BIPRU 12.7 Liquid assets buffer

For the purpose of satisfying BIPRU 12.2.8R, a firm to which this section applies may include in its liquid assets buffer only:1

1. (1)

   high quality debt securities issued by a government or central bank;

2. (2)

   securities issued by a designated multilateral development bank;

3. (3)

   reserves in the form of sight deposits with a central bank of the kind specified in BIPRU 12.7.5R and BIPRU 12.7.6R; and

4. (4)

   in the case of a simplified ILAS BIPRU firm only, investments in a designated money market fund.

Subject to BIPRU 12.7.4R, for the purpose of BIPRU 12.7.2R (1), a firm may include only1 a debt security which is:

1. (1)

   issued by the central government or central bank of an EEA State; or

2. (2)

   issued by the central government or central bank of Canada, the Commonwealth of Australia, Japan, Switzerland or the United States of America.

For the purpose of BIPRU 12.7.3R, a firm may not include a debt security unless:

1. (1)

   the central government or central bank in question has been assessed by at least two eligible ECAIs as having a credit rating associated with credit quality step 1 in the credit quality assessment scale published by the FSA for the purpose of BIPRU 3 (The Standardised Approach: mapping of the ECAIs credit assessments to credit quality steps (Long term mapping)); and

2. (2)

   that debt security is either:

   1. (a)

      denominated in the domestic currency of the country in question; or

   2. (b)

      denominated in a currency other than the domestic currency, provided it is denominated in any of Canadian dollars, euros, Japanese yen, sterling, Swiss francs or United States dollars.

Subject to BIPRU 12.7.6R, for the purpose of BIPRU 12.7.2R (3) a firm may include only1 reserves in the form of sight deposits held by the firm with the central bank of:

1. (1)

   an EEA State; or

2. (2)

   Canada, the Commonwealth of Australia, Japan, Switzerland or the United States of America.

For the purpose of BIPRU 12.7.5R, a firm may not include reserves held at a central bank unless:

1. (1)

   the central bank in question has been assessed by at least two eligible ECAIs as having a credit rating associated with credit quality step 1 in the credit quality assessment scale published by the FSA for the purpose of BIPRU 3 (The Standardised Approach: mapping of the ECAIs credit assessments to credit quality steps (Long term mapping)); and

2. (2)

   those reserves are denominated in the domestic currency of the central bank in question.

3For the purpose of BIPRU 12.7.2R (2), a firm may not include securities issued by a designated multilateral development bank unless:

1. (1)

   the designated multilateral development bank in question has been assessed by at least two eligible ECAIs as having a credit rating associated with credit quality step 1 in the credit quality assessment scale published by the FSA for the purpose of BIPRU 3 (The Standardised Approach: mapping of the ECAIs' credit assessments to credit quality steps (Long term mapping)); and

2. (2)

   those securities are denominated in any of Canadian dollars, euros, Japanese yen, sterling, Swiss francs or United States dollars.

For the purposes of BIPRU 12.7.2R (1) and (2), a firm must only count securities:

1. (1)

   which are unencumbered;

2. (2) 2
   1. (a)

      to which it has legal title; or2

   2. (b)

      to which a central bank has legal title but which meet the requirements of BIPRU 12.7.9AR (1), subject to BIPRU 12.7.9AR (2); and2

3. (3)

   which that firm realises on a regular basis.

1. (1)

   2For the purposes of BIPRU 12.7.9R (2)(b) the requirements are that:

   1. (a)

      the securities are in excess of the amount of collateral required to be held by that central bank; and

   2. (b)

      the firm is entitled to regain legal title to such securities without any encumbrance.

2. (2)

   The firm may only count securities that meet the requirements of BIPRU 12.7.9 R and BIPRU 12.7.9AR (1) from the point in time when the firm would regain legal title to the securities from the central bank, subsequent to any required notice period.

3. (3)

   For the purposes of BIPRU 12.7.9AR (2) any required notice period is deemed to commence on the first business day that the central bank could receive notice from the firm.

1. (1)

   For the purpose of BIPRU 12.7.9R (3), a firm1 must periodically realise a proportion of the assets in its liquid assets buffer through repo or outright sale to the market.

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2. (2)

   [deleted]1

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3. (3)

   A firm must ensure that in carrying out such periodic realisation:

   1. (a)

      it does so without reference to the firm's day-to-day liquidity needs;

   2. (b)

      it realises in varying amounts the assets in its liquid assets buffer;

   3. (c)

      the cumulative effect of its periodic realisation over any twelve month period is that a significant proportion of the assets in its liquid assets buffer is realised; and

   4. (d)

      in repo to the market it enters into transactions of varying durations.

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4. (4)

   A firm must establish and maintain a written policy setting out its approach to periodic realisation of its assets.

5. (5)

   A firm must also ensure that it periodically tests its operational ability to raise funds, through the use of central bank liquidity facilities to which it has access, using a proportion of those of its assets not in its liquid assets buffer.1