EBA consults on Guidelines specifying the conditions for the substitution approach in the context of “tri-party transactions” for large exposures purposes

The European Banking Authority (EBA) launched today a consultation detailing on the three conditions institutions should comply with when they decide to make use of the alternative treatment with regard to tri-party repurchase agreements facilitated by a tri-party agent. The consultation runs until 22 October 2020.

Under the alternative treatment, institutions can replace the total amount of the institution’s exposure 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 would instruct the tri-party agent to apply to securities issued by the collateral issuer.

To conduct such a replacement, institutions must verify that the tri-party agent has in place appropriate safeguards to prevent breaches of the limits instructed by the institution. Furthermore, the competent authority must not have expressed to the institution any material concerns. Another condition is that the 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 the Capital Requirements Regulation (CRR).

Finally, the Guidelines specify the conditions and frequency for determining, monitoring and revising the limits that the institution would instruct the tri-party agent to observe. The Guidelines will apply from June 2021.

Consultation process

Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 22 October 2020. A public hearing will take place on 08 October 2020 from 10:00 CET to 12:00 CET. 

Legal basis and background

The EBA has developed the draft Guidelines pursuant to the mandate in Article 403(4) of Regulation (EU) No 575/2013 and in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.