Question ID
2013_305
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Liquidity risk
Article
422
Paragraph
3-4
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
na
Name of institution / submitter
European Banking Federation
Country of incorporation / residence
Belgium
Type of submitter
Industry association
Subject matter
Outflows on other liabilities for Operational Accounts (Basel para 93 -104)
Question

a. CRR in addition to clearing, custody and cash management CRR considers “other comparable services” eligible for a 5% run off. Are correspondent banking and prime brokerage services included in the definition? b. How does one prove that the client is unable to withdraw without compromising client’s operational functioning over a 30 day horizon? c. How often do you need to check if an account is meeting the criteria for operational accounts?

Background on the question

BCBS 238 §99 says deposits arising from correspondent banking and prime brokerage have no operational activity (The footnote says correspondent banking refers to arrangements under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services in order to settle foreign currency transactions. This would imply for example that a Euro deposit from a US bank placed with a French bank could not be considered for operational account treatment. However, Article 422(4) of Regulation (EU) No. 575 states that operational accounts shall not merely consist in correspondent banking or prime brokerage services. This implies that, whereas Basel excludes Nostro accounts, there is the potential within the Nostro accounts provided that they meet the other criteria.

Submission date
Final answer

According to Article 422(4) of Regulation (EU) No. 575/2013 (CRR), clearing, custody or cash management activities do not include correspondent banking or prime brokerage services alone. Only those activities of correspondent banking or prime brokerage that comprise clearing, custody or cash management may be eligible as operational deposits. Other comparable services shall be eligible for the 5% or 25% run-off as appropriate, provided there is evidence that the client is unable to withdraw amounts legally due over a 30 day horizon without compromising its operational functioning (i.e. the institution should be aware that the customer does not have adequate back-up arrangements). These services shall be provided under a contractual agreement.

Article 422(4) second subparagraph of the CRR states that, pending a uniform definition of an established operational relationship, institutions shall themselves establish the criteria to identify an established operational relationship for which they have evidence that the client is unable to draw amount legally due over 30 days without compromising its 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.

Please see also related question QA 2013_135 for further information.

It should be noted that according to Article 509(2)(l) of the CRR, the EBA assessed the calibration of the outflow rate applicable to correspondent banking and prime brokerage services and came to the conclusion that the specific outflow rate on these types of deposits should not be recalibrated (from 100%) to 0%. The EBA report on this can be read here.

Status
Archive
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been archived as the issue it deals with is addressed in Article 27 of Delegated Regulation (EU) 2015/61 and the July 2019 EBA report on LCR implementation in the EU.