TFS Operating Procedures

Transcription

1 The Bank of England s Asset Purchase Facility TFS Operating Procedures Contents 1 Introduction Participants Communications with the Bank Data reporting and certification Advances under the TFS TFS Collateral Delivery Mechanisms June 2018

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3 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES 1 Introduction 1.1 These Term Funding Scheme Operating Procedures (TFS Operating Procedures) govern participation in the Term Funding Scheme (TFS) and explain the operational procedures involved. 1.2 The TFS is a monetary policy tool 1 of the Monetary Policy Committee and is operated as part of the Asset Purchase Facility. The Bank acts both for itself and as Agent for the Bank of England Asset Purchase Facility Fund Limited (BEAPFF). The TFS Operating Procedures should be read in conjunction with the other parts of the Documentation relating to the TFS, including the TFS Terms and Conditions (including, for Loan Collateral, any relevant Annexes) and any relevant Market Notices which form part of the Documentation, and by which all TFS Advances referred to in these TFS Operating Procedures are governed. A guide to Loan Collateral pre-positioning is also available on request In the event of any conflict between the Terms and Conditions and these TFS Operating Procedures, the Terms and Conditions prevail. In the event of any conflict between any Market Notice and these TFS Operating Procedures or the Terms and Conditions, the Market Notice shall prevail. 1.4 In some cases these TFS Operating Procedures follow market terminology in using expressions such as drawing and substitution. This is done for the sake of familiarity, but is not a reflection of the legal nature of the TFS Advances described in these TFS Operating Procedures, which is determined by the Terms and Conditions. 1.5 Reference is made in these TFS Operating Procedures to coupons being payable during the life of a security; this word is used for the sake of familiarity and has for bonds the same meaning as Income as used in the Terms and Conditions which excludes payments of principal on a full or partial redemption of a security. 1.6 Where a Participant provides Loans as Eligible Collateral, it will usually assign its beneficial interest in the loans and their related security; the right of the Participant is to have its beneficial interest re-assigned in accordance with the Terms and Conditions and these TFS Operating Procedures. Where there are restrictions on the Participant s ability to assign a loan (e.g. because of a prohibition on assignment in the underlying loan agreement), the Participant will declare a trust over the relevant loan in favour of BEAPFF. In some circumstances, BEAPFF (acting through the Bank) may require the Participant to grant a security interest (first fixed charge) over the Loan. Loans that are governed by Scottish law will be subject to a Scottish Declaration of Trust and Scottish Transfer. 1.7 BEAPFF or the Bank may amend these TFS Operating Procedures generally or in particular circumstances from time to time. Any such amendment will take effect at a time specified by the Agent and shall, unless the Agent specifies otherwise, apply to TFS Advances outstanding at the time at which the amendment is made. A link to copies of the Documentation as amended, or the relevant amended parts, will be circulated to Participants and posted on the Bank s website 3. The Agent will endeavour to give reasonable notice of 1 The TFS was announced on 4 August 2016, as part of a package of measures to support the UK economy. More information on the purpose and rationale behind the TFS is provided in the August 2016 Inflation Report, available at 2 Please contact applications@bankofengland.co.uk. 3 TFS Documentation is available at 1

4 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility any amendment but reserves the right to introduce any amendment with immediate effect. The Agent may also vary the operational timetable or vary or omit any of the procedures described on any particular day. 1.8 All references to times are London time, unless stated otherwise. 1.9 References in these TFS Operating Procedures to: the Bank are to the Bank of England acting both for itself and as agent for BEAPFF, save where expressly stated otherwise; Clearstream are to the settlement system of Clearstream Banking SA, Luxembourg; Euroclear are to the Euroclear settlement system operated by Euroclear Bank SA/NV; CREST are to the CREST settlement system operated by Euroclear UK & Ireland Limited; DTC are to the Depository Trust Company and associated settlement and custody systems, operated by the Depository Trust and Clearing Corporation; JGBs are to Japanese Government Bonds; FRBNY are to the Federal Reserve Bank of New York; and CCBM are to the Correspondent Central Banking Model All capitalised terms in these TFS Operating Procedures have the meaning given in the Terms and Conditions and in any Market Notice (or, in respect of Loan Collateral, in the Bank s Terms and Conditions for Participation in the Bank s Sterling Monetary Framework) unless otherwise defined herein. 2

