The objective of the notification process is to provide the ECB with unified information on credit institutions’ compliance with Articles 295 to 297 of Regulation (EU) No 575/2013 of the European Parliament and of the Council and thus facilitate the ECB’s task in the recognition of bilateral netting agreements as risk-reducing.
No, the notification process does not intend to introduce any new substantive requirements in addition to those under Articles 295 to 297 of Regulation (EU) No 575/2013.
No, notification is not required in such cases.
The notification process replaces national notification practices for the recognition of netting agreements applicable to significant credit institutions but does not affect notification requirements stemming from national law.
Credit institutions do not need to notify the ECB of netting agreements of a type that is already recognised as risk-reducing before the date of the first application of the notification process.
No new notification is needed with regard to newly concluded netting agreements which are of a type of netting agreement already treated as risk-reducing with the particular type of counterparty in the particular jurisdiction.
The notification process applies to all new types of netting agreements which are to be used as risk reducing at all levels of consolidation applicable to the significant credit institutions in accordance with Regulation (EU) No 575/2013. It is sufficient that the significant credit institution at the highest level of consolidation for which the ECB conducts supervision notifies the ECB for all applicable levels of consolidation. For the avoidance of doubt, netting agreements entered into by entities not subject to the supervision of the ECB which do not fall within the scope of consolidation for which the ECB conducts supervision do not need to be notified.
The need to notify the ECB is triggered by a credit institution’s intention to treat as risk-reducing pursuant to Articles 295 to 298 of Regulation (EU) No 575/2013 new types of contractual netting agreements and/or already recognised types of netting agreements with new types of counterparties in the same jurisdiction or in new jurisdictions (after the date of application of the notification process). When the requirements under Articles 296 and 297 of Regulation (EU) No 575/2013 are met and the notification has been made, the credit institution may treat that type of netting agreement or counterparty as risk-reducing.
The cover letter should be sent by the credit institution to the ECB to confirm that it complies with the requirements set out in Articles 296 and 297 of Regulation (EU) No 575/2013. Such letter is not to be read as an opinion of the credit institution confirming that the types of netting agreements notified are enforceable.
Credit institutions may follow their internal mandate policy. The notification process does not specify a particular signatory for the cover letter.
There is no prescribed method of delivery. The cover letter with the notification may, for example, be sent via e-mail to the JST.
The information on the type of the counterparty is necessary to ensure that the credit institution confirms that the legal opinion concerning the law applicable to the counterparty covers the type of counterparty with which the netting agreement is to be recognised as risk-reducing for the first time.
There is no prescribed taxonomy for identification of the “types” of counterparties for the purpose of notification. Footnote 7 of the template letter only provides examples of general types of counterparties for notification. If the credit institution has its own taxonomy, it may use such taxonomy in its notification. The taxonomy should be adequate to satisfy the purpose explained in the answer to the previous question.
The “type” of netting agreement refers to a template netting agreement used by a credit institution with one or more counterparties. This template can be developed by banking or industry associations (such as the European Banking Federation, International Swaps and Derivatives Association, International Capital Market Association and Futures Industry Association, etc.) or by the credit institution itself.
For the avoidance of doubt, the term “type” does not need to specify whether the agreement falls within the definition of Article 295(a) or (b) of Regulation (EU) No 575/2013. However, credit institutions need to indicate whether the agreement is a cross-product agreement as specified in Article 295(c) of Regulation (EU) No 575/2013.
No. Netting agreements of a type which are already treated by the credit institution as risk-reducing (either before applicability of the notification process or which have already been notified under the new notification process) for the type of counterparty in the particular jurisdiction may be concluded with new counterparties of the same type and in the same jurisdiction without notification.
A change in the governing law of an already recognised type of netting agreement would cause that type of netting agreement to be treated as a new type of netting agreement and would trigger the notification.
The clearing membership agreement together with the relevant netting provisions contained in the CCP’s Rules and Regulations are a type of netting agreement that should be notified if the credit institution intends to treat them as risk reducing in accordance with Article 298 of Regulation (EU) No 575/2013.
The information on material changes to the core netting provisions (the contractual clauses which have been identified as the core of the contractual netting provisions – see examples in footnote 3 of the template letter) of already recognised types of netting agreements is necessary to ensure that the material changes to already recognised types of netting agreements are properly covered by the legal opinions as required under Article 296(2)(b) of Regulation (EU) No 575/2013.
Changes to the core netting provisions of an already recognised type of netting agreement are material if, in the view of the credit institution (which does not necessarily need to be based on external legal opinions), such changes would affect the conclusions in netting opinions and would require the commissioning of a new or updated legal opinion. It is for the credit institution’s internal functions (e.g. risk management function, legal and/or compliance function, as the case may be) to determine whether the changes are material according to their processes.
For the avoidance of doubt, changes to the core netting provisions which in the view of the credit institution are non-material or recommended by the opinion or covered by the opinion and consequently do not require the commissioning of a new or updated legal opinion under Article 296(2)(b) of Regulation (EU) No 575/2013 do not need to be notified to the ECB.
Material changes to core netting provisions should be notified as if the netting agreement with such material changes was a new type of netting agreement. The notification should therefore specify all relevant opinions, including the opinion obtained in relation to any such material changes to a certain type of master agreement.