• PRU A10.4 PRU A10.4 The Net Stable Funding Ratio

    • Guidance

      1. Neither the NSFR, nor the LCR, should be seen by an Authorised Person as providing a complete picture of its funding profile or the stability of the funding available to it. An Authorised Person should always conduct further assessments of its funding needs and sources of funding to complement the information obtained from the two measures.
       2. Terms used for the NSFR mirror those in use for the LCR, unless otherwise stated.

    • PRU A10.4.1 PRU A10.4.1

      An Authorised Person must calculate its NSFR on an ongoing basis, using the total amount of Available Stable Funding calculated in accordance with Rule A10.4.8 and the total amount of Required Stable Funding calculated in accordance with Rule A10.4.9.

      • Guidance

        1. An Authorised Person should calculate its NSFR with appropriate frequency to ensure that it is able to monitor its satisfaction of the requirement in Rule 10.4.1 at all times and, additionally, where it believes that a change has happened to its Available Stable Funding or Required Stable Funding that might result in a material change to the level of its NSFR. 
        2. For Available Stable Funding, i.e. on the funding side, the ASF factors have been calibrated to reflect the tenor of the funding with longer-term liabilities assumed to be more stable than short-term liabilities, and also the nature of the counterparty providing the funding.
        3. For Required Stable Funding, i.e. covering assets and off-balance sheet items, the RSF factors again reflect the tenor of the assets. The calibration of the factors assumes that short-dated assets should attract lower RSF factors as a proportion of them could be allowed to run to maturity instead of requiring further funding in the event of their being rolled over, which may also be influenced by the desire to maintain customer relationships. Similarly, unencumbered, high-quality assets may be more easily securitised or traded to provide additional funding and this is recognised in lower RSF factors.

    • Available Stable Funding (ASF)

      • PRU A10.4.2

        Subject to Rule A10.4.6, an Authorised Person must identify its capital instruments that are to be included in its Available Stable Funding by considering the capital elements that are meet the requirements for eligibility under: 

        (a) Rule 3.10.2;
        (b) Rule 3.11.2; and
        (c) Rule 3.12.2, excluding all Tier 2 capital instruments with residual maturity of less than one year.

      • PRU A10.4.3

        Subject to Rule A10.4.6, an Authorised Person must include in the calculation of its Available Stable Funding the total amount of its other capital instruments that are not captured under A10.4.2 and that have a residual maturity of one year or more.

      • PRU A10.4.4

        Where the value of a Derivative Contract represents a liability for an Authorised Person, the Authorised Person must: 

        (a) calculate the negative value of the liability as the replacement cost for the contract, obtained by marking-to-market; and
        (b) deduct any collateral posted in the form of variation margin from the negative replacement cost amount.

      • PRU A10.4.5

        An Authorised Person may use the net replacement cost as the replacement cost for a set of derivative exposures between the Authorised Person and a Counterparty where the following conditions are met:

        (a) an eligible bilateral netting contract must be in place between the Authorised Person and the Counterparty that is binding on the Authorised Person and the Counterparty and that is legally enforceable in all relevant jurisdictions;
        (b) that contract is a qualified financial contract as specified in the ADGM Insolvency Regulations and meets the conditions specified in Part 7, Chapter 2 therein; and
        (c) the Authorised Person meets the disclosure requirements for the NSFR as specified in App12.

      • PRU A10.4.6

        In determining the residual maturity of an instrument captured under Rule A10.4.2 or Rule A10.4.3 or any other liability that is to be included in the Available Stable Funding, an Authorised Person must calculate the residual maturity of each instrument or liability as being that period up to the earliest point in time at which an investor has the right to exercise their right to redeem their investment or withdraw that source of funding.

      • PRU A10.4.7 PRU A10.4.7

        For long-dated liabilities, the portion of cashflows falling at or beyond the sixmonth and one-year time horizons must be treated as having an effective residual maturity of six months or more and one year or more, respectively.

