EBA Publishes Final Draft RTS on Criteria for Preferential Treatment in Cross-Border Intra-Group Financial Support under LCR

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On July 27, 2016, the EBA published a report containing final draft regulatory technical standards (RTS) on the specification of the additional objective criteria for preferential treatment in cross-border intra-group financial support in the calculation of the liquidity coverage requirement (LCR) under the Capital Requirements Regulation (Regulation 575/2013) (CRR) (EBA/RTS/2016/04).

The CRR permits a preferential treatment in the calculation of the LCR for intra-group liquidity flows. The Commission Delegated Regulation on the LCR ((EU) 2015/61) (LCR Delegated Regulation) specifies additional objective criteria for this preferential treatment for flows in the context of credit and liquidity facilities within a group or an institutional protection scheme (IPS) Articles 422(10) and 425(6) of the CRR mandate the EBA to develop RTS to further specify these additional objective criteria.

Under the final draft RTS:

  • a low liquidity risk profile of the liquidity provider and receiver required in the LCR Delegated Regulation will be determined on the basis of its compliance with the LCR and the Pillar 2 requirements, as well as on the basis of the outcome of the latest supervisory review and evaluation process (SREP);
  • credit institutions’ management bodies will be required to submit a written and reasoned legal opinion certifying that the credit or liquidity line in the LCR Delegated Regulation is a committed line legally and practically available at any time. The line is also subject to other requirements such as currency denomination or maturity date, to reinforce its appropriateness for the application of the preferential treatment; and
  • The LCR Delegated Regulation requires that the liquidity risk profile of the liquidity receiver be taken into account in the liquidity risk management plans of the liquidity provider. Under the RTS, the liquidity provider must monitor and oversee the liquidity position of the receiver on a daily basis. The contingency funding plan of the liquidity provider must ensure that, from this monitoring, the liquidity support to the receiver is guaranteed, even in times of stress.

The final draft RTS will now be submitted to the European Commission for endorsement.