Response to consultation on Guidelines liquidity stress testing under MiCAR
Question 3. Do respondents find operational challenges in the implementation of the guidelines?
Given the substantial burdens on smaller and less significant issuers, we would request that the EBA be more clear in incorporating the proportionality concept into their processes.
Developing scenarios that accurately reflect potential liquidity risks requires sophisticated modeling and a deep understanding of market dynamics and smaller firms may require scale to properly employ these capabilities.
Significant human and technological resources are necessary to conduct, analyze, and implement findings from stress tests, which could be burdensome for smaller issuers.
Question 4. Do respondents find any piece of the guidelines confusing or difficult to un-derstand?
The list of permissible instruments of “highly liquid financial instruments at market value in which the issuer may invest” is inconsistent with the true spirit of capital preservation and liquidity. First, there should not be a maximum exposure threshold on short-dated, highly liquid instruments that are issued by Government entities that explicitly or implicitly guarantee the obligation (ie U.S. TBills). Second, covered bonds do not maintain the same liquidity profile as direct obligations of established Government entities and should not even be included in the list of permitted assets. Third, unsecured products that are direct obligations of non-Government entities are subject to credit risk and therefore could significantly compromise capital preservation in the event of market stress. Finally, derivatives of any type are inappropriate for stablecoin products that seek to maintain 1:1 peg.