. [9th February2009] Supplement to Official Gazette ll1 S.I. 22 of 2009 FINANCIAL INSTITUTIONS ACT, 2004 (Act 14 of 2004) Financial Institutions (Liquidity Risk Management) Regulations, 2009 Arrangement of Regulations Citation Interpretation Application Liquid assets requirements. Risk Management Committee Liquidity risk management policy Liquidity strategy, management plan and process Management of liquidity Reports to the Central Bank

112 Supplement to Official Gazette [9th February 2009] . [9th February 2009] S.I. 22 of 2009 . FINANCIAL INSTITUTIONS ACT, 2004 (Act 14 of 2004) Financial Institutions (Liquidity Risk Management) Regulations, 2009I I In exercise of the powers conferred by section 69(a) of the . Financial Institutions Act, 2004, the Central Bank makes the following Regulations￾1. These Regulations may be cited as the Financial Institutions(LiquidityRiskManagement)Regulations,2009. 2. IntheseRegulations- "Board of Directors" means the highest body of authority in a bank responsible for strategically guiding, effectively monitoring management of, and properly accounting to shareholders of, the bank; "Committee" means the Risk Management Committee established under regulation 5( I); "liabilities" means future sacrifices of economic benefits that an entity is presently obliged to make to other entities as a result of past transactions or other events; "liquid assets" means- (a) cashon hand; (b) bdances with the Central Bank excluding Citation Interpretation Supplement to Official Gazette 113 minimum reserve requirements; (c) balances with domestic banks; (d) balances with banks abroad; (e) treasury bills and other securities issued by the Government or the Central Bank and maturing within 365 days; (f) foreign treasury bills and other securities issued by the government of a member country of the Organisation for E'conomic Co-operation and Development and maturing within 365 days; (g) negotiable instruments approved by the Central Bank that are payable within 180days; and (h) other unencumbered, freely transferable assets approved by the Central Bank; "liquidity" means the ability of a bank to fund asset growth and meet contractual obliga~ionsincluding- (a) collateral needs; and (b) obligations to fund loan and investment commitments, deposit withdrawals and other maturing liabilities, as they come due; "liquidity risk" means the risk that a bank will not be able to efficiently meet expected and unexpected cash flow and collateral needs without affecting either the daily operations or the financial condition

Supplement to Official Gazette 115 114 Supplement to Official Gazette [9th February 2009] [9th February 2009] .ofthe bank; "liquidity risk management" means the process of managing liquidity on both a day-to-day and long term basis to ensure that a bank's need for funds, in order to maintain the required level of liquidity and meet expected and contingent cash needs, can be regularly met at a reasonable cost; "net funding requirements" means the liquid assets necessary to fund a bank's cash obligations and commitments in the future, determined by performing a cash flow analysis in which all cash inflows are measured against all cash outflows to identify potential net shortfalls and the timing of these shortfalls; "senior officer" includes the chief executive officer, deputy chief executive officer, chief operating officer, chief financial officer, treasurer, secretary to the Board of Directors, chief internal auditor, manager of a significant unit within a financial institution and any other person with an equivalent position or similar responsibilities regardless of that person's official title. 3. (1) These Regulations apply to banks licensed by the Central Bank under section 6 of the Act to engage in domestic banking business or offshore banking business and are applicable to each bank individually and where applicable, on a fully consolidated basis to a bank, holding company and banking group, as required by the Central Bank. (2) When a banking operation is conducted by a branch of a foreign bank, the role of the Board of Directors shall be assumed by the head office of that foreign bank, which shall ensure that its branch is in compliance with applicable laws, Liquid Assets Requirements Risk Management Committee Application Liquidity Risk Management Policy regulations, guidelines and other prudential directives. 4. (1) A bank shall maintain liquid assets in an amount which shall not, as a daily average each month, be less than twentypercent(20%)ofthe bank'stotalliabilities. (2) If a bank fails to meet the liquid asset requirement specified by sub-regulation (1), the bank shall pay to the Central Bank a charge at an annual rate, not exceeding twice the highest effective lending rate of the bank charged to any ofits customerS during the period of deficiency, for each. day on which the deficiency occurs, in line with section 25(3) of the Act. s. (1) The Boardof Directorsof eachbankshallestablisha Risk Management Committee consisting of at least three members of the Board and such other membersas determined bythe Boar(j. (2). Thefunctionsofthe Committeeareto- (a) overseethe effortsof the senior officersof the bank to manage risk including liquidity risk; and (b) ensure that the responsibility for managing liquidity needs and risk is assignedto specific persons. 6. (1) TheBoardof Directorsof eachbankshallensurethat the senior officers of the bank formulate a policy for the management of the bank's liquidity risk which shall include strategiesandbebasedoncertainunderlyingassumptions. (2) The policy shall be in writing and communicated throughouttheb~. (3) At regular times during the year, the senior officers

116 Supplement to Official Gazette [9th February 2009] [9th February 2009] shall review the strategies and underlying asslJmptions of the policy to ensure that the policy remains valid, and recommend changes that they consider necessary. (4) The Board of Directors shall review the liquidity position of the bank to ascertain adherence by the senior 'officers to the strategies and policy on a regular basis. (5) At least annually, the Board of Directors shall review the policy, strategies and underlying assumptions and approve revisions thereto that they consider necessary. 7. The liquidityrisk managementpolicy referredto in regulation6 shall- (a) include a strategy for the day to day management of the bank's liquidity and a liquidity management plan to monitor, control and limit liquidity risk overall, and for each currency in which the bank is materially active; ,; (b) set limits on the size of the bank's liquidity - position over a particular time frame, such as . limits on cumulative cash flow mismatches or required ratio ofliquid assets to total and short￾term liabilities; (c) provide for method~Jo ensure proper oversight of the bank's liquidity risk management by senior officers, the Committee and the Board of Directors; (d) establish requirements and parameters within which the senior officers are to operate when managing liquidity; (e) require that ~he senior officers develop Liquidity Strategy, Management Plan and Process Management of Liquidity 8. 117 Supplement to Official Gazette processes to implement the strategy referred to in paragraph (a) and ensure adherence to established controls and limits; (f) require that a crisis plan be developed and ready for implementation in case of. an occurrenceof a liquiditycrisissuchasadeposit run-offfroma specificeventor a collateralcall triggeredbyacreditdowngrade; (g) ensure that the liquidity risk management process of the bank is adequatelycovered by the internal control system of the bank and reviewed by both internal and external auditors;and (h) provide for a reporting mechanism to senior officers and the Board of Directors on the bank's liquidity position, both on a regular basisandinemergencies. Abankshall- (a) measure, project and monitor its net funding requirementsovervarious specifiedperiodsof time and under alternative, includingadverse scenarios with consideration given to how other risks such as credit, market and operational risks, may impact the overall liquiditystrategyofthebank; (b) have diverse funding sources and avoid undue concentrations based on providers and types of instruments and the bank shall regularly assess its reliance on such providers and instruments under normal and alternative, including adverse scenarios;

118 Supplement to Officia] Gazette [9th February 2009] [9th February 2009] Supplement to Official Gazette 119 (c) analyze the bank's liquidity and its liquidity management plan under various scenarios that differ from the normally expected scenario which address both internal (bank specific) and external (market related) stress factors and such analysis should be conducted in each currency in which the bank is materially active; (iv) compare current liquidity exposures with limits established by the Board of Directors; and (d) have a written plan for managing liquidity during a crisis that shall include- (v) show evidence of compliance with the bank's board-approved policies, procedures, and limits and the Central Bank's liquidity requirements pursuant to section 25 of the Act and these Regulations. (i) methods to cover shortfalls in liquidity; Reports to the Central Bank 9. (1) By or before noon on Tuesday of each week, each bank shall submit to the Financial Services Supervision Division of the Central Bank the Return Ll, contained in Schedule 1, showing the bank's daily compliance with the minimum requir~ment for liquid assets during the previous week. (ii) clearly defined duties, responsibilities and plan of action; and (iii) timely and consistent communication with the Central Bank, media, analysts, customers and~mployees. (2) Each bank shall provide to the Central Bank, data on the contractual maturity of its assets and liabilities, within 15 days after the end ofthe reference month - (e) establish and maintain a management information system that provides the senior officers with adequate and timely information to- (a) for domestic banks, using ReturnA3 as set out in Schedule 2 together with a breakdown for the categories other liabilities and other assets; and (i) track the bank's liquidity positions, including trends, in all currencies in which the bank has material activity; (b) for offshore bariks, using the Form OB (iii) as setout in Schedule 3. (ii) project the bank's liquidity position over different time periods, including daily and longer-term~ and under alternative scenarios including stress scenarios; . "' 1<) } (iii) review risk measures,pp atimely basis; ? 11

120 Supplement to Official Gazette, Supplement to Official Gazette [9th February 2009] [9th February 2009] 121 SCHEDULE I (r~gul~tion 9(1» REPORT ON LIQUID ASSETS REQUIREMENTS To: Financial Services Supervision Division Central Bank of Seychelles REPORTING BANK] Return:Ll I I REPORT ON LIQUID ASSETS REQUIREMENTS For tbe week ending: A Reaulrecl Llauld Ass'"

1. Total Liabilities
2. 20% of total liabilities B Liquid Asset Held
3. Cash on hand
4. Balances with the Central Bank excluding minimum reserve requirement
5. Balances with domestic' banks
6. Balances with banks abroad
7. reasury bills and oII1er ~riIies Issued by the Govemmentof Seychelles or \he Central Bank and maturing within 365 days

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122 Supplement to Official Gazette [9th February 2009] [9tl). February 2009] Supplement to Official Gazette 123 :0. ~! :~ :"0 :a:u 1~:Q :U1 SCHEDULE 3 (regulation 9(2» MA TURITY LADDER - FORM OB(iii) IDA"":I Asat: Exchange Rate : MA111RITYlADDER A. USESOFFUI;DS U.s.OOIlARS VI

I C" till c: of ~ .s ..... 0 "5 ..8- ~ '" t II j II - ,ij1 'ao ~ J 0:0.< 1 11 I g I. ft] ~ <.( ~ .:1 ~! ij i i .2 I i E2 E2.3 .I.. III 0 11;. ;;;~:;: ~~ ~~ l d a .s j 0 c: i ] ::s '" u .D ~ B.SOIJRCESOFFUNDS U.s.OOIlARS fu:From LnsAdn&Bil Others Off-Balance Banks NCDs/kid Inves1ment Dimmted SheetItems Total Pto7Days Over7DaysToI month DverlToJMmIhs OverHo6Mmlhs Over6To9Monlhs Over9To12MJJJlhs OverI ToJYeaIS OverJTo5YeaIS OverHoIOYeaIS Over10YeaIS ixellassetsIIntemalAceoums otal DepJsitsofNno- fu: toBanks NCDs Others Off-Balance Net umulative BankCustomersandBillsRedimmted hIued SheetItems ]Xa] Position n to7Days er7DaysToI month erIToJMmIhs erH06 Mmlhs er6T09Mmlhs er9ToI2Modhs OverI T03YeaIS OverH05YeaIS OverHolOYeaIS erlOYeaIS ' apltalllntemalAces ...... ....... ..... alaI ..... ....... .....

124 Supplement to Official Gazette [9th February 2009] MADE this 9th day ofFebruary,,2009 P. LAPORTE GOVERNOR III :1 . .....