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EBA Guidelines on Payment Commitments under Directive 2014/49/EU

Core Content

These guidelines, issued under EBA Regulation (EU) No 1093/2010, aim to provide supervisory practices and legal interpretations for the implementation of payment commitments under Directive 2014/49/EU on deposit guarantee schemes. They establish the framework for how DGSs and credit institutions can structure payment commitments and the associated financial collateral arrangements to ensure effective creditor protection and financial stability.

Main Points

• Purpose: Harmonise the methods of financing of DGSs by allowing payment commitments as part of available financial means, up to a maximum of 30%.
• Compliance: Competent authorities and financial institutions are expected to comply with the guidelines by 11.09.2015. Failure to notify non-compliance will be considered as such.
• Applicability: Guidelines apply to DGSs, designated authorities, resolution authorities, and competent authorities, in accordance with national legal frameworks.

Key Definitions

• Payment Commitments: Obligations of credit institutions to pay a specified amount to DGSs upon request.
• Low-risk assets: Assets that are eligible for use as collateral and are not encumbered by third-party rights.
• Payment Commitment Arrangement: A contractual agreement between DGSs and credit institutions for the inclusion of payment commitments in the DGS's available financial means.
• Financial Collateral Arrangement: A mechanism where credit institutions provide low-risk assets as collateral to secure their payment commitments.
• Enforcement Event: Events that trigger the DGS's right to realise the collateral, such as failure to pay, replace, or top-up the collateral.
• Winding-up proceedings: Legal procedures for the liquidation of a credit institution.
• Reorganisation measures: Steps taken to restructure a credit institution in financial distress.

Guidance on Payment Commitments

• Admissibility: Payment commitments must be based on individual written arrangements between DGSs and their members.
• Payment Obligations: Credit institutions must have an irrevocable obligation to pay the DGS within two working days (or one day under early intervention or crisis management measures).
• Collateral Requirements: Collateral must be unencumbered, and DGSs must ensure that the collateral is legally realisable and free from third-party claims.
• Collateral Eligibility: DGSs should accept only low-risk assets, and eligibility criteria must consider credit, market, and liquidity risks, as well as currency and concentration risks.
• Haircut Application: A haircut must be applied to the value of low-risk assets unless cash is provided in the same currency as the payment commitment. Haircuts should reflect risk factors and be based on expected losses and time to sell.
• Collateral Management: Collateral can be managed by the DGS or a third party, provided that all requirements are met.
• Prudential Treatment: Competent authorities should ensure that payment commitments do not lead to procyclical effects. If the commitments remain off-balance sheet, additional capital and liquidity requirements may be applied.

Implementation and Compliance

• Deadline: Guidelines must be incorporated into practices by 31 December 2015.
• Notification: Competent authorities must notify the EBA by 11.09.2015 whether they comply with the guidelines or have reasons for non-compliance.
• Publication: Notifications will be published on the EBA website.
• Resolution Authorities: They should ensure that resolution measures do not undermine creditor protection for DGSs and consult with DGSs before making decisions on payment commitments.

Summary of Key Requirements

• Payment commitments must be based on written arrangements.
• Collateral must be unencumbered and legally realisable.
• Haircuts are required unless cash is provided in the same currency.
• Collateral management must be secure and accessible.
• DGSs must ensure diversification and manage currency and concentration risks.
• Prudential treatment should prevent procyclical effects.
• Resolution and competent authorities must align with the guidelines to protect DGSs and depositors.

Conclusion

These guidelines provide a comprehensive framework for the management of payment commitments and financial collateral arrangements under Directive 2014/49/EU. They aim to ensure that DGSs are adequately protected, while also promoting financial stability and a level playing field among credit institutions. Compliance is mandatory, with clear deadlines and reporting requirements to ensure effective implementation across the EU.