5 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES 2 Participants Eligibility 2.1 Institutions eligible to participate in the TFS will be banks and building societies that are participants in the Bank s Sterling Monetary Framework (SMF) and are signed up to the Discount Window Facility (DWF). BEAPFF (or the Agent on BEAPFF s behalf) may waive, add to, or vary the eligibility requirements in relation to any institution or institutions. Eligibility and continued access to the TFS will be dependent upon a Participant and other members of its TFS Group acting, in the opinion of the Bank, in good faith and in a manner consistent with the objectives of the TFS. Admission to the TFS 2.2 An institution will need to sign a Scheme Letter to be admitted to the TFS, which must be signed by an authorised signatory on behalf of the institution and be accompanied by authorised signatory evidence in a form acceptable to the Agent. By signing this letter, Participants enter into a legal relationship with BEAPFF and with the Bank. 2.3 For institutions that are incorporated outside the United Kingdom, the Scheme Letter may amend the Terms and Conditions to take account of the law of the institution s country of incorporation. Before being admitted, the institution will also be required to provide relevant legal opinions on their legal capacity to enter into Terms and Conditions. 2.4 Where an institution, whether or not incorporated in the United Kingdom, is not the primary entity within its Group, the Agent may require a guarantee from the primary entity in a form satisfactory to the Agent. It may also require a legal opinion on the guarantor s legal capacity and the enforceability of the guarantee. Institutions which wish to participate in the TFS but which are not already SMF participants, and which are not signed up to the DWF, should visit the Bank s website 4 for further information on the SMF applications process. 2.5 As part of the sign up process, institutions should submit the following information: i) the Authorised Signatory Evidence Form which lists the names of persons duly authorised to sign documentation required in connection with the TFS on behalf of the Participant (including but not limited to any TFS Drawdown Requests). The Scheme Letter and Form TF Certificate will be checked separately by the Agent and so Participants must provide authorised signatory evidence in a form and substance satisfactory to the Agent to accompany these; and ii) details of standard settlement instructions (SSIs). 2.6 The information specified in section 2.5 above should be updated on an ongoing basis as necessary, and as and when required by the Agent. 2.7 Further information on the TFS application process is available on the Bank s website 5, together with the Authorised Signatory Evidence Form and pro forma documentation, including the Scheme Letter, legal capacity and country opinions, guarantee and legal opinion on the guarantee

6 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility 3 Communications with the Bank 3.1 The table below sets out contact details for specific queries and actions. Table 1: Contact details Action Queries on applications for admission to TFS Initiate a TFS Advance, terminate an existing TFS Advance early (in part or in full) or refinance an FLS Transaction in the TFS Substitutions, margin calls and returns of collateral Securities settlement and corporate actions Security collateral eligibility and haircuts Loan collateral eligibility Loan collateral data management Pre-positioning notices Data reporting and certification Contact Sterling dealing desk, applications@bankofengland.co.uk, via direct line or Sterling dealing desk TFS.Transactions@bankofengland.co.uk, via direct line or Collateral Management and Custody (CMC) tfs.team@bankofengland.co.uk CMC tfs.team@bankofengland.co.uk Middle Office eligible.securities@bankofengland.co.uk Middle Office eligible.loans@bankofengland.co.uk Middle Office loansdata@bankofengland.co.uk CMC tfs.team@bankofengland.co.uk Monetary Statistics Team TFSReporting@bankofengland.co.uk or The inclusion of telephone contact details above does not override the requirement in clause 25.1 of the Terms and Conditions for notices to the Agent to be given in writing. All telephone conversations with the Agent s sterling dealing desk and Collateral Management and Custody Team (CMC) are recorded. In the event of a dispute, reference will be made to the archive of recordings. 4

7 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES 4 Data reporting and certification Reporting entities 4.1 The quantity and price of funding available from the TFS will be based on the quantity of sterling loans 6 as reported to the Agent by a Participant s TFS Group. 4.2 A Participant s TFS Group is defined as:- i) all Monetary Financial Institutions 7 (MFIs) and Specialist Mortgage Lenders 8 within a Group that are required to report statistical lending data to the Bank; and ii) Non-Bank Credit Providers (NBCPs) which are part of the Participant s broader group, as determined by the Bank. NBCPs are defined as financial leasing corporations, factoring corporations and mortgage and housing credit corporations (excluding SPVs related to securitisation) To help identify all NBCPs within a group, the Agent may request information from Participants on all potentially eligible UK-resident entities within their group. 4.4 The Agent will inform a Participant of the entities comprising its respective TFS Group. Reportable lending 4.5 The TFS lending measure covers sterling loans to UK-resident households, private nonfinancial corporations (PNFCs) and certain NBCPs which are not part of the Participant s Group. In all cases, lending will be in the form of drawn loans. Entities holdings of securities, commercial paper, bills and acceptances will not be included. 4.6 Data for each MFI, Specialist Mortgage Lender and NBCP within a TFS Group must be reported to the Agent using Form TF, based on the definitions provided in the Form TF Guidelines, available from the Bank s website 10. The Form TF Guidelines explain how these definitions correspond to those that MFIs and Specialist Mortgage Lenders already report in their statistical returns (e.g. in Form BE and Form MM). 4.7 TFS Group lending will be monitored during a Reference Period running from 30 June 2016 to 31 December Reporting frequency 4.8 Participants must ensure that data for the Reference Period for each entity in a TFS Group are submitted to the Agent using Form TF each calendar quarter. The data provided in Form TF include the amount of relevant loans outstanding at the end of the previous calendar quarter (e.g. 30 June 2016) and at the end of the current calendar quarter (e.g. 30 September 6 See 7 Monetary Financial Institutions means the subsector defined in section 2.31 of Annex A to Council Regulation (EU) No. 549/2013, known as ESA See definitions for 15A, 15D and 15E within Parts IV.1 and IV.2 of the Classification of Accounts Guide:

