Visual Artist

Contractual Cross Product Netting Agreement

In the second part of the reporting form, institutions shall provide information on the nature of the netting agreement, the applicable legislation and the competence of the counterparty, including any supporting legal advice. The information on the nature of the consideration initially required in the draft consultation is not required in the new reporting form. If institutions intend to treat their netting arrangements as risk mitigation in accordance with Articles 295 et seq. of the CRR and take them into account in the calculation of own funds requirements, these must be recognised by the competent supervisory authority. In Germany, BaFin is responsible. The CRR does not clearly establish the procedure for the prudential recognition of netting arrangements and leaves it to the supervisory authority concerned. In this context, Article 297(1) to (3) of the CRR is particularly important, according to which institutions must establish and maintain procedures to ensure that the legal validity and third-party effectiveness of their contractual set-offs are verified in the light of amendments to the applicable legislation in accordance with Article 296, paragraph 2(b) of the CRR. 296 Recognition of contractual netting arrangements 1. Competent authorities shall recognise a contractual netting agreement only if the conditions set out in paragraph 2 and, where applicable, paragraph 3 are fulfilled. 2. The following conditions must be met by all contractual clearing arrangements used by an institution to determine the value exposed to risk in that Part: in order to reduce their own funds requirements, institutions may apply a range of credit risk mitigation techniques in accordance with the CRR. These include guarantee agreements where institutions reduce their credit risks.

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