10.9. Policies—liquidity risk environment
(1) An Islamic Bank’s liquidity risk management policy:
(a) must set, and must provide for the regular review of, an Islamic Bank’s liquidity risk tolerance and other quantitative and qualitative limits to liquidity risk exposures and vulnerabilities;
(b) must establish procedures, systems, processes, controls and approaches to identify, measure, evaluate, manage and control or mitigate its liquidity risk and to ensure the integrity of its liquidity risk management;
(c) must set out the organisational structure, and must define the responsibilities and roles, for managing liquidity risk;
(d) must describe an Islamic Bank’s approach to day-to-day (and, where appropriate, intraday) liquidity management;
(e) must specify the criteria and responsibility for reporting, and the scope, manner and frequency of reporting, to the governing body or a committee of the governing body;
(f) must establish procedures for tracking and reporting exceptions to, and deviations from, limits or policies;
(g) must include an Islamic Bank’s funding strategy and contingency funding plan;
and
(h) must establish effective information systems to enable the identification, measurement, monitoring and control of liquidity risk exposures and funding needs.
(2) The policy must enable an Islamic Bank to carry out stress-tests using various scenarios based on appropriate assumptions.
(3) The policy must take into account an Islamic Bank’s liquidity risk profile (including onbalance-sheet and off-balance-sheet risks) and tolerance in the context of the markets and macroeconomic conditions in which an Islamic Bank operates.
(4) An Islamic Bank must have specific policies on:
- (a) the composition and maturity of assets and liabilities;
- (b) the diversity and stability of funding sources; and
- (c) the approach to managing liquidity in different currencies, across borders, and across business lines and legal entities.