Instruction (Archive) No. 34/2020

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 .................................................................................................................................................................................................. Topics Markets :: Money Markets Mod. 99999940/T – 01/14 Index Text of the Instruction Text of the Instruction Subject: Amending Instruction No. 3/2015 On 25 September 2020, the Governing Council of the ECB approved the Guideline (EU) 2020/1690 of the European Central Bank, amending Guideline (EU) 2015/510 of the European Central Bank (ECB/2014/60) on the framework for the implementation of the Eurosystem monetary policy policy (ECB/2020/45), and Guideline (EU) 2020/1692 of the European Central Bank, amending Guideline (EU) 2016/65 on the valuation haircuts to be applied in the implementation of the Eurosystem monetary policy (ECB/2020/46). Thus, in exercise of the powers conferred upon it by Articles 12, 15, 16 and 24 of its Organic Law, approved by Law No. 5/98 of 31 January, in its current version, the Bp determines: Instruction No. 3/2015 (BO No. 5, of 15-05-2015) is amended as follows:

1. Article 2 is amended as follows: a) The following paragraph 24-a) is inserted: 24-a) "Legislative covered bond", a covered bond issued in compliance with the requirements set out in Article 52(4) of Directive 2009/65/EC of the European Parliament and of the Council (); () Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302 of 17.11.2009, p. 32). b) Paragraph 48) is amended and shall read as follows:
2. "Jumbo legislative covered bond", a legislative covered bond with an issuance volume of not less than one billion euros, for which at least three specialized market makers regularly present buy and sell quotes;

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 c) The following paragraph 49-a) is added: 49-a) "Legislative covered bond", a covered bond that is a legislative covered bond of the EEA or a legislative covered bond of a G10 country not belonging to the EEA; d) The following paragraph 68-a) is added: 68-a) "Legislative covered bond of a G10 country not belonging to the EEA", a covered bond issued in compliance with the requirements provided for in the national legislative regime for covered bonds of a G10 country not belonging to the EEA; e) Paragraphs 71) and 88) are deleted. f) The following paragraph 88-a) is inserted: 88-a) "Sustainability performance target", a target set by the issuer in a public issuance document, which measures quantifiable improvements in the issuer's sustainability profile over a predefined period of time, with respect to one or more environmental objectives established in Regulation (EU) 2020/852 of the European Parliament and of the Council() and/or one or more Sustainable Development Goals defined by the United Nations relating to climate change and environmental degradation (**); () Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198 of 22. 6.2020, p. 13). (**) Contained in the "United Nations 2030 Agenda for Sustainable Development" adopted by the United Nations General Assembly on 25 September 2015 g) Paragraph 94) is deleted. 2. Article 54 is amended as follows: a) Paragraph 2 shall read as follows: 2. Reserves that meet the minimum reserves required under Regulation (EC) No 2531/98 and Regulation (EC) No 1745/2003 (ECB/2003/9) shall be remunerated in accordance with Regulation (EC) No 1745/2003 (ECB/2003/9) b) The following paragraph 3 is added: 3. Reserves exceeding the minimum reserves referred to in paragraph 2 shall be remunerated in accordance with Decision (EU) 2019/1743 of the European Central Bank (ECB/2019/31) (*).

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 (*) Decision (EU) 2019/1743 of the European Central Bank of 15 October 2019 on the remuneration of excess reserves and certain deposits (ECB/2019/31) (OJ L 267 of 21.10.2019, p. 12.). 3. In Article 61, paragraph 1, the following sentence is added: These assets shall only be eligible until the date of entry into operation of the Eurosystem Collateral Management System (in English acronym, ECMS). 4. Article 63, paragraph 1, is amended as follows: a) The preamble shall read as follows:

1. To be eligible, debt instruments must present one of the following coupon structures until the final maturity date: b) Sub-paragraph i) of paragraph b) shall read as follows: i. At a given moment, the reference rate is only one of the following:

• a euro money market rate, for example the euro short-term rate (€STR) (including the daily compounded or average €STR), Euribor, LIBOR or similar indices; with respect to the first and/or the last coupon, the reference rate may be a linear interpolation between two tenors of the same euro money market rate, for example, a linear interpolation between two different tenors of Euribor;
• a constant maturity swap rate, for example CMS, EIISDA, EUSA,
• the yield of a bond or an index of several euro area public debt bonds with a maturity of no more than 1 year;
• an inflation index of the euro area; c) The following paragraph c) is added: c) stepped or variable rate coupons with tiers associated with sustainability performance targets, provided that the issuer's compliance with these targets is subject to verification by an independent third party, in accordance with the terms and conditions of the debt instrument.

5. The following Article