8 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility 2016), and net lending in the calendar quarter (e.g. 1 July to 30 September 2016). 4.9 Participants must submit Form TF by the fifth working day of the second month after the end of the calendar quarter (e.g. for the calendar quarter ending 30 September 2016, Form TF must be submitted by 7 November 2016). Certification process 4.10 The Agent requires a Form TF Certificate to confirm that the data provided in Form TF are, in all material respects, accurate and complete at the date referenced, as set out in the Guidelines for Form TF on the Bank s website Each entity in a TFS Group may choose to either certify individually or, alternatively, one entity may certify on behalf of the TFS Group, annexing the data required for each entity in the TFS Group. Whether certifying individually or on behalf of the TFS Group, all certifications and data for the TFS Group must be collated and sent to the Agent in a single communication by one of the TFS Group s Participants Each Form TF Certificate should be signed by a board member, such as the finance director or chief operating officer The first certification is different from other certifications. Before Participants can draw in the TFS, a Base Stock of applicable loans for TFS Group entities as at 30 June 2016 must be certified using Form TF. For this purpose, in Form TF, only the rows corresponding to the amount outstanding at the current reporting date (rows 4, 12 and 20) need to be completed for each entity Data for the end of the Reference Period (ending 31 December 2017) may not have been certified until quite close to the end of the Drawdown Period (ending 28 February 2018). Therefore, Participants in a TFS Group may be permitted, at the discretion of the Bank, to borrow an aggregate amount above the TFS Group s most recent Borrowing Allowance Such a drawing request would need to be supported by evidence in a form to the Bank s satisfaction that the TFS Group s Borrowing Allowance is likely to increase by a sufficient amount, once the Form TF Certificate has been completed for the reporting period ending 31 December Such evidence may include a statistical return provided to the Bank reporting equivalent data In the event that a drawing as described in the preceding paragraphs results in an excess of drawings above the Borrowing Allowance determined by the final Form TF Certificate, the participant will be required to agree with the Agent a plan to repay any such excess drawings over an appropriate timeframe. Any excess drawings will also attract the fee for excess drawings (see section 5.30) 4.17 The Agent reserves the right to require independent audits of the data provided to the Agent at any time. After the drawdown window has closed, Participants will be required to provide an independent audit report on the accuracy of the 31 December 2017 Net Lending data to the Bank. Further details will be published on the Bank s website in due course

9 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES Publication of data and deadlines for submission 4.18 The Agent will publish individual TFS Group lending data and drawings data 12 around two months after the relevant reporting period. Provisional publication dates will be available on the Bank s website Participants should inform the Agent as early as practicable of any potential changes to its group that may affect the definition of its TFS Group. The Agent will advise on how the TFS Group s Borrowing Allowance and TFS Interest will be affected by the change The Bank expects TFS Group entities to take due care and attention over the submission and certification of their data. Data revisions may be necessary from time to time but must be discussed with the Agent, including an explanation of which data have changed and the reason for any changes. The Agent may require TFS Group entities to re-submit and recertify Form TF in these cases Revisions cannot be made to Form TF data following the final audit of lending data Data on regular Bank of England statistical forms should continue to be provided and revised in the normal way. If, in the process of producing a Form TF Certificate, a TFS Group entity identifies revisions to its statistical reporting, it should re-submit those data to the Agent Any institution that is part of a TFS Group may be required to submit additional statistical returns, including Form BE or Form MM, where appropriate TFS Groups must submit certified data by the deadlines set out in section 4.9. If any TFS Group entity does not meet this deadline, Participants in that TFS Group may not be permitted to make any further drawings until the Form TF Certificate is submitted and the Bank reserves the right to indicate in the published information that the TFS Group had not provided the data by the deadline. Borrowing allowance 4.25 Participants in a TFS Group may draw in aggregate up to the Borrowing Allowance for the TFS Group. The Borrowing Allowance for each TFS Group will be set at 5% of its Base Stock plus an amount equal to its most recent Net Lending amount. For each TFS Group, Net Lending during the Reference Period will be defined as new applicable loans net of repayment since 30 June 2016 which have been certified by the TFS Group. The Net Lending amount will be equal to the unweighted sum of Net Lending to UK resident households, PNFCs and NBCPs If a TFS Group s Net Lending amount is negative at any time, its Borrowing Allowance remains at 5% of its Base Stock. The Bank will notify Participants of the Borrowing Allowance of their TFS Group on request A TFS Group s Borrowing Allowance will be revised by the Bank as soon as practicable after receiving the satisfactory Form TF Certificate(s) for the TFS Group and once the data have been reviewed. If the outstanding aggregate drawings of Participants in a TFS Group exceed the TFS Group s Borrowing Allowance (e.g. if a TFS Group s Borrowing Allowance has fallen 12 Lending and drawings data, and provisional publication dates, will be available at 7

