- Question ID
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2014_1619
- Legal act
- Regulation (EU) No 575/2013 (CRR)
- Topic
- Liquidity risk
- Article
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423
- Paragraph
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1
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Regulation (EU) No 680/2014 - ITS on supervisory reporting of institutions (repealed)
- Article/Paragraph
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Annex XII
- Type of submitter
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Other
- Subject matter
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Applicability of Article 423(1) of the CRR for intermediaries facilitating derivatives clearing between its clients and a CCP
- Question
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Is it permissible for an institution, for which the following is true, not to apply the additional outflow required under Article 423(1) of Regulation (EU) No 575/2013 (CRR): (i) the institution acts as a financial intermediary in the meaning of Article 303 of the CRR between a client and a central counterparty (CCP) in order to facilitate the central clearing of the clients’ derivatives (as e.g. required in the future by Regulation (EU) no 648/2012 (“EMIR”)); and (ii) it is contractually assured that the institution immediately receives collateral from its clients in case the value of the collateral posted to the institution as margin for its set of derivatives channelled through this intermediary to the CCP is not sufficient to cover the CCP’s margin requests for the set of derivatives.
- Background on the question
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As a general principle set out in Article 425(2) of Regulation (EU) No 575/2013 (CRR) the institution captures contractual inflows from exposures that are not past due and for which the institution has no reason to expect non-performance within the 30-day time horizon in its inflow computation. Where an institution acts as an intermediary between a client and a CCP and is in a position in which any margin request issued by the CCP to the institution (triggering an outflow) is mirrored by a corresponding claim of the institution to its client (triggering an inflow) in at least the scale of the CCP’s margin request, the potential outflow residual remaining with the institution is consequently zero. Broadly speaking, the institution only 'passes through' the collateral, i.e. it receives collateral from the client and passes it on to the CCP. In the case of deterioration of the collateral value, whereas the institution indeed faces a collateral call from the central counterparty, it is simultaneously entitled to demand additional collateral (usually of at least equal amount) from the client, hence preventing a net outflow from the perspective of the institution.
- Submission date
- Final publishing date
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- Final answer
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Article 423(1) of Regulation (EU) No 575/2013 (CRR) does not provide for any derogation to the 20% outflow which shall be applied to certain collateral posted and it is therefore not currently permissible to assume an outflow of zero for collateral posted to a central counterparty (CCP) even if the circumstances described in the question are fulfilled.
Under Article 30(1) of the Delegated Act on the Liquidity Coverage Ratio (Commission Delegated Regulation (EU) 2015/61), a 20% outflow should be taken into account for collateral other than cash and assets referred to in Article 10, and a 10% outflow should be taken into account for collateral on assets referred to in Article 10(1)(f).
Notwithstanding the foregoing, from 1 October 2015 (the date of application of the Delegated Act), if the conditions of Article 26 of the Delegated Act are met, the transaction may be treated within the context of outflows with inter-dependent inflows. This treatment is subject to the prior approval of the competent authority.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the EBA.
- Note to Q&A
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Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.