Liquidity coverage ratio for brokers established
Beginning on 1 October 2021, brokers will be obliged to comply with the liquidity coverage ratio (LCR), that is, they must hold an amount of high-quality liquid assets that would be sufficient to continue their operations in the case of a substantial cash outflow over a month. The relevant Bank of Russia Ordinance was officially registered by the Ministry of Justice. This ordinance is applicable to brokers entitled to make advantage of their clients’ funds.
The new ratio will enhance the protection of investors’ funds and enable brokers to refund money at clients’ requests no later than on the next business day. Brokers will be required to comply with the LCR on a daily basis. If brokers breach the LCR for any reasons beyond their control, e.g. when a credit rating changes or a risk-based rate of securities grows up, they will have time to rectify such violation. Depending on the reason, this period of time may be one or two months.
The LCR will be implemented on a step-by-step basis. Beginning from 1 October 2021, it will equal 70%, which implies that high-liquid assets shall cover 70% of a broker’s expected net outflow. From 1 October 2022, the LCR will be 80%; and from 1 October 2023 it will increase to 100%. This timeframe will make it possible for market players to gradually adjust their business models and prepare their IT systems, if needed.