Circular PPB-2007-7-CPB on the Administration of Financial Instruments

Prudential Policy
12-14 Rue du Congrès | 1000 Brussels t +32 2 220 53 42 | f +32 2 220 54 93 | www.cbfa.be Brussels, April 10, 2007

CIRCULAR PPB-2007-7-CPB to credit institutions, stock exchange companies, clearing houses and entities assimilated to clearing houses

SUBJECT: Administration of Financial Instruments

Madam, Sir,

Credit institutions and investment firms holding an authorization for the custody and administration of financial instruments play an important role in the conversion of bearer securities into dematerialized securities. It is therefore essential that their administration be organized appropriately, including with regard to internal control procedures.

This circular clarifies the principles of sound practice in the administration of financial instruments and the internal control procedures related thereto. It takes into account certain provisions of the MiFID Directive and its implementing provisions. The terminology of this circular has the same meaning as the corresponding terminology in the MiFID texts.

Financial instruments are those listed in Annex 1, Section C, of the MiFID Directive (Directive 2004/39/EC).

The principles of this circular concern the administration of all financial instruments, including securities representing the debt of the Belgian State. It goes without saying that this circular does not prejudice specific legal and regulatory provisions applicable to these securities.

Under the legislation on dematerialization, institutions will also be able to exercise the functions performed by authorized clearing houses, the so-called "top of the pyramid" institutions. For the administration of institutions located at the top, this circular provides for some additional principles, dealt with in a separate section.

These principles apply to those securities covered by the Companies Code for which top-tier institutions are authorized to intervene (i.e., securities of issuers of Belgian companies not admitted to a regulated market). It is recommended to apply them also to other types of securities or financial instruments for which these institutions can intervene as the ultimate depositary.

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12-14 Rue du Congrès | 1000 Brussels t +32 2 220 53 42 | f +32 2 220 54 93 | www.cbfa.be PPB-2007-7-CPB - 2

Investment firms authorized to hold financial instruments belonging to their clients are currently subject to the rules applicable in matters of accounting - stock exchange company securities as they appear in the circular of December 18, 1991 of the Stock Exchange Intervention Fund. This circular of the Stock Exchange Intervention Fund is repealed and replaced by this circular from the entry into force of the latter.

The circular addresses all credit institutions subject to the banking law as well as all investment firms authorized for the custody and administration of financial instruments which are subject to the law of April 6, 1995, with the exception of branches of EEA credit institutions and EEA investment firms. However, the latter are indeed required to respect principles 5 (confirmation of transactions) and 6 (statement of client financial instruments).

The principles of this circular apply taking into account the nature, size, and complexity of the operations. The Commission expects, for example, from credit institutions specialized in settlement-delivery operations for a professional clientele that they apply stricter principles.

This circular enters into force on January 1, 2008. The first reporting, as provided for in principle 13 of the annex to this circular, concerns the situation as of March 31, 2008.

A copy of this circular is sent to your auditor(s).

Please accept, Madam, Sir, the expression of my distinguished sentiments.

The Vice-President,
J.-P. Servais.

Annexes: - Annex to the circular

• Balance of financial instruments