10 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility following a reduction in Net Lending, but Participants in the TFS Group have drawn up to the maximum amount of a previous higher Borrowing Allowance), no further drawings will be permitted until the Borrowing Allowance has increased above the aggregate drawing amount. Any such excess drawings will not be clawed back (except pursuant to sections above), but will affect the TFS Interest (see sections 5.24 to 5.34 on TFS Interest below) Each pound of the TFS Group s Borrowing Allowance may only be drawn once. For example, if a TFS Group had made drawings up to its Borrowing Allowance, it would not be able to repay and then subsequently re-draw Worked examples that illustrate the quantity of borrowing available in various scenarios will be available on the Bank s website See 8

11 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES 5 Advances under the TFS 5.1 Under the terms of a TFS Advance, Participants can borrow central bank reserves in exchange for eligible collateral during the Drawdown Period. 5.2 The TFS Drawdown Period runs from 19 September 2016 to 28 February The price and quantity of funding available during the TFS depends on lending from 30 June 2016 to 31 December Eligible Collateral will consist of all collateral eligible in the SMF and may comprise either securities or loans or a combination of the two. Under the TFS, collateral is not allocated to a particular TFS Advance but is provided on a pooled basis whereby excess collateral can be held in the TFS to be returned upon request. Please see section 6 below for further details on Eligible Collateral. 5.4 The term of a TFS Advance will be for 4 years from the date of drawdown. Participants may repay any TFS Advances in part or in full, before the contractual maturity date, subject to giving two Business Days notice in accordance with the Terms and Conditions. Conducting a TFS Advance 5.5 Drawdowns under the TFS may be undertaken on each Business Day during the TFS Drawdown Period. Participants should make TFS drawdown requests to the sterling dealing desk. 5.6 Participants should note that there is a limit of one new TFS Advance per Participant on each Business Day. Participants wishing to refinance their FLS drawings in the first year of the TFS must arrange a programme of refinancing with the sterling dealing desk. Further information on the re-financing process is provided in sections 5.21 to At any time prior to 12:00 (referred to as the Cut-Off Time in the Terms and Conditions) on a Business Day, a Participant can request BEAPFF (through the Bank as Agent) to enter into a TFS Advance by completing a TFS Drawdown Request 14 and submitting it as set out below. 5.8 Information on delivering collateral to cover the TFS Advance is provided in section 7. Participants should use the Collateral Management Portal (CMP) wherever possible. If they do not have access to the CMP, they should send a completed Confirmation Template 15 by to CMC (tfs.team@bankofengland.co.uk). 5.9 TFS Drawdown Requests must be sent by one of the methods set out below: i) delivery by hand to Bank of England, Threadneedle Street, London EC2R 8AH marked for the attention of the Head of Sterling Markets Division; or ii) by to TFS.Transactions@bankofengland.co.uk Participants should also notify the Bank s sterling dealing desk by phone that they are submitting a request to use the TFS Participants should understand that (whether encrypted or unencrypted) is not a secure method of communication and that messages so delivered may be intercepted, lost, 14 Available at 15 Available at 9

12 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility destroyed, corrupted or delayed in transmission. The Bank encourages all Participants who communicate with the Bank by to use encrypted only All drawings under the TFS are subject to approval by the Agent Participants must ensure they have sufficient Eligible Collateral to cover the drawing under a TFS Advance and the anticipated TFS Interest due to be paid in the next quarter. Participants must also ensure that a TFS Advance will not result in the TFS Group s Borrowing Allowance being exceeded For pre-positioned Loan Collateral, the Participant must complete a TFS Loan Collateral Transfer Request Notice and send it to loansdata@bankofengland.co.uk in advance of a TFS Advance. The counter-signature by the Bank of the TFS Loan Collateral Transfer Request Notice will activate the agreed transfer mechanism (equitable assignment, declaration of trust, or grant of security (first fixed charge)) and encumber the loan portfolio. 16 All of the loan portfolio will become encumbered, even if the Value of the TFS Advance is less than the Adjusted Value of the Loan Collateral. The transfer of Loan Collateral can take place in advance of the TFS Drawdown Date. There are additional requirements for Scottish Loans (see section 5.16 below) The value of a TFS Advance must be an increment of 100,000 and is subject to a minimum drawing size of 1,000, Following receipt of a TFS Drawdown Request, BEAPFF (through the Agent) will inform the Participant (typically by telephone) whether it will make the TFS Advance on the terms specified in the TFS Drawdown Request. Provided the TFS Drawdown Request is received by 12:00 on a Business Day and subject to sufficient collateral having been provided, the Bank will aim to inform the Participant on the same day. If the TFS Drawdown Request is received on a day that is not a Business Day, the Agent will inform the Participant on the next Business Day Where the Collateral proposed to be used to cover TFS Advances includes Scottish loans, the pre-agreed Scottish Declaration of Trust and Scottish Transfer need to be executed and provided to the Agent prior to BEAPFF (through the Agent) delivering the TFS Advance BEAPFF and the Agent reserve the right to cancel a TFS Advance before settlement of the payment of the TFS Advance to the Participant Once a TFS Advance is fully collateralised and agreed, BEAPFF (through the Agent) will aim to pay the TFS Advance on the same Business Day The Agent will send an (or other form of communication determined by the Agent) to the Participant confirming details of the agreed TFS Advance (the TFS Drawdown Notification ). This notification will contain, for each TFS Advance, (a) the Business Day on which the TFS Advance is to commence (the TFS Drawdown Date) and (b) the value of the TFS Advance to be made by BEAPFF. Refinancing FLS drawings in the TFS 5.21 Participants in the Funding for Lending Scheme (FLS) are permitted to repay FLS drawings in order to redraw in the TFS, subject to having sufficient Borrowing Allowance in the TFS. 16 Where loans are taken by way of declaration of trust or Scottish Declaration of Trust, further documentation will be required which the agent will discuss with the Participant. 10

