Applicability of Article 423(1) of the CRR for intermediaries facilitating derivatives clearing between its clients and a CCP

Is it permissible for an institution, for which the following is true, not to apply the additional outflow required under Article 423(1) of Regulation (EU) No 575/2013 (CRR): (i) the institution acts as a financial intermediary in the meaning of Article 303 of the CRR between a client and a central counterparty (CCP) in order to facilitate the central clearing of the clients’ derivatives (as e.g. required in the future by Regulation (EU) no 648/2012 (“EMIR”)); and (ii) it is contractually assured that the institution immediately receives collateral from its clients in case the value of the collateral posted to the institution as margin for its set of derivatives channelled through this intermediary to the CCP is not sufficient to cover the CCP’s margin requests for the set of derivatives.

As a general principle set out in Article 425(2) of Regulation (EU) No 575/2013 (CRR) the institution captures contractual inflows from exposures that are not past due and for which the institution has no reason to expect non-performance within the 30-day time horizon in its inflow computation. Where an institution acts as an intermediary between a client and a CCP and is in a position in which any margin request issued by the CCP to the institution (triggering an outflow) is mirrored by a corresponding claim of the institution to its client (triggering an inflow) in at least the scale of the CCP’s margin request, the potential outflow residual remaining with the institution is consequently zero. Broadly speaking, the institution only 'passes through' the collateral, i.e. it receives collateral from the client and passes it on to the CCP. In the case of deterioration of the collateral value, whereas the institution indeed faces a collateral call from the central counterparty, it is simultaneously entitled to demand additional collateral (usually of at least equal amount) from the client, hence preventing a net outflow from the perspective of the institution.