LIECHTENSTEIN Law and Practice Contributed by: Bernhard Rankl, Moritz Blasy and Nicolai Binkert, Schurti Partners Attorneys at Law Ltd
Net stable funding ratio (NSFR) The NSFR is a long-term liquidity metric that requires banks to maintain a stable funding pro - file relative to their asset and off-balance sheet activities. It sets the available stable funding in relation to the required stable funding, which cannot be less than 100%. The NSFR requires banks to maintain sufficient stable funding to cover the required stable funding over a one- year period. Sources of stable funding include equity, long-term debt and retail and corporate deposits. The NSFR ensures that banks are less reliant on short-term, variable funding sources and can withstand long-term liquidity disrup - tions. Risk Control Requirements Internal Capital Adequacy Assessment Process (ICAAP) ICAAP requires banks to assess their capital needs in relation to their risk profile. Banks must identify and measure all material risks (includ - ing risks not covered by regulatory minimum capital requirements) and ensure that they hold sufficient capital to cover these risks. Banks must document their ICAAP in a comprehensive report and submit it to the FMA. The regulator assesses the adequacy of the bank’s capital and risk management practices as part of its super - visory review process. Internal Liquidity Adequacy Assessment Process (ILAAP) ILAAP is similar to ICAAP but focuses on liquid - ity risk. Banks must assess their liquidity needs under both normal and stressed conditions and ensure that they maintain sufficient liquid assets to meet their obligations. Like the ICAAP, the ILAAP must be submitted to the FMA, and the adequacy of the bank’s liquidity risk man - agement framework is reviewed as part of the supervisory process.
Supervisory Review and Evaluation Process (SREP) The Supervisory Review and Evaluation Pro - cess ( Aufsichtlicher Überprüfungs- und Bewer- tungsprozess SREP) is a key component of the FMA’s supervision of banks in Liechtenstein. The SREP involves a thorough review of the bank’s capital adequacy, liquidity position, and risk management practices. With the SREP, the FMA assesses whether a bank’s internal risk controls are sufficient and whether it holds ade - quate capital and liquidity in relation to its risks. Under the SREP, the FMA may impose Pillar 2 capital requirements on banks, requiring them to hold additional capital above the regulatory minimum if their risk profile warrants it. These Pillar 2 requirements are based on the bank’s individual risk assessment and are intended to address risks that are not fully covered by the standard Pillar 1 requirements. Stress Testing The FMA conducts stress tests to assess the resilience of Liechtenstein banks to adverse economic scenarios. These stress tests simu - late the impact of various macroeconomic and financial shocks on the capital and liquidity posi - tions of the bank. The results of the stress tests help the banks and the FMA to identify potential vulnerabilities and take preventive measures to strengthen the bank’s risk profile. 8. Insolvency, Recovery and Resolution 8.1 Legal and Regulatory Framework Liechtenstein’s legal and regulatory framework for bank insolvency, recovery and resolution is primarily shaped by national legislation and EU directives, ensuring that the country’s regulatory framework is compatible with European stand -
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