Prudential Regulation Authority Rulebook

7.1

The assets constituting central bank claims that are excluded from the LEM referred to in paragraph 1.A.3 shall include reserves in omnibus accounts provided they meet further conditions, in addition to those set out above in 1.A.3. These further conditions are in Article 429a(A2) of the Leverage Ratio (CRR) Part of the PRA Rulebook. This chapter elaborates on the PRA’s expectations in relation to them.

7.2

These conditions aim to ensure that any risks associated with omnibus account reserves, additional to those arising in respect of reserves held on traditional accounts, are mitigated. The PRA considers that omnibus account reserves qualify for the central bank claim exemption only where these additional risks are mitigated. The conditions further ensure that firms have the ability to satisfy the liability-matching condition for the exclusion^[24], set out in 1.A.3 above^[25], by having visibility over their reserves at all times.

7.3

In accordance with Fundamental Rule 7, the PRA expects firms in scope of the leverage ratio minimum requirement to notify the PRA of existing or planned participation in an omnibus account, and whether they meet, or expect to meet the conditions in Article 429a(A2).

7.4

The PRA views that the expectations in Supervisory Statement (SS) 2/21 ‘Outsourcing and third party risk management’ around robust governance and controls of third parties would apply in respect of third parties^[26] associated with omnibus account arrangements.

7.5

Pursuant to Article 429a(A2)(g), reserves placed in the omnibus account should meet certain Liquidity Coverage Ratio (LCR) requirements. The PRA expects firms to analyse risk holistically, paying due regard to any idiosyncratic risk specific to the omnibus account or any associated payment system, to assure themselves that reserves meet these requirements.

7.6

Where the account in which reserves are placed is used for the purpose of settlement via a payment system, condition A2(e) applies. The PRA expects that, to satisfy A2(e), there should be safeguards which ensure balances on the payment system are backed at all times, on a one-to-one basis, with reserves on the omnibus account. These should include robust contingency and risk management and governance arrangements.

7.7

The PRA views that the exercise of rights of deduction on the omnibus account by the central bank to recover charges has the potential to cause participants to pay more than their due share. Such excess payments could happen if the central bank were to exercise rights of deduction where (for example) one participant did not have enough on the account to meet its share, leading to the other participants paying the owing amount. The PRA’s intention in respect of condition A2(d) that any risk of such excess payments is removed.

7.8

To that end, the account arrangements should ensure that a central bank does not debit a participant's reserves with any more than the amount the participant is liable to contribute (A2(d)(iii)). One way to achieve this outcome is by appropriately circumscribing rights of deduction - the central bank could maintain visibility over the composition of the ledger and have the right to exercise deductions only when it views that that would not result in a participant paying more than its share.

7.9

Condition A2(d)(ii) requires that, where the central bank maintains rights of deduction, the method of apportionment of central bank charges is not unfair or unreasonable. It may be possible to meet condition A2(d)(iii) by, instead of preventing excess payments from arising due to central bank deductions, arranging to mutualise them according to an agreed schema. Where this is the approach taken, however, firms should note that to meet condition A2(d)(ii), omnibus account arrangements must set in place a process to apportion these excess payments which is not unfair or unreasonable.