The Riksbank implements monetary policy by making transactions with its counterparties. Information is given below on the various categories of Riksbank counterparties and the requirements the Riksbank imposes on them.
To fulfil its monetary policy and liquidity supply tasks in Swedish kronor, the Riksbank has counterparties in various categories:
- RIX participants can settle payments in Swedish kronor in central bank money and can obtain intraday credit in the payment system.
- Monetary policy counterparties can utilise the standing facilities offered by the Riksbank and can be counterparties in the Riksbank’s market operations.
- Counterparties in FX transactions can be the Riksbank’s counterparties in market operations involving transactions on the FX market in which Swedish kronor are included.
Only the monetary policy counterparties have access to the monetary policy framework and the monetary policy instruments - standing facilities and market operations. However, the Swedish National Debt Office’s primary dealers can also participate in the Riksbank’s market operations that involve the purchase and sale of government bonds via auctions on the secondary market.
According to the Sveriges Riksbank Act, the Riksbank can conduct transactions with financial companies. The Riksbank’s Terms and Conditions for RIX and Monetary Policy Instruments specify that only RIX participants that are credit institutions under EU law and have a registered office or branch in Sweden can apply to become monetary policy counterparties. The reason why the Riksbank requires participation in RIX to be a monetary policy counterparty is that it would create unnecessary operational uncertainty in the monetary policy transactions if a monetary policy counterparty was not a RIX participant and thus had to act via a correspondent bank.
Requirements for counterparties
The Riksbank sets requirements that potential counterparties must fulfil at the time of application, as well as ongoing requirements for all counterparties. These include both general requirements for all types of counterparty and special requirements for monetary policy counterparties. Failure to comply with the requirements can ultimately lead to the counterparty being temporarily or permanently suspended.
The general qualification requirements for the Riksbank’s counterparties include the requirement that they shall be subject to adequate supervision and shall comply with the regulations applicable in the country where the counterparty is domiciled For an institution to be accepted as a RIX participant, it must have the operational capacity to participate in RIX and to conduct transactions in RIX in an efficient manner. The Riksbank expects each RIX participant to have secure technical systems and to comply with all its obligations related to legislation covering the prevention of money laundering and funding of terrorism.
A monetary policy counterparty shall also have the operational capacity to act as such. Among other things, this means that the counterparty shall have the capacity to act in relevant markets, to conclude business with the Riksbank and other parties and to implement transactions. This also means that the counterparty has access to the systems support required and that it is able to manage the risks entailed by its operations.
The monetary policy counterparties must also act in a manner that promotes the Riksbank’s ability to steer market rates. Monetary policy counterparties are expected to participate actively in the daily balancing of liquidity in the overnight market. They are also expected to contribute to increasing the Riksbank’s knowledge of how the financial markets function. Among other things, monetary policy counterparties shall report information to the Riksbank on their transactions in the money market.