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Regarding disclosure information on encumbered assets, it is noted that repo is included as a form of encumbrance. The ICMA has previously highlighted potential unintended consequences of including repo (on a gross basis) as an encumbrance and has pressed for recognition of repo/reverse repo netting. The ICMA would like to restate its concerns about the EBA’s definition of asset encumbrance, and the danger of using a catch-all approach to reporting securities financing trades (SFTs). The ICMA fully supports the reporting of SFTs where legal title remains with the lender of the security (such as pledges) as encumbered. However, where legal title is passed to the borrower (as is the case with repurchase agreements transacted under the General Master Repurchase Agreement), the ICMA feels that the correct guidance should be to report these transactions as unencumbered assets and on a net basis.

Where haircuts (in the form of over-collateralization) are applied to these transactions, the ICMA recognizes that this is a form of encumbrance. Accordingly, we would expect guidance for reporting net haircuts received as a form of encumbered assets. Similarly, the marginal contingent encumbrance arising out of SFT margining should also be reported. In this instance the ICMA would suggest some form of appropriate risk-weighting be applied to the underlying asset to represent this marginal contingent encumbrance.

The ICMA feels strongly that the reporting of asset encumbrance with respect to SFTs should not only be consistent with the legal form of the transactions, but equally it should not be reported in a way that could be misleading. If the EBA disagrees with the ICMA’s interpretation of asset encumbrance arising from SFTs, we would be grateful for an explanation of the basis for any other interpretation.
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Information disclosed which is based on median values (of at least quarterly data of the reporting year) would introduce additional reporting requirements around the processes developed to support annual disclosures, and would affect the transparency of such processes and disclosures. Therefore, disclosure should be on a point-in-time basis for the immediately preceding period, which is consistent with annual reporting.
The opportunity to include narrative information relating to the impact of a business model on an encumbrance level, and the importance of encumbrance in an individual firm’s funding model, is welcomed. However, this may present a challenge without guidelines in terms of consistency of drafting and extent of narrative disclosure.

With respect to the non-disclosure of emergency liquidity assistance, it is appreciated that the integrity and confidentiality of such exercises by central banks must be preserved if ELA is to continue to be capable of being provided. Nevertheless, in the first instance we would question the motivation behind what might be regarded as instituting regulatory infrastructure to allow purposeful opacity. Additionally, there is a danger that such non-disclosure may render the overall disclosure incomplete and misleading and may distort the full picture for the investors in that firstly, it could lead to over statement of contingent funding capacity and availability of collateral, and secondly, certain numbers may not match with other sections of the accounts. Mindful of these considerations, further guidance on how to account for ELA across the accounts would be welcomed.

Stronger firms will generally have more diversified secured funding sources - including access to multiple central bank facilities – but the opacity surrounding non-disclosure of ELA could disadvantage any firm for whom a greater proportion of secured funding and encumbrance is from either market sources or by way of ELA. Additionally, although an investor is likely to be able to assess any potential ELA by checking prior year disclosures, this seems unnecessarily burdensome.
We consider that disclosures should follow the usual annual reporting period with no time lag, which is consistent with rest of the liquidity disclosures.
Katie Kelly