The Association of Corporate Treasurers

The Association of Corporate Treasurers (ACT) recognises the need for regulatory oversight of the full scope of the financial markets in order to identify and manage systemic risk to the financial systems and full fill the commitments made to the G20 and the Financial Stability Board (FSB).

We would appreciate the staff of the EBA improving their understanding of the scope of financial activity required to manage a commercial group’s affairs. We would be pleased to meet with the banks’ staff to explain and clarify our members’ employers activities.

Commercial Non-Financial Institutions (NFIs) have not been identified as systemically risky, are end users of financial services for the purposes of meeting their commercial objectives, do not engage in consumer deposit taking or finance, and have no financial recourse to governmental agencies when under stress.

Many NFIs conduct their business as groups of companies, often across national borders. Centralised management of cash and credit achieves financial efficiency and risk management of the group. The form of wording of the definition of Credit Intermediation Activities in Title 1, Section 6. of the Draft EBA Guidelines would bring these intra group activities within scope of the draft guidelines that definition being:

-Credit intermediation activities means bank-like activities involving maturity transformation, liquidity transformation, leverage, credit risk transfer or similar activities.

Specific examples of NFI intra group activities are:

Cash Pooling systems to efficiently use cash across a group and which require member companies of the pool cross guarantee one another.

Parent Company guarantees: often required in one country for a subsidiary and made by a parent company in another and for which a proportionate credit charge is made to ensure transfer charging protocols are met.

Intra Group Loans: made by parent companies to subsidiaries and long term in nature to provide certainty to subsidiary suppliers where the funding of the loans is part of the funding mix of the parent and may be at any instance coevered by long and short term borrowings or by use of cash surpluses. As for guarantees, a proportionate credit charge is required to meet the requirements of domestic tax regimes.

We seek therefore that those entities defined as commercial Non-Financial Institutions (NFIs) should be excluded from the draft EBA Guidelines.

We propose to respond “No comment” to the following questions on the gounds that entering into discussion over the form of enforcement of the guidelines would acknowledge that NFIs could be included in the definitions.
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Stephen Baseby