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Exemption of inflows from the 75% cap within LCR

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Article 425 (1) of Regulation (EU) No 575/2013 (Capital Requirements Regulation, “CRR”) prescribes that credit institutions must report their liquidity inflows as part of the Liquidity Coverage Ratio (LCR). Certain inflows from counterparties within the same group or the same institutional protection scheme (IPS) may be excluded from this upper boundary with approval by the competent supervisory authority. This page describes the background of the arrangement and contains information about the significant requirements for approval.

Pursuant to Article 425 (1) CRR, credit institutions are required to report their liquidity inflows as part of the Liquidity Coverage Ratio (LCR). To ensure that credit institutions do not solely rely on expected inflows of funds to satisfy their liquidity requirements, and to ensure a minimum level of HQLA (High Quality Liquid Assets), a cap of 75% of the total expected outflows is set for the amount of inflows. A credit institution must therefore principally hold a minimum level of HQLA, which corresponds to at least 25% of the total expected outflows of funds.

In accordance with Article 425 (1) CRR in conjunction with Article 33 of the Delegated Regulation on the LCR, certain inflows from counterparties within the same group or the same institutional protection scheme may be excluded from this cap with approval by the competent supervisory authority. In addition there are also special arrangements for certain types of inflows and special purpose banks. The approval is only granted, if the inflows for which the application is being made are actually suitable to positively influence effective compliance with the LCR in a sustainable manner.


Caution:

The application for an approval pursuant to Article 425 (1) CRR in conjunction with Article 33 dR LCR is at earliest possible following the publication of the delegated Regulation in accordance with Article 460 CRR (delegated Regulation LCR) in the Official Journal of the European Union.

  • At least three (compulsory) LCR reports have been made

  • The 75% cap is reached on a repeated basis (empirically provable)

  • Justified assumptions that inflows will be higher even under a combined market and idiosyncratic stress of the counterparty

  • Contractual assurance that the counterparty assumes a symmetrical or even more conservative outflow in the LCR

  • Fulfilled LCR minimum ratio by the counterparties

  • The LCR liquidity coverage buffer must at all times hold at least 20% HQLA (as a percentage of the total gross outflows). In the case of special purpose banks, this minimum amount may be required, if approved, to 10%.

  • Integration of the effects of the approval in appropriate liquidity risk management

  • Filled out application form

  • A clear representation of the relationships of the entities; units within the group (listed by Commercial Register number) including ownership relationships as well as the effective control as at the last balance-sheet date as well as the two preceding balance-sheet dates; confirmed by the external auditor;

  • A precise description of the inflows that are intended to be excluded from the cap as well as naming which institution(s) shall provide liquidity

  • Submission of administrative decision granting approval in accordance with Article 113 (6) or (7) CRR

  • Contractual agreements (an agreement between the institution providing liquidity or the group-wide agreement including the signatures of the responsible persons from all institutions making the application);

  • Filled out reporting forms (at least three LCR reports using the latest available ITS Reporting Template must be submitted) including a statement about the effect on the LCR of the approval (taken into account the applicable minimum threshold or 20% or 10% HQLA)

  • Submission of additional documents including a query of stress test results, business continuity plans and the consolidated risk situation

  • Evidence that the inflows will be higher despite the stress scenario

Caution

This notice is supplied by the Financial Market Authority solely for information purposes. No rights and obligations over and above the provisions of the law can be derived from this information.

The Financial Market Authority reserves the right to place additional requirements or to request additional proof from the institutions during the authorisation process.

Further information