        • Guidance

          1. When determining the maturity of a liability or a capital instrument, investors should be assumed to redeem a call option at the earliest possible date available to them. For funding with options exercisable at the discretion of an Authorised Person, the Regulator will take into account reputational factors that may limit the ability of the Authorised Person not to exercise the option.
          2. In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, Authorised Persons and the Regulator should assume such behaviour for the purpose of calculating the NSFR and include these liabilities in the corresponding ASF category.

      • PRU A10.4.8 PRU A10.4.8

        An Authorised Person must calculate its Available Stable Funding by:

        (a) assigning each capital instrument and liability to one of the categories in the following table;
        (b) multiplying the Carrying Value of each capital instrument and liability by the ASF factor associated with that category; and
        (c) summing those weighted values.
         
        ASF factor ASF category
        100% •  amounts from Rule A10.4.2
        •  amounts from Rule A10.4.3
        •  the total amount of secured and unsecured borrowings and liabilities (including term deposits) with effective residual maturities of one year or more, excluding all cashflows falling below the one-year horizon that are associated with such borrowings and liabilities
        95% • stable
        o demand Deposits; and
        o term Deposits and PSIAus with residual maturities of less than one year from retail and small business customers
        90% • less stable%
        o demand Deposits; and
        o term Deposits and PSIAus with residual maturities of less than one year from retail and small business customers
        50%

        • funding (secured and unsecured) with a residual maturity of less than one year provided by non-financial corporate customers

        • operational deposits generated by clearing, custody and cash management activities

        • funding with residual maturity of less than one year from sovereigns, public sector entities (PSEs), and multilateral and national development banks

        • other funding (secured and unsecured) not included in the categories above with residual maturity between six months to less than one year, including funding from central banks and financial institutions

        0%

        • all other liabilities and equity categories not included in the above categories, including other funding with residual maturity of less than six months from central banks and financial institutions

        • other liabilities without a stated maturity, and this category may include short positions and open maturity positions

        o Two exceptions may be recognised for liabilities without a stated maturity:

        ◘ deferred tax liabilities, which should be treated according to the nearest possible date on which such liabilities could be realised; and

        ◘ minority interest, which should be treated according to the term of the instrument, usually in perpetuity

        o These liabilities would then be assigned either a 100% ASF factor if the effective maturity is one year or greater, or 50%, if the effective maturity is between six months and less than one year

        • NSFR derivative liabilities as calculated according to Rule A10.4.4 net of NSFR derivative assets as calculated according to Rule A10.4.11, if NSFR derivative liabilities are greater than NSFR derivative assets

        • Net NSFR Shari’a compliant hedging liabilities (where NSFR Shari’a compliant hedging liabilities are greater than NSFR Shari’a compliant hedging assets)

        • “trade date” payables arising from purchases of financial instruments, foreign currencies and commodities that:

        o are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or

        o have failed to, but are still expected to, settle

         

        • Guidance

          1. Guidance on the characteristics of “stable”, “less stable” and “operational” Deposits and PSIAus is given under A10.2.15.
          2. In order to calculate the value of Shari’a compliant hedging liabilities (e.g. Islamic swaps), the replacement cost must be obtained for the Shari’a compliant hedging contracts (obtained by marking to market), such as ISDA/IIFM Tahawwut Master Agreement (TMA), where the contract has a negative value. When an eligible bilateral netting contract is in place, the replacement cost for the set of Shari’a compliant hedging exposures covered by the contract will be the net replacement cost.
          3. In calculating the NSFR, collateral posted in the form of variation margin that follows Shari’a principles in connection with Shari’a compliant hedging contracts as in the TMA contract, regardless of the asset type, must be deducted from the negative replacement cost amount of the corresponding Shari’a compliant hedging liabilities.

    • Required Stable Funding (RSF)

      • PRU A10.4.9

        Subject to Rules A10.4.15, an Authorised Person must calculate its Required Stable Funding as the sum of the Required Stable Funding for its assets and for its off-balance sheet items, calculated in accordance with Rules A10.4.16, A10.4.18 and A10.4.19.

      • PRU A10.4.10 PRU A10.4.10

        In calculating the Required Stable Funding, an Authorised Person must, subject to (b) and (c):

        (a) (i) include financial instruments, foreign currencies and commodities for which a purchase order has been executed; and
        (ii) exclude financial instruments, foreign currencies and commodities for which a sales order has been executed.
        (b) (i) The effects of such transactions must be reflected in the balance sheet of the Authorised Person when settled; and
        (ii) such transactions must not be reflected as derivatives or secured financing transactions in the balance sheet of the Authorised Person.
        (c) This treatment is to be applied whether or not such transactions have been reflected in the balance sheet under a settlement-date accounting model.

        • PRU A10.4.11

          Where the value of a Derivative Contract represents an asset for an Authorised Person, the Authorised Person must:

          (a) calculate the positive value of the asset as the replacement cost for the contract, obtained by marking-to-market; and
          (b) deduct any collateral received in the form of variation margin from the positive replacement cost amount.

        • PRU A10.4.12

          An Authorised Person may use the net replacement cost as the replacement cost for a set of derivative exposures between the Authorised Person and a Counterparty where the following conditions are met:

          (a) an eligible bilateral netting contract must be in place between the Authorised Person and the Counterparty that is binding on the Authorised Person and the Counterparty and that is legally enforceable in all relevant jurisdictions;
          (b) that contract is a qualified financial contract as specified in the ADGM Insolvency Regulations and meets the conditions specified in Part 7, Chapter 2 therein; and
          (c) the Authorised Person meets the disclosure requirements for the NSFR as specified in App12.

        • PRU A10.4.13

          Where an Authorised Person has entered into secured funding arrangements, the Authorised Person must:

          (a) include in its calculation of the RSF;
          (i) securities it has lent in SFTs where it retains beneficial ownership; and
          (ii) encumbered securities in repos or other securities financing transactions where it has retained beneficial ownership and those assets remain on its balance sheet; and
          (b) exclude from its calculation of the RSF;
          (i) securities which it has borrowed in SFTs (such as reverse repos and collateral swaps) and to which it does not have beneficial ownership; and
          (ii) any securities it has received through collateral swaps if those securities do not appear on its balance sheet.

        • PRU A10.4.14

          An Authorised Person may measure SFTs with a single Counterparty net when calculating the NSFR where the following conditions are met:

          (a) an eligible bilateral netting contract must be in place between the Authorised Person and the Counterparty that is binding on the Authorised Person and the Counterparty and that is legally enforceable in all relevant jurisdictions;
          (b) that contract is a qualified financial contract as specified in the ADGM Insolvency Regulations and meets the conditions specified in Part 7, Chapter 2 therein; and
          (c) the Authorised Person meets the disclosure requirements for the NSFR as specified in App12.

        • PRU A10.4.15 PRU A10.4.15

          In determining the residual maturity of both assets and off-balance sheet items that are to be included in the Required Stable Funding, an Authorised Person must calculate the residual maturity of each individual asset or off-balance sheet item as being that period up to the latest point in time to which investors have the right to extend the maturity of an asset or an off-balance sheet item.

          • Guidance

            1. When determining the residual maturity of assets and off-balance sheet items, investors should be assumed to exercise any option to extend maturity. For assets with options exercisable at the discretion of the Authorised Person, the Regulator will take into account reputational factors that may limit the ability of the Authorised Person not to exercise the option.
            2. In particular, where the market expects certain assets to be extended in their maturity, Authorised Persons and the Regulator should assume such behaviour for the purpose of the NSFR and include these assets in the corresponding RSF category. For amortising loans, the portion that comes due within the one-year horizon may be considered as a having a residual maturity of less than one year and included in the appropriate RSF category.

        • PRU A10.4.16 PRU A10.4.16

          Subject to A10.4.17, an Authorised Person must calculate the Required Stable Funding that it needs for its assets by:

          (a) assigning each asset to one of the RSF asset categories in the following table;
          (b) multiplying the Carrying Value of each asset by the RSF factor associated with that asset category; and
          (c) summing those weighted values.
           
