2013_135 Evidence that a client is unable to withdraw amounts legally due over a 30 day period without compromising its operational functioning

Question ID:

2013_135

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Liquidity risk

Article:

422

Paragraph:

Subparagraph:

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

Disclose name of institution / entity:

Yes

Name of institution / submitter:

HSBC Holdings PLC

Country of incorporation / residence:

Type of submitter:

Credit institution

Subject Matter:

Evidence that a client is unable to withdraw amounts legally due over a 30 day period without compromising its operational functioning

Question:

With regards to both: • deposits in the context of Clearing, Custody and Cash Management, Article 422(3)(a) and (d) Regulation (EU) No 575/2013 (CRR), • deposits in the context of an established operational relationship Article 422(3)(c) (recognising the definition of an established operational relationship here is pending from the EBA), what type of 'evidence' are institutions required to demonstrate (Article 422(4)) and how conclusive does this evidence need to be for the deposit to be considered eligible? Also, with regard to Article 422(3)(c), it would appear from Article 509(2)(k) that established operational relationships will only be seen with non-financial corporates. Can you confirm if this is the case?

Background on the question:

25% deposit outflow

Date of submission:

07/08/2013

Final Answer:

Article 422(4) second subparagraph of Regulation (EU) No 575/2013 (CRR) states that, pending a uniform definition on an established operational relationship, institutions shall themselves establish the criteria to identify an established operational relationship for which they have a evidence that the client is unable to draw amount legally due over 30 days without compromising their operational functioning. The institution shall report these criteria to the competent authority. In the absence of a uniform definition competent authorities may provide general guidance.

Notwithstanding the above mentioned article and any guidance provided by competent authorities in the absence of a uniform definition, for deposits under Article 422(3)(a) and (d), institutions can provide different forms of evidence that a client cannot withdraw deposited amount. These could include, for example, the following elements:

minimum end of day credit balance which has been proved to be stable over time;
deposits are by-products of the underlying services provided by the banking organization and not sought out in the wholesale market in the sole interest of offering interest income;
deposits are held in specifically designated accounts and priced without giving an economic incentive to the customer (not limited to paying market interest rates) to leave any excess funds on these accounts.

As regards reporting of deposits from financials, it should be noted that while Article 509(2)(k) is clearly focused on established operational relationships with non-financial customers, Article 422(3)(c) refers to operational deposits that have to be maintained by the depositor in the context of an established operational relationship other than those reported in accordance with Article 422(3)(a), and as such, operational deposits from financial customers are not excluded from being reported in accordance with Article 422(3)(c).

Status: