Can banknotes held in locations other than branches be classified as ‘coins and banknotes’ under Delegated Regulation 2015/61 and thus be eligible to be classed as Level 1 liquid assets if the operational requirements per Article 8 can be satisfied?
The relevant banknotes are held in safes within supermarkets owned and operated by the credit institution’s parent and used to replenish Automated Teller Machines (ATMs) under business as usual conditions. Under liquidity stress, the credit institution would immediately pass control of these resources to the liquidity management function, which would recall this cash to meet liquidity outflows in that currency. The third party cash management company used by the credit institution to deliver and collect cash from the ATM network has confirmed that the cash in safes could be collected from the relevant safes and returned to the credit institution within 3 days if instructed. There would be no impact on existing business processes.
We consider that this meets the operational requirements in Delegated Regulation (EU) 2015/61 Article 8 including paragraph 3(b).
The credit institution operates a network of ATMs at various non-branch locations (supermarkets). These machines are regularly refilled to maintain balances, ensuring customers have continuous access to cash. At any given point of the time, there will be banknotes held in ATMs; in supermarket safes; and in transit to ATM locations. Under a liquidity stress scenario control over the cash would be passed to the credit institution’s liquidity management function which could immediately recall the cash in safes and/or reduce the overall levels of cash held in the ATM estate. The banknotes held in supermarket safes would be collected and returned to the credit institution within 3 days and would therefore be available to meet liquidity requirements. Under this strategy, the ATM business would continue to function without any impact on customer access.
Delegated Regulation (EU) 2015/61 Article 8(3) states that credit institutions shall ensure their liquid assets are under the control of a specific liquidity management function within the credit institution. Furthermore shall internal systems and controls give the liquidity management function effective operational control to monetise the holdings of liquid assets at any point in the 30 calendar day stress period and to access the contingent funds without directly conflicting with any existing business or risk management strategies.
Article 8(3) requires that the liquidity management function at any point in time can access the contingent funds. As the collection process takes approximately 3 days, the credit institution does not fulfill the operational requirements of Article 8(3) of the Delegated Regulation (EU) 2015/61.