          RSF factor RSF asset category
          0% •  coins and banknotes immediately available to meet obligations
          •  all central bank reserves (including required reserves and excess reserves)
          •  all claims on central banks with residual maturities of less than six months
          •  “trade date” receivables arising from sales of financial instruments, foreign currencies and commodities that:
          o  are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or
          o  have failed to, but are still expected to, settle
          5% •  unencumbered Level 1 HQLA as defined in Rule A10.2.6(2), excluding those assets receiving an RSF factor of 0% as above
          10% •  unencumbered loans to financial institutions with residual maturities of less than six months, where the loan is secured against Level 1 HQLA as defined in Rule A10.2.7(2), and where the bank has the ability to freely rehypothecate the received collateral for the life of the loan
          15% •  unencumbered Level 2A assets as defined in Rule A10.2.8(2)
          •  all other unencumbered loans to financial institutions with residual maturities of less than six months not receiving an RSF factor of 10%
          50% • unencumbered Level 2B assets as defined and subject to the conditions set forth in Rule A10.2.8
          • any HQLA as defined in Rule A10.2.6, Rule 10.2.7 or Rule 10.2.8 that are encumbered for a period of between six months and less than one year
          • all loans to financial institutions and central banks with residual maturity of between six months and less than one year
          • operational deposits held at other financial institutions for operational purposes that are subject to the 50% ASF factor
          • all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non-financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns and PSEs
          65% • unencumbered residential mortgages with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under Rule 4.12.17
          • other unencumbered loans not included in the above categories, excluding loans to financial institutions, with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under Section 4.12
          85% • cash, securities or other assets posted as initial margin for Derivative Contracts or Shari’a compliant hedging contracts and cash or other assets provided to contribute to the default fund of a central counterparty (CCP). Where securities or other assets posted as initial margin for Derivative Contracts would otherwise receive a higher RSF factor, they must retain that higher factor
          • other unencumbered performing loans19 that do not qualify for a 50% or lower risk weight under Section 4.12 and have residual maturities of one year or more, excluding loans to financial institutions
          • unencumbered securities with a remaining maturity of one year or more and exchange-traded equities, that are not in default and do not qualify as HQLA according to the LCR
          • physical traded commodities, including gold
           
           

          • Guidance

            Guidance on the characteristics of “operational” Deposits is given under Rule A10.2.15.

        • PRU A10.4.17

          For encumbered assets not captured in the table in Rule A10.4.16, an Authorised Person must assign an RSF factor for Required Stable Funding in accordance with the following.

          (a) Assets encumbered for a period of between six months and less than one year that would, if unencumbered, receive an RSF factor lower than or equal to 50% must receive an RSF factor of 50%.
          (b) Assets encumbered for between six months and less than one year that would, if unencumbered, receive an RSF factor higher than 50% retain that higher RSF factor.
          (c) Where assets have less than six months remaining in the encumbrance period, those assets may receive the same RSF factor as an equivalent asset that is unencumbered.
          (d) For the purposes of calculating the NSFR, assets that are encumbered for exceptional central bank liquidity operations must receive the RSF factor that they would if they were unencumbered.

        • PRU A10.4.18

          An Authorised Person must calculate the Required Stable Funding that it needs for the assets to which Rule A10.4.17 applies by:

          (a) multiplying the Carrying Value of each of those assets by the RSF factor identified in Rule A10.4.17; and
          (b) summing those weighted values.

        • PRU A10.4.19

          An Authorised Person must calculate the Required Stable Funding that it needs for its off-balance sheet items, including potential liquidity exposures, by:

          (a) assigning each off-balance sheet items to one of the RSF off-balance categories in the following table;
          (b) multiplying the value of each of those items by the RSF factor associated with that off-balance sheet category; and
          (c) summing those weighted values.
           
          RSF factor RSF off-balance sheet category
          5% of the currently undrawn portion • Irrevocable and conditionally revocable credit and liquidity facilities to any client
          National discretion 5% • Other contingent funding obligations, including products and instruments such as:
          3% o unconditionally revocable credit and liquidity facilities
          10% o trade finance-related obligations (including guarantees and letters of credit)
          100%

          o non-contractual obligations such as:

          • potential requests for debt repurchases of the bank’s own debt or that of related conduits, securities investment vehicles and other such financing facilities

          • structured products where customers anticipate ready marketability, such as adjustable rate notes and variable rate demand notes (VRDNs)

          • managed funds that are marketed with the objective of maintaining a stable value