation method of diversification indicators that will be monitored permanently or according to a predefined periodicity. It will be necessary to also specify the services responsible for calculating and/or monitoring them, the tools or information sources used to do so.

Borrowing capacity from funding sources – A description of how the institution proceeds to assess its borrowing capacity with its counterparties and to test its refinancing mechanisms with central banks and market institutions. – For each funding source identified in the structure of funding sources (cf. supra), the estimate of fundraising capacity for the current financial year (distinguishing realized from remaining) and for the coming financial year in both normal and crisis situations. – The list and amount of confirmed borrowings with the top 10 institutional counterparties with the conclusion date and the date of last use. – Unconfirmed lines with major interbank counterparties, to the extent that they are known. – The amount of refinancing obtained from Eurosystem central banks and other central banks over the same period (average balances, minima, maxima on a monthly basis);

Regarding liquidity gaps – The detailed methodology for calculating static and dynamic liquidity gaps: assumptions on the runoff of non-matured assets and liabilities (or not retained according to their contractual duration), treatment of off-balance sheet commitments, taking into account assets or liabilities that do not have a determinable maturity in advance, incorporation of activity forecasts, a posteriori verification of the relevance of assumptions. – The methods for developing and aggregating liquidity gaps: information system architecture, processes implemented, origin of data, internal control to ensure the quality of data used. – The latest schedules (static and dynamic) of the management perimeter and entities, activity lines or business lines (according to the segmentation retained) showing: (i) receipts and liquidity needs over all maturities set by the institution, from short-term to long-term; (ii) liquidity gaps, calculated globally and for each significant currency over the entire management perimeter; (iii) funding sources. – The evolution of liquidity gaps over the last four quarters covering the maturities on which the institution intends to set indicators, alert thresholds or limits. – The synthesis of the last reconciliation with accounting data and methods of organizing the accounting-management reconciliation.

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Regarding crisis scenarios and emergency plans: Concerning crisis scenarios: – a general analysis of the main sources of vulnerability in this matter; – a detailed description of the crisis scenario assumptions validated by the executive body as well as their impact on exigibilities and liquidity (day-to-day financing, loss of rating-sensitive resources, drawing on off-balance sheet credit lines, etc.); – a presentation of the scope of application of scenarios specifying entities/activities not included in the management perimeter and specifying the scope of specific scenarios for certain geographical or legal entities or certain activity lines; – the frequency of calculation by type of scenario; – the results of crisis scenarios on said perimeters and possible sub-perimeters over a period of at least 12 months with constant assumptions and methodology; – the demonstration of the operational integration of scenarios and emergency plans (test report).

Concerning emergency plans: – the presentation of actors, measures, procedures; – the articulation of plans with crisis scenarios and limits; – the reality of tests carried out and their results; – the actual feasibility of plans from a technical and legal perspective.

Regarding information obligations towards the Banking Commission – the list and contact details of the services and interlocutors competent to provide supplementary information (cf. Annex 1) and to respond, where applicable, to requests for explanations on these elements.