Finalisation of FAQ on treatment of deposits placed with settlement service providers
To: All authorised deposit-taking institutions (ADIs) that are subject to the Minimum Liquidity Holdings (MLH) requirement
APRA has finalised an FAQ on the liquidity treatment of deposits held with settlement service providers (SSPs). The FAQ at Attachment A clarifies that consistent with Paragraph 2 of Attachment B of Prudential Standard APS 210 Liquidity (APS 210), deposits provided for the purpose of facilitating or securing settlement obligations that are encumbered should not be included as MLH liquid assets. Deposits placed with SSPs can be treated as MLH liquid assets where they are within the control of the ADI.
APRA wrote to MLH ADIs on 2 April to consult on the draft FAQ. Three submissions were received in response. This feedback, and APRA’s response, is outlined below.
Consultation response
The three submissions argued that security deposits held with settlement service providers should not be regarded as encumbered because they can support short-term settlement needs. APRA’s response is that these deposits cannot be relied on in a stress scenario because they remain under the control of the settlement service provider. As such, they are encumbered and therefore do not satisfy the definition of a liquid asset in APS 210 Attachment B.
Each submission also pointed to inconsistent historical communication from APRA regarding the treatment of these deposits. APRA acknowledges that earlier engagement, particularly in relation to the removal of equitable charges, contributed to differing industry practices. The draft FAQ is intended to clarify the correct treatment of security deposits and ensure consistent application of APS 210 in line with APRA’s mandate to maintain a safe, stable and efficient financial system.
Finally, the three submissions noted that there could be a business impact for SSPs and for ADIs that require alternative liquid assets to satisfy MLH requirements. APRA recognises this and has decided to extend the transition timeline to 31 December 2026 to assist materially affected entities.
Next steps
APRA expects that security deposits with settlement service providers should be treated in line with the FAQ when ADIs submit their December 2026 quarterly liquidity reporting to APRA. Resubmission of historical liquidity reporting will not be required.
Yours sincerely
Peter Kohlhagen
Executive Director, Policy & Advice Division
Attachment A – Finalised FAQ
Liquidity FAQ: Can MLH ADIs treat deposits placed with settlement service providers as MLH liquid assets?
Yes, provided the deposit is consistent with Paragraph 2 of APS 210 Attachment B, which states that MLH liquid assets “must be free from encumbrances”.
ADIs that use a third-party settlement service provider to make payments on their behalf are commonly required to maintain a minimum deposit with the settlement provider. The primary purpose of these deposits is to mitigate the settlement service provider’s credit exposure in the event of an ADI’s default, and the deposits may not be within the direct control of the ADI as a source of liquidity. Where this is the case, these deposits should not be included as MLH liquid assets.
Other unencumbered deposits that ADIs place with settlement service providers can be included as MLH liquid assets. This includes deposits used to secure overdraft facilities that can be drawn to provide liquidity within two business days, up to the facility limit.