- Question ID
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2024_7196
- Legal act
- Regulation (EU) No 2019/2033 (IFR)
- Topic
- Liquidity risk
- Article
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43
- Paragraph
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3
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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N/A
- Type of submitter
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Competent authority
- Subject matter
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Determination of the amount of eligible receivables from trade debtors as well as fees or commissions receivable within 30 days as liquid assets in accordance with Article 43(3) of the IFR
- Question
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Should the conditions listed in points a), and c) of Article 43(3) of the IFR be applied in the presented order (a), then c)) or to be complied with on a cumulative basis (a)+c))?
- Background on the question
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An investment firm shall hold an amount of liquid assets equivalent to at least one third of the fixed overhead requirement in accordance with Article 43(1) of IFR, where liquid assets to be considered are detailed in the first paragraph.
Article 43(3) of the IFR allows certain investment firms to “… include receivables from trade debtors as well as fees or commissions receivable within 30 days in their liquid assets, where those receivables comply with the following conditions:
(a) they account for up to a maximum of one third of the minimum liquidity requirements as referred to in paragraph 1 of this Article;
(b) …;
(c) they are subject to a haircut of 50 %.”
The practical application of these conditions may result in different outcomes as the regulatory text does not clearly specify how (i.e. in which order) those conditions shall be applied.
Accordingly, it’s not clear whether the haircut should be applied to the whole amount of receivables before applying the upper limit set out in point (a), or the haircut should be applied only after the upper limit of point (a) has been accounted for.
- Submission date
- Final publishing date
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- Final answer
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Article 43 of Regulation (EU) 2019/2033 (IFR) defines the liquidity requirements for investment firms. Paragraph 3 of that article allows small and non-interconnected investment firms, as well as other investment firms that do not perform activities (3) and (6) of Section A of Annex I to Directive 2014/65/ EU, to include receivables from trade debtors as well as fees or commissions receivable within 30 days in their liquid assets. In order to be eligible, these receivables must: i) account for up to a maximum of one third of the minimum liquidity requirements as referred to in paragraph 1 of this Article; ii) not be counted towards any additional liquidity requirements required by the competent authority for firm‐ specific risks in accordance with point (k) of Article 39(2) of Directive (EU) 2019/2034; iii) be subject to a haircut of 50%.
The conditions included in Article 43(3) of the IFR must all be satisfied at the same time, and the order in which they are listed should not be intended as a sequential approach.
The following example exemplifies the calculation.
An investment firm, in scope of Article 43(3) of the IFR, presents the following data:
- fixed overheads: 1 million euro;
- receivables from trade debtors (in scope of Article 43(3) IFR): 100,000 euro;
- fixed overhead requirement (Art. 13 IFR) = 250,000 euro (one quarter of the fixed overheads);
- liquidity requirement (Art. 43(1) IFR) = 83,300 euro (one third of the fixed overheads requirement).
According to Article 43(3) of the IFR, the maximum amount of receivables that can be included in the liquid assets should be calculated as follows:
- receivables after the application of the haircut (Art. 43(3)(c) IFR) = 50,000 euro (50% of 100,000 euro);
- maximum amount eligible for the purposes of Article 43(1) IFR, calculated according to Article 43(3)(a) IFR: 27,700 euro (one third of 83,300 euro);
maximum amount of receivables that can be included in the liquid assets pursuant to Article 43(1) IFR = 27,700 euro.
- Status
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Final Q&A
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.