Bank G is a major European Bank. It is subject to Article 296 of the Capital Requirements Regulation (Regulation (EU) No 575/2013). This states that, in order to be able to mark OTC derivatives counterparty credit lines as ‘net’, Bank G must make written and reasoned legal opinions available to regulators which support the enforceability of close-out netting within relevant “netting agreements”.
Article 2 of Commission Delegated Regulation (EU) 2016/2251 also requires Bank G to perform an independent legal review of the enforceability of its netting and collateral agreements AND to establish “policies to assess on a continuous basis” the enforceability of those agreements.
A recent inspection by Bank G’s regulator has highlighted that the process currently followed by Bank G in reaching close-out netting determinations for counterparty pairings is not sufficiently robust or compliant with applicable regulation. Rapid remedial action is required.
Bank G has approximately 1,500 affected clients across 35 jurisdictions. Faced with the prospect of having to review scores of legal opinions and manually extract data from 1,500 master agreements and their associated credit support annexes, Bank G has turned instead to the Ark 51 team for help.
Bank G’s affected documentation was uploaded into Ark 51. As part of the upload process, Ark 51’s AI engine extracted all of the data needed in order to produce an accurate and auditable netting determination for each counterparty.
Once verified, all netting data was passed through Ark 51’s netting engine. This provided immediate, real-time, ACTUAL netting determinations for all of Bank G’s affected counterparties.
The entire process took approximately 1 week. More importantly, Ark 51 now provides the strategic, robust, auditable and long-term solution expected by Bank G’s regulator. Bank G now has confidence that the audit point has been effectively addressed to the regulator’s satisfaction, not just now, but into the future.