Response to consultation on RTS further specifying the liquidity requirements of the reserve of assets under MiCAR
Question 1. Do respondents have any comment about the calibration of the percentages of reserve assets with specific maximum maturities as suggested in Article 1 and Article 2 of the draft RTS?
We note that the EBA has proposed its calibration of the relevant percentages of reserve assets that need to mature within the following 1 and 5 working days on the recent evidence of deposit run-offs in banks related to crypto related activities and the comparable Money Market Funds Regulation. We respectfully assert that ‘baking in’ this calibration creates a risk to market dynamics, including that the growth and maturity of crypto market and bank activities may warrant a revision of this calibration in the future. Such a revision cannot always be promptly or easily made through RTS and therefore the EBA should consider mechanisms through which this calibration can be adjusted in the future more easily. For instance, this could include the issuance of an opinion or other supervisory convergence measure by the EBA.
Question 2. Do respondents consider that the requirements in Article 1 and Article 2 related to the 1 and 5 working days maximum maturity could create excessive pressure in the repo market, taking into account the minimum required amount of deposits in credit institutions in the case of tokens referenced to official currencies?
We do not have a definitive view on whether excessive pressure will be created in the current repo market. We are concerned, however, that the inflexible nature of the calibration of the 1-5 working maximum maturity floor in the reserve asset calculation could create such pressure in the market in stress scenarios in the future. We would encourage the EBA to consider in advance how it might amend the calibration or take other measures into account were such an event to occur. As noted in our response to question 1, revisions to calibrations cannot always be promptly or easily made through RTS or through the bounds of the supervisory discretion afforded to NCAs in MiCAR.
Question 3. Do respondents have any comment on the proposed approach in Article 3 of the draft RTS to not increase the minimum amount of deposits from 30% (or 60% if the token is significant) of the asset referenced in each official currency?
We agree with the EBA's proposal not to increase the proposed floor for reserve assets held as deposits with credit institutions. As set out in our other comments, we recommend that the EBA increases the proposed deposit counterparty limits (see our answer to Q5 and Q6).
Question 4. Do respondents have any comment with the definition of the requirement of a minimum liquidity soundness and creditworthiness in the deposits with credit institutions as proposed in Article 4 of the draft RTS?
We do not have any comments on the proposed definition for the purposes of including deposits in the reserve assets but note that issuers may have reason to expect non-performance by credit institutions in the event of such an institution getting into financial difficulty.
Question 5. Do respondents have any comment about the definition of the requirement of a maximum concentration limit of deposits with credit institutions by counterparty in Article 5 of these draft RTS? And about the definition of the general limit considering, in addition to deposit with a bank, also the covered bonds issued by and unmargined OTC derivatives with the same bank counterparty?
We respectfully disagree with the EBA’s proposal to set the concentration limit by deposit counterparty to half that of the UCITS framework on the basis of ‘the risks inherent in crypto activities.’ The EBA’s impact assessment does not appear to justify setting a significantly lower limit than is in the well tested UCITS framework which has existed for several decades.
Question 6. Do respondents have any concern about compliance with these concentration limits in Article 5, considering in particular paragraph 14 of the cost/benefit analysis in relation to the potential operational burden and risk of a wrong direction diversification, linked to the minimum required liquidity soundness and creditworthiness of deposits with banks, and taking into account the minimum amount required of deposits with credit institutions by MiCAR for tokens referenced to official currencies?
We do not support the EBA’s proposals for a 10% limit per credit institution (and 5% if not a large credit institution). The proposed concentration limits will heighten the undesirable consequences highlighted by the EBA, including operational and economic challenges when sourcing banking partners and increase the risk of adverse selection based on factors other than creditworthiness and liquidity soundness.
Question 7. Do respondents have any comment about the definition of the mandatory over-collateralisation in Article 6 of these draft RTS and the rationale for it? Do respondents find it challenging from an operational perspective, in particular with respect to envisaging 5 days windows rather than 1 day windows for observation periods of the market value of the assets referenced versus the reserve of assets and over the previous 5 years? Please elaborate your response with detailed reasoning.
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Question 8. Do respondent think that any provision in the draft RTS is confusing and that some clarification would be necessary?
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