This section applies to a firm carrying on any home financing or home finance administration connected to regulated mortgage contracts, unless as at 26 April 2014 its Part 4A permission was and continues to remain subject to a restriction preventing it from undertaking new home financing or home finance administration connected to regulated mortgage contracts.
In assessing the adequacy of liquidity resources, a firm should have regard to the overall character of the resources available to it, which enable it to meet its liabilities as they fall due. A firm should ensure that:
it holds sufficient assets which are marketable, or otherwise realisable;
it is able to generate funds from those assets in a timely manner; and
it maintains a prudent funding profile in which its assets are of appropriate maturities, taking into account the expected timing of its liabilities.
A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk over the appropriate set of time horizons for its business activities, to ensure that it maintains adequate levels of liquidity resources. These strategies, policies, processes, and systems must be appropriate to the firm's business lines, currencies in which it operates, and its group companies and must include adequate allocation mechanisms of liquidity costs, benefits and risks.
A firm must consider alternative scenarios in which its liquidity position could be impacted. The consideration of alternative scenarios must include and deal with off-balance sheet items and other contingent liabilities, including those of securitisation special purpose entities (SSPEs) or other special purpose entities, in relation to which the firm acts as sponsor or provides material liquidity support. These scenarios must be incorporated into the stress testing under MIPRU 4.2D.9 R.
conduct on a regular basis appropriate stress tests so as to:
analyse the separate and combined impact of possible future liquidity stresses on its:
make, as soon as is practicable after a test has been performed, and maintain a written record of all stress tests and their results
For the purpose of MIPRU 4.2D.10 R a review should take into account:
A firm must have in place contingency funding plans setting out adequate strategies and proper implementation measures in order to address potential liquidity shortfalls.
The contingency funding plans must be:
A contingency funding plan sets out a firm's strategies for managing liquidity shortfalls in emergency situations. Its aim should be to ensure that, in each of the stresses set out in MIPRU 4.2D.11 G, it would have sufficient liquidity resources to ensure that it can meet its liabilities as they fall due.