13 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES Participants who wish to refinance FLS drawings before 30 September 2017 must provide the sterling dealing desk with notice of the size of their refinancing request by end-september This should be done by ing TFS.Transactions@bankofengland.co.uk and calling the sterling dealing desk Participants will also be asked to provide the Agent with an indication of their proposed refinancing profile, balanced over twelve months, which the Agent will agree with each Participant, contributing to a smooth aggregate refinancing period over this twelve-month period. With the Agent s permission, FLS drawings maturing on or before 30 September 2017 can be refinanced in the TFS at any point in the quarter in which they mature, or later, subject to having sufficient borrowing allowance; details of such refinancing should be included as an addendum when Participants submit proposed refinancing profiles to the Agent Ad-hoc refinancing of FLS drawings will be allowed after the first year of the TFS. TFS Interest 5.24 Participants pay TFS Interest on TFS Advances equal to Bank Rate plus a TFS Fee, in accordance with the Terms and Conditions The Agent will send a payment invoice on the first Business Day of each calendar quarter for any TFS Interest due. Participants are required to make the payment of TFS Interest the same day TFS Interest invoices will be sent to Participants via . TFS Interest must be paid to the nominated account as specified by the Bank If the Participant fails to pay the TFS Interest when due, it will pay interest on the unpaid amounts in accordance with clause 14.1 of the Terms and Conditions at the Overdraft Rate or such other rate as the Agent and BEAPFF in their discretion may decide. In addition, the Agent and BEAPFF reserve the right to suspend a Participant s access to the TFS at any time, for any reason The TFS Interest will be calculated daily based on Bank Rate and the Value of the outstanding TFS Advances drawn by Participants in a TFS Group. The TFS Interest will be allocated between Participants in a TFS Group in proportion to the Participants drawings The TFS Fee on aggregate TFS Group drawings less than or equal to the Borrowing Allowance will be determined at the end of the Reference Period, based on Net Lending over the Reference Period. For TFS Groups whose Net Lending over the Reference Period as a whole is positive, the TFS Fee will be 0bp per annum. For TFS Groups whose Net Lending over the Reference Period as a whole is negative, the TFS Fee will increase linearly (to the nearest basis point) from 0bp per annum if lending is unchanged up to 25bp per annum if lending falls by 5%. If lending falls by more than 5%, the TFS Fee will be 25bp per annum. Chart 1 illustrates the TFS Fee profile The TFS Fee on aggregate TFS Group drawings which are in excess of the Borrowing Allowance shall be 150bps per annum For the avoidance of doubt, the total TFS Fee payable by a Participant will be the sum of: 17 Applicants who are not signed up to the TFS by end-september 2016 should inform the Sterling Market Desk of any planned significant refinancing at the point of joining the TFS. 11

14 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility i) the TFS Fee on aggregate TFS Group drawings which are less than or equal to the Borrowing Allowance; and ii) the TFS Fee on aggregate TFS Group drawings which are in excess of the Borrowing Allowance (if applicable). Chart 1: TFS Fee on drawings up to the Borrowing Allowance Fee on drawings (bp) Net Lending over the Reference Period (%) 5.32 This TFS Fee will apply daily to all drawings by Participants in a TFS Group for the duration of the drawings. During the Drawdown Period, Participants will accrue Interest based on Bank Rate and an initial flat TFS Fee of 0bp per annum on their drawings, each calendar quarter in arrears. Any additional Interest required on drawings during the Drawdown Period, including any TFS Fee for excess drawings, will be charged as a lump sum after the end of the Drawdown Period. After the end of the Drawdown Period, Interest will be charged quarterly in arrears When only a proportion of a TFS Advance is repaid early, Interest on that TFS Advance will be paid by the Participant on the first Business Day of the following calendar quarter When a TFS Advance is repaid in full, Interest accrued on that TFS Advance becomes payable on the day of the repayment. Repayment 5.35 When a TFS Advance matures or BEAPFF (through the Agent) requires early repayment under clause 6.7 of the Terms and Conditions, the Participant is required to repay the TFS Advance and any Interest due. The Participant may also voluntarily prepay a TFS Advance (in whole or in part) with any Interest due under clause 6.8 of the Terms and Conditions The Participant may then transfer out any excess collateral it has posted with the Bank in accordance with clause 7.3 of the Terms and Conditions (subject to the point at section 6.46 below concerning loan portfolios) Instead of transferring out excess Collateral Securities the Participant may choose to leave the securities in the APF collateral pool to cover future drawings. Where BEAPFF transfers Equivalent Loan Collateral to the Participant, the Participant may pre-position the relevant 12

15 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES loans again provided that the loans continue to satisfy the eligibility criteria If the Participant fails to repay the TFS Advance and Interest due to the Bank on the due date it will be liable to pay a late transfer charge calculated in accordance with clause 14.1 of the Terms and Conditions If the Participant elects to terminate a TFS Advance ahead of the contractual maturity date (in whole or in part), the Participant must give two Business Days notice to the Agent. The Participant must submit a TFS Repayment Notice on the day of the termination, in addition to notifying the Bank s sterling dealing desk by phone. 18 Liability for Charges 5.40 Under clause 13.3 of the Terms and Conditions, the Participant agrees to pay the Agent s and BEAPFF s charges and reimburse the Agent and BEAPFF for all fees, costs, charges and expenses incurred by the Agent in connection with the TFS and any TFS Advance. These costs shall include without limitation: all and any costs incurred through holding collateral securities in settlement systems, clearing systems or with other custodians or agents; all and any costs incurred in connection with the eligibility or pre-positioning process for loans; all and any costs incurred with checking that collateral is Eligible Collateral and valuing collateral; all and any legal expenses, transfer taxes, value added tax, registration charges and other similar taxes and charges; and all and any costs associated with the Bank s right to require an independent audit of data provided by the Participant or the Participant s TFS Group to the Bank at any time The Bank will normally invoice Participants for such amounts on a monthly basis. 18 The TFS Repayment Notice is available on the Bank s website at 13

16 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility 6 TFS Collateral 6.1 Eligible collateral for the TFS will consist of all collateral eligible 19 for the SMF. The eligibility and arrangements for valuation, collateral calls and Haircuts that apply to Eligible Collateral are set out below. 6.2 Participants should note that excess collateral securities and loan collateral delivered to the Agent as Eligible Collateral for the TFS cannot be used as Eligible Collateral in SMF or FLS operations, and vice versa. This is because the TFS operates through BEAPFF, whereas SMF and FLS transactions are with the Bank, acting on its own behalf. Any excess collateral securities held in the participant s main collateral pool can be moved to their APF pool in order to cover a TFS exposure. 6.3 Participants should advise the Agent if at any time they become aware of information that may affect the eligibility of any collateral delivered to the Agent. 6.4 The Agent forms its own independent view of the risks in the collateral it takes in its own and in BEAPFF s operations and will only accept collateral that it can value and risk manage effectively and reserves the right to reject any security or loan offered or provided as collateral, for any reason, at any time. 6.5 Where the Agent has determined that a security or loan portfolio is Eligible Collateral, it reserves the right at any time subsequently to determine that any such security or loan portfolio is ineligible. Collateral Securities 6.6 Lists of collateral securities to be checked for eligibility by the Agent should be submitted to Middle Office. They should be accompanied by a formal assurance of compliance with the criteria specified above. Participants have a responsibility to ensure that collateral securities comply with the Bank s eligibility criteria. 6.7 In normal circumstances Collateral Securities must be delivered to BEAPFF by close of business the day before any intended TFS drawdown is to be made. Participants are strongly encouraged to deliver Collateral Securities to BEAPFF well in advance of the day on which the drawdown is intended to take place. Only securities which the Participant believes to be eligible should be delivered to BEAPFF. 6.8 Collateral Securities can be delivered to BEAPFF by a number of different methods set out in section 7 below. 6.9 Pre-positioning can either be by way of a transfer to the Agent holding as custodian or a transfer to BEAPFF as collateral in the TFS collateral pool. Loan Collateral 6.10 Portfolios of loans are eligible as collateral in the TFS, provided they are pre-positioned with the Agent (including any applicable additional requirements in respect of pre-positioning set out below) in advance of Advances. The eligibility criteria for individual loans are defined on 19 Further details of eligible collateral are available on the Bank s website at 14

17 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES the Bank s website Pre-positioning cannot take place until the loan portfolio eligibility approval process has been completed, and the Agent has made a decision that the portfolio is eligible The loan portfolio approval process is designed to: eliminate or mitigate risks that might prevent BEAPFF (through the Agent) from realising some or all of the value of the collateral; identify financial risks in collateral and enable the Agent to mitigate them (this includes, for example, financial risks from special loan structures such as offset mortgages); and value the collateral accurately and set a suitable haircut The process involves: a review of the Participant s lending practices and policies, including a due diligence questionnaire and site visit; a legal review of the loans, including a legal sampling exercise; the provision of a loan level data tape in a format agreed by the Agent; and a data audit to provide assurance on the accuracy and integrity of the data on which the Bank bases its risk management. Where applicable, the information requirements will be consistent with the Agent s ABS loan-level reporting requirements, but more granular in some areas (e.g. full start and maturity dates of loans rather than quarters). Full details of the loan portfolio eligibility process can be found in a guide to Loan Collateral Pre-positioning To complete the loan eligibility process, the Participant will need to: represent and warrant to BEAPFF and the Bank that its provision of the loans as collateral will not breach or conflict with any instrument or agreement by which the Participant is bound (including without limitation, any negative pledge) and that it will have the full and unqualified right to provide the loans as collateral; and complete the appropriate legal documentation for loan pre-positioning as set out in the SMF Operating Procedures In addition, for loan portfolios already successfully pre-positioned with the Bank before the Participant has signed a Scheme Letter in connection with the TFS, the following documentation: an executed power of attorney in relation to the TFS to give BEAPFF (through the Agent) the right to act in the name of the Participant in relation to loans delivered as Collateral under the TFS; at the request of the Agent, a bring-down letter in connection with the Participant s legal opinion may also be required confirming that the opinions expressed in such opinion extend to the Participant s use of the loan portfolios as Collateral under the TFS; and such other documentation as the Agent may require. 20 See 21 Available on request from applications@bankofengland.co.uk. 15

18 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility 6.16 Upon satisfactory completion of the documentation, the Agent will confirm to the Participant that the loan portfolio is eligible, and will inform them of the unique identifier that should be used in all subsequent correspondence Pre-positioning is concluded by the Participant submitting a Confirmation Template 22 summarising all loan portfolios to be pre-positioned, specifying nominal values and the loan portfolio s unique identifier that the Agent had previously assigned to it Pre-positioned loan portfolios are still owned by the Participant and can be used as the Participant wishes prior to using the portfolio as Loan Collateral against a TFS drawdown. However, the portfolio must be transferred to BEAPFF (using the agreed transfer mechanism) prior to any TFS drawing which the Participant wishes to collateralise with that portfolio. In practice, that transfer will be effected by the Agent counter-signing a TFS Loan Collateral Transfer Request Notice 23 submitted by the Participant While a loan portfolio is pre-positioned (i.e. before it is transferred to BEAPFF), a Participant is permitted to remove individual loans from a portfolio and add additional loans into a portfolio. To effect changes to the loans in a portfolio, Participants are required to submit a new loan tape. If these significantly alter the risk characteristics of the loan portfolio then the Agent reserves the right to carry out further due diligence and the eligibility of the loan portfolio may be reassessed. Further legal due diligence will be required for loans added to a portfolio that use loan documentation outside those that are reviewed as part of the initial legal due diligence carried out as part of the loan portfolio eligibility process Where the participant wishes to use a loan portfolio which is currently held in its main collateral pool to back a TFS Advance, it must transfer the loan portfolio to the Pre-position pool (and unencumber it) before transferring it into the APF pool (and encumber to BEAPFF) to use as collateral against a TFS drawdown Neither the Bank nor BEAPFF will disclose Loan Level Data (as defined in section 6.23 below) which could otherwise be disclosed under clause 18 of the Terms and Conditions unless such data has first been aggregated and anonymised so that the recipient of such Loan Level Data would not be able to ascertain to whom such data relates BEAPFF may disclose Loan Level Data (as defined in section 6.23 below) which has not been aggregated or anonymised if legal title to the mortgage loan to which such Loan Level Data relates has been transferred to BEAPFF Loan Level Data means, in relation to each mortgage loan, the primary and secondary income of the borrower, start date and maturity date of the loan, the postcode and/or region of the property, the original and latest valuation of the property, the property type and the credit score of any borrower and any borrower identification Information is required on a regular basis to enable ongoing monitoring and valuation of all loan portfolios once these are pre-positioned. Where applicable, the information requirements will be consistent with the Bank s ABS loan-level reporting requirements, but more granular in some areas (e.g. full start and maturity dates rather than quarters). 22 The Confirmation Template is available on the Bank s website at 23 The TFS Loan Collateral Transfer Request Notice is available at 16

19 The Bank of England s Asset Purchase Facility TFS OPERATING PROCEDURES 6.25 The Agent would require weekly reporting of nominal loan balances Loans written under Scottish Law need to be held in a separate loan portfolio. Valuation 6.27 Collateral Securities transferred to BEAPFF for the purposes of TFS will be valued daily by the Agent, and will include the Haircuts applicable to the SMF specified on the Bank s website Securities are valued by the Agent using observed market prices that are independently and routinely publicly available or reference prices published by the UK s Debt Management Office. If, in the Agent s judgment, an independent market price is unavailable, the Agent will use its own calculated price and apply a higher haircut. The Agent s valuation is final and binding The value of securities will include the aggregate amount of Income which, as of the relevant date, has accrued but not yet been paid in respect of the securities to the extent not already included except during any ex-dividend period for those securities. Any valuations of securities notified to the Participant by the Agent are only indicative, are provided purely for information purposes and do not necessarily reflect the default market values of the securities following an event of default The Bank will stop giving value to a security once it reaches a set point prior to its redemption or repayment date. For most securities this will be ten business days before redemption date. But exceptions apply to certain other asset types for example, UK Treasury Bills will retain value until one day before redemption and Bank of England Bills will retain value until redemption date. The Bank may change this at its discretion. Where necessary, valuations are converted to sterling based on Bloomberg s exchange rate fixing (BFIX) at 16:00 on the previous Business Day, but the Agent reserves the right to use other rates at its discretion The Adjusted Value of loan portfolios will be calculated by the Agent and will be dependent on the credit quality of the loan portfolios. The Agent s valuation is final and binding, but the process of analysing different types of loan assets will be broadly in line with the methodology applied to securities backed by equivalent assets. The Adjusted Value ascribed to individual portfolios will be kept under review. As set out in sections 6.24 and 6.25, Participants are required to provide to the Agent on a weekly basis (or less frequently if permitted by the Agent) updated nominal balance information for all loans in portfolios pre-positioned with BEAPFF. Haircuts 6.32 The Agent calculates daily the Adjusted Value of Collateral Securities using the Haircuts applicable to the SMF set out on the Bank s website 18. This also sets out the circumstances in which additional haircuts are applied including, but not limited to, where securities are denominated in currencies other than sterling, where securities have no observable market price and where the quality of the underlying asset pool warrants a higher haircut in the Agent s judgment Haircuts will be kept under review. They will be updated and refined in the light of

20 TFS OPERATING PROCEDURES The Bank of England s Asset Purchase Facility developments in financial markets and the financial system. Collateral Maintenance 6.34 On a daily basis, the Agent calculates BEAPFF s gross exposure to the Participant under TFS (the TFS Exposure) and the value (after applying the applicable Haircuts) of the Available Collateral. Available Collateral in TFS consists of Collateral Securities and Loan Collateral provided by the Participant. The Participant undertakes to ensure that the Adjusted Value of the Available Collateral will at all times be at least equal to the TFS Exposure. Collateral Shortfall 6.35 If the Bank has made a call for additional Eligible Collateral on the Participant, the Bank will prevent payment of any funds or return of collateral (even if other pools are collateralised) until the call is satisfied. The Participant must transfer to the APF collateral pool the greater of the amount of the shortfall and the Minimum Transfer Amount (MTA). The MTA is determined by the Bank and the current level is set out in the SMF Operating Procedures The Agent encourages Participants to hold an excess of collateral in the APF collateral pool to minimise the need for frequent margin calls, or to pre-position loan collateral so that there is enough collateral available to meet calls for additional Collateral. Where the Participant has pre-positioned loan collateral, or has excess Eligible Securities in another pool, the Agent expects (for ease of settlement) that the Participant uses those securities or loan portfolios to meet part of or (if of sufficient value) all of the additional collateral call If a collateral call is made by the Agent, the Agent will endeavour to notify the Participant by 10:30 on the day on which the Agent expects the call to be met by the Participant. Details of the Collateral to be used to meet the call should be sent by the Participant to CMC (tfs.team@bankofengland.co.uk) by 11:30 or one hour after notification of the call being made, if the call has not already been met. See section 7 below for more details on how to deliver collateral to the Agent The Agent reserves the right to make calls for additional collateral intra-day and reserves the right to reject the composition of any proposed collateral transfer If the Participant proposes to use a pre-positioned loan portfolio as additional collateral and the Agent agrees to accept the relevant portfolio, the Agent will notify the Participant and the transfer will take place when the Agent counter-signs the TFS Loan Collateral Transfer Request Notice Where the Agent has made a call for additional collateral and that call has not been met by the Participant, in accordance with clause 7.9 of the Terms and Conditions, the Agent may utilise any securities held by the Agent (in any capacity) on behalf of the Participant to extinguish the Collateral Shortfall. The Agent also has the right to apply any cash sum standing to the credit of any account of the Participant held by the Agent (in any capacity) to extinguish a collateral call, or to use a combination of securities and cash. BEAPFF and the Agent may in their absolute discretion transfer equivalent securities or repay any such sum back to the Participant, if the Participant subsequently delivers collateral in satisfaction of the 25 The TFS Loan Collateral Transfer Request Notice is available at 18