Our institution has a cash pooling agreement relating to three bank accounts opened in different banks belonging to the same Group, so that cash transfers are processed automatically overnight to one centralizing bank account.
Up to now, in the LE2 template, we have been reporting the resulting net exposure on this group of connected counterparties and in the LE3 template, the detail for each of the three counterparties, but we have been encountering the following validation rule blocking errors: v0648_m, v0649_m, v3799_s and v3802_s. These errors are due to the input of a negative outstanding for one of the banking counterparts, corresponding to a creditor nostro balance.
Our question is how to fill in the LE3 template in this situation ?
Example of a cash pooling agreement relating to bank accounts with bank A, B and C of the Group X:
--> Net debit outstanding with Group X: 500
In the LE2 template, the net exposure for Group X is reported: 500.
In the LE3 template, how should we report the (2500) relating to bank C, as no negative balance is allowed in columns 040 or 210?
In the case described in this question no details are given as concerns the legal quality of the cash pooling agreement. The term ‘cash pooling’ itself does not necessarily allow drawing conclusions on the exact legal nature of such a structure. The treatment of cash pooling agreements in the Large Exposures regime depends on whether there exists effective offsetting under civil law or not.
With respect to the example mentioned in the background this would mean the following:
a) There is an effective netting agreement in place:
The nostro debits outstanding with bank A (1000) and bank B (2000) can be offset against the nostro credit account with bank C (2500). Only the resulting net exposure (500) towards bank A with which the centralised account lies has to be reported in the LE 2 template (template C 28.00 of Annex VIII to Regulation (EU) No 680/2014 – ITS on Supervisory Reporting).
To be complete, in case the institution has further exposures to other group members of Group X (e. g. D, E) or in case the institution has no further exposures but knows that A belongs to Group X (see Q&A 2014_1562), the net exposure of 500 should be reported in the LE 3 template (C 29.00) and included in the LE 2 template for the group of connected clients (Group X) bank A belongs to.
b) There is no effective netting agreement in place:
The accounts with banks A, B and C have to be considered separately, i.e. both, the exposures towards bank A (1000) and bank B (2000) have to be reported in the LE 3 template (C 29.00). In the LE 2 template for the group of connected clients (Group X) these banks belong to, the aggregated amount of 3000 is to be reported. The nostro credit account with bank C in this case is not taken into account as it represents a liability and not an exposure.