Guidance on Article 23 of the LCR Delegated Act

Antwoord:

In order to promote consistent and harmonised reporting by institutions in accordance with Article 23 LCR DR, DNB follows the Guidance on Article 23 LCR DR as included in the EBA report ‘Monitoring the Liquidity Coverage Ratio Implementation in the EU’. In addition to this report DNB offers specific guidance as detailed below. This guidance is addressed to Dutch credit institutions directly supervised by DNB. Institutions are requested to take into account this guidance in their monthly LCR reporting as well as in the annual qualitative data request on Article 23 LCR DR reporting.

In accordance with Article 23 of the Delegated Act on the Liquidity Coverage Requirement (Commission Delegated Regulation [EU] 2015/61), institutions need to assess the likelihood and potential volume of liquidity outflows during 30 calendar days for other products and services which are not covered in Articles 27-31 LCR DR and which they offer or sponsor or which potential purchasers would consider associated with them.

Since no specific outflow percentages are prescribed in Article 23 LCR DR, institutions can use their own methodology for assigning an appropriate outflow percentage to these products and services. As part of this assessment, institutions need to assume combined idiosyncratic and market-wide stress and they need to take into account material reputational damage that could result from not providing liquidity support to the products and services.

In addition to the regular (COREP) LCR DR reporting requirement, institutions need to report once a year to their competent authority on the products and services for which the likelihood and potential volume of the liquidity outflows is material. The competent authorities subsequently determine the outflow percentages for these material liquidity outflows.
To complement the regular LCR reporting framework, DNB has set up an annual qualitative data request aimed at the material liquidity outflows reported under Article 23 LCR DR. The goal is (1) to check whether the correct products and services are being reported under Article 23 LCR DR; and (2) to obtain information about the methodology used by institutions so as to decide whether the outflows applied to these products and services by the institution can be determined.

When assessing the liquidity outflows of institutions reported under Article 23 LCR DR, DNB takes into account the general Guidance on Article 23 LCR DR as published by the EBA in the report ‘Monitoring the Liquidity Coverage Ratio Implementation in the EU’.

In addition to the general EBA guidance DNB also offers the following specific guidance:

• Under the amended ITS on Supervisory Reporting (applicable as of April 30th 2020), liquidity outflows related to guarantees are no longer to be reported under the category ‘other off-balance sheet and contingent funding obligations’ (C 73.00, row 730), but under the category ‘others’ (C 73.00, row 870).
• With regard to mortgage loans, it is important that institutions distinguish the following cases:
  • Mortgage loans that have been agreed, and which are either drawn down or agreed to be drawn down within 30 days. As a liquidity outflow is reasonably certain to take place within 30 days, these loans should be reported under Article 31(10) LCR DR.
  • Mortgage loans that have been agreed (offered and signed), but which may not necessarily be drawn down within 30 days. As it is not certain that these agreed mortgages lead to a 100% liquidity outflow, these products may be reported under the category 'mortgage loans that have been agreed but not yet drawn down' Article 23 LCR DR. Such mortgage loans are also known as pipeline mortgages and consist of the aggregate of formally agreed advances, including amounts recommended for retention, all instalment elements, and further advances. Institutions reporting mortgage loans under Article 23 LCR DR should be able to provide sufficient supportive argumentation to substantiate the outflow percentage applied to these products.
  • Mortgage loans that have been offered but which have not been accepted yet by the prospective borrower (offered but not signed), should be reported under the category ‘other’ of Article 23 LCR DR. Institutions should be able to provide sufficient supportive argumentation to substantiate the outflow percentage applied to these products.