7. Assessment of the liquidity requirement

Competent authorities should achieve a clear view on the funding needs of the TCB’s business and assess the liquidity profile based on the business plan, including the financial forecasts of the envisaged TCB.

The review should also focus on the liability structure, having regard to the different sources of funding – in particular any commitment by the head undertaking, the types of liabilities, instruments and counterparties – , the related costs and their maturities.

Competent authorities should assess whether the planned cross-border intra-group funding arrangements are within the limits of the exception set out in Article 48c(4), point (d) CRD and do not disguise cross-border business activities in breach of the territorial scope of the authorisation. Such review should, for example, consider whether agreements with TCBs in other Member States - belonging to the same head undertaking - envisage the provision or receipt of intra-group funding in exchange for a full or partial sharing of the economic risks and returns associated with a specific asset.

Competent authorities should achieve a clear view on the liquidity profile and the liability structure also to assess the projections for the regulatory liquidity ratios, and the envisaged TCB’s ability to “to maintain at all times a volume of unencumbered and liquid assets sufficient to cover liquidity outflows over a minimum period of 30 days” in accordance with Article 48f(1) CRD, for the three-year time horizon of the business plan. For this purpose, competent authorities should also pay attention, where relevant, to the gradual increase in business activities and the implementation of the funding structure in the set-up phase.

Where, based on the competent authorities’ review of the application against the elements listed in Article 48a(1) and (2) CRD, the envisaged TCB is categorised within class 1, competent authorities should perform such assessment in respect of the liquidity coverage requirement laid down in Part Six, Title I, of Regulation (EU) No 575/2013 and in Commission Delegated Regulation (EU) 2015/61 referred to in Article 48f(2) CRD.

With regard to the liability structure, competent authorities should assess the different sources of funding (types of liabilities, instruments and counterparties), the related costs and their maturities.

Competent authorities should verify that the assets to meet liquidity requirements are unencumbered and liquid. For this purpose, they should take into account the nature of the assets, the terms and conditions of the agreements from which the assets originate and any other relevant feature. Along these lines, competent authorities should verify that the eligible instruments constituting the capital endowment and deposited in the escrow account are not counted towards the liquidity requirement, since such instruments have to be considered encumbered and therefore unavailable to meet the liquidity outflows of TCBs. Similarly, competent authorities should make sure that the assets fulfilling the liquidity requirement are not counted towards the capital endowment requirement.

Competent authorities should verify that the liquid assets are or will be deposited with a credit institution located in the Member State where the branch is to be authorised that is not part of its head undertaking’s group or, where permitted under national law, with the central bank of the Member State, making sure that the account used is different from that where the eligible instruments to meet the capital endowment requirement are deposited in escrow and that the account arrangements do not allow encumbering the liquid assets.

Subject to the outcome of the assessment on whether the envisaged TCB will meet the conditions referred to in Article 48b(1) CRD to qualify as a qualifying TCB, , competent authorities may grant the liquidity waiver set out in Article 48f(4) CRD also at authorisation in accordance with national law.

Consistently with the proportionality, competent authorities should assess the envisaged TCB ability and preparedness to withstand funding stress, and where relevant, review the impact of the submitted funding and liquidity stress scenario, such as a rise of funding costs, on the liquidity ratios and the remedies envisaged by the applicant head undertaking.

In order to assess the overall preparedness to withstand liquidity stress, the competent authority should review the information submitted in accordance with Section 6 of Part I.