Scope of the exemption under Article 7(7) with respect to Level 1 assets referred to in Article 10(1)(c)

Do the requirements laid down in Articles 7(5) and 7(6) of Delegated Regulation (EU) 2015/61 apply to assets referred to in Article 10(1)(c)?

Article 7(7) lists the assets to which the requirements of Articles 7(5) (determinability of asset value on the basis of market prices) and 7(6) (listing or tradability on active markets) do not apply. The list includes banknotes and coins (Article 10(1)(a)), exposures to central governments referred to in Article 10(1)(d), and exposures to central banks referred to in Articles 10(1)(b) and (d). Assets referred to in Article 10(1)(c) – i.e. claims on or guaranteed by EU Member State central governments, CQS1-rated third-country central governments, and equivalent regional, local or public sector entities – are not mentioned in Article 7(7). This omission appears inconsistent with the overall structure of the Delegated Regulation for the following reasons. First, assets under Article 10(1)(d) – claims on or guaranteed by third-country central governments not rated CQS1 – benefit from the exemption under Article 7(7)(aa), while assets under Article 10(1)(c), which are of higher credit quality, do not. This creates an asymmetry whereby lower credit quality sovereign assets are treated more favourably than higher quality ones with respect to the requirements of Articles 7(5) and 7(6). Second, Article 8(1) exempts assets under Articles 10(1)(b), 10(1)(c) and 10(1)(d) equally from diversification requirements, reflecting a legislative recognition that these assets possess an intrinsically reliable liquidity profile. Since the requirements of Articles 7(5) and 7(6) pursue the same underlying objective – ensuring that liquid assets can be reliably valued and monetised under stress – the exclusion of Article 10(1)(c) assets from the scope of Article 7(7) is difficult to reconcile with their treatment under Article 8(1). Third, Article 8(4) provides that the monetisation testing requirement does not apply to "level 1 assets referred to in Article 10, other than extremely high quality covered bonds", thereby treating all Article 10 assets – including those under point (c) – uniformly and without further distinction.