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    EBA Finalizes Guidelines on Tri-Party Agreements Under Large Exposures

    February 16, 2021

    EBA published the final guidelines specifying conditions for the application of the alternative treatment of exposures related to tri-party repurchase agreements for large exposure purposes, as set out in the Capital Requirements Regulation (CRR). The final guidelines, among others, set out the requirements on the conditions and frequency for determining, monitoring, and revising the limits specified by the institution. The guidelines will apply from June 28, 2021. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations.

    Under the alternative treatment, institutions are allowed to replace the total amount of their exposures to a collateral issuer due to tri-party repurchase agreements facilitated by a tri-party agent, with the full amount of the limits that the institution has instructed the tri-party agent to apply to those exposures. If institutions perform such a replacement, CRR requires them to comply with following three conditions:

    • Institution must verify that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits instructed by the institution
    • Competent authority has not expressed to the institution any material concerns
    • Sum of the limit instructed by the institution to the tri-party agent, and any other exposures of the institution to the collateral issuer, does not exceed the limit set out in CRR

    In addition, the guidelines recommend a set of elements that an institution and a tri-party agent should include in their service agreement for the use of the alternative treatment. The guidelines establish a set of safeguards that the tri-party agent has to put in place and for which the institution needs to verify the appropriateness for the use of the alternative treatment. The guidelines also specify how institutions should determine the limits to be applied by a tri-party agent with regard to the securities of a collateral issuer as well as the general framework under which such limits can be revised. Finally, the guidelines include a non-exhaustive list of circumstances that could lead the competent authority to raise material concerns and that would prevent the use of the alternative treatment by institutions. A procedure for dealing with those material concerns is also specified.

     

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    Effective Date: June 28, 2021

    Keywords: Europe, EU, Banking, CRR, Repurchase Agreement, Large Exposures, Basel, Repo, Concentration Risk, Credit Risk, Repo Transactions, EBA

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