Board and senior management responsibiliBoard and senior management responsibilities

Board and senior management responsibilities

1. An ADI’s Board of directors (Board) is ultimately responsible for the sound and prudent management of the liquidity risk of the ADI. An ADI must maintain a liquidity risk management framework commensurate with the level and extent of liquidity risk to which the ADI is exposed from its activities. In relation to a foreign ADI, the responsibilities of the Board in this Prudential Standard are to be fulfilled by the senior officer outside Australia.
2. The liquidity risk management framework must include, at a minimum:
   1. a statement of the ADI’s liquidity risk tolerance, approved by the Board;
   2. the liquidity management strategy and policy of the ADI, approved by the Board;
   3. the ADI’s operating standards (e.g. in the form of policies, procedures and controls) for identifying, measuring, monitoring and controlling its liquidity risk in accordance with its liquidity risk tolerance;
   4. the ADI’s funding strategy, approved by the Board; and
   5. a contingency funding plan.
3. The Board must ensure that:
   1. senior management and other relevant personnel have the necessary experience to manage liquidity risk; and
   2. the ADI’s liquidity risk management framework and liquidity risk management practices are documented and reviewed at least annually.
4. The Board must review regular reports on the liquidity position of the ADI and, where necessary, information on new or emerging liquidity risks.
5. An ADI’s senior management must, at a minimum:
   1. develop a liquidity management strategy, policies and processes in accordance with the Board-approved liquidity tolerance;
   2. ensure that the ADI maintains sufficient liquidity at all times;
   3. determine the structure, responsibilities and controls for managing liquidity risk and for overseeing the liquidity positions of all legal entities, branches and subsidiaries in the jurisdictions in which the ADI is active, and outline these elements clearly in the ADI’s liquidity policies;
   4. ensure that the ADI has adequate internal controls to ensure the integrity of its liquidity risk management processes;
   5. ensure that stress tests, contingency funding plans and holdings of liquid assets are effective and appropriate for the ADI;
   6. establish a set of reporting criteria specifying the scope, manner and frequency of reporting for various recipients (such as the Board, senior management and the asset/liability committee) including the parties responsible for preparing the reports;
   7. establish specific procedures and approvals necessary for exceptions to policies and limits, including escalation procedures and follow-up actions to be taken for breaches of limits;