Circular CBFA_2011_02: Update of Circular PPB-2006-17-CPB and Circular CBFA_2010_21

rue du Congrès 12-14 | 1000 Bruxelles t +32 2 220 53 42| f +32 2 220 54 93 | www.cbfa.be Circular CBFA_2011_02 of 19 January 2011 Update of Circular PPB-2006-17-CPB regarding instructions for the preparation of table 90.31 (liquidity reporting) and update of Circular CBFA_2010_21 following the publication by the CEBS of guidelines concerning the allocation of costs and revenues in liquidity matters Scope:
This circular addresses financial companies, credit institutions, Belgian branches of foreign credit institutions, liquidation bodies and bodies assimilated to liquidation bodies.
Summary/Objectives:
This circular aims to update Circulars PPB-2006-17-CPB and CBFA_2010_21 concerning liquidity risk management. Circular PPB-2006-17-CPB of 20 December 2006 is updated by the addition of a new provision in its chapter 2 on liquidity risk management. This update aims to clarify the manner in which institutions must mention, in table 90.31 used in the context of liquidity reporting, the securities they have received as collateral or borrowed from a counterparty and which are potentially reusable as collateral. Circular CBFA_2010_21 of 30 September 2010 is updated by way of a complement to the CBFA's expectations regarding the adequate allocation of costs and revenues in liquidity matters related to activities carried out, based on the new guidelines published on this subject by the CEBS.

Madam,
Sir,
This circular aims to update Circulars PPB-2006-17-CPB and CBFA_2010_21 concerning liquidity risk management.

Circular PPB-2006-17-CPB of 20 December 2006 is updated by the addition of a new provision in its chapter 2 on liquidity risk management.

This update aims to clarify the manner in which institutions must mention, in item E of reporting table 90.31, the securities they have received as collateral or borrowed from a counterparty and which are potentially reusable as collateral. Indeed, they must only mention in this item E of table 90.31 the securities they have received as collateral or borrowed for a transaction whose contractual residual maturity (or the period between the reporting date and the next date provided for in the contract conditions at which the counterparty can demand repayment of the securities) is greater than one month. If this period is less than one month, the borrowed or received collateral securities must, depending on their nature, be recorded under securities mobilizable as collateral with the ECB, the BoE or the SNB (sub-items B.1 to B.4 included) or securities mobilizable as collateral in repo operations (sub-items C.1 to C.5 included). This new instruction regarding the preparation of table 90.31 must be respected from the reporting on the situation as at end March 2011, but may already, on a voluntary basis, be applied from the reporting on the situation as at end January 2011 (but without retroactive effect).

Circular CBFA_2010_21 of 30 September 2010 is updated by way of a complement to the CBFA's expectations concerning sound liquidity risk management practices.

This update follows the publication, on 27 October 2010, of guidelines established by the European Committee of Banking Supervisors (CEBS) concerning the allocation of costs and revenues in liquidity matters. These guidelines are attached (CBFA_2011_02-1) to this circular. The CEBS, which became the European Banking Authority (EBA) on 1 January 2011, expects its members to implement these guidelines by 30 June 2011 at the latest.

The CEBS guidelines now constitute a complement to the CBFA's expectations concerning sound liquidity risk management practices, as provided for by the qualitative standards of the Basel Committee on this subject which appear in annexes CBFA_2010_21-3 and CBFA_2010_21-4 of Circular CBFA_2010_21. These CEBS guidelines will serve as a guide for institutions to take into account costs, revenues and risks in liquidity matters in their internal transfer pricing processes, performance assessment and approval of new products, for all significant activities recorded on or off the balance sheet (principle 4 established by the Basel Committee). It is useful to emphasize that the principle of proportionality will be systematically taken into account when assessing compliance with this expectation. The CBFA therefore expects institutions to implement these CEBS guidelines in a manner adapted to the nature, volume and complexity of the activities undertaken and the risks incurred.

The other standards, expectations and reporting instructions contained in Circulars PPB-2006-17-CPB and CBFA_2010_21 remain fully applicable.

A copy of this circular is transmitted to your approved statutory auditor or approved auditor.

We ask you to accept, Madam, Sir, the expression of our distinguished consideration.

The President,
Jean-Paul SERVAIS

Annex: - CBFA_2011_02-1 / Guidelines on Liquidity Cost Benefit Allocation

1
« Principles for Sound Liquidity Risk Management », Basel Committee on Banking Supervision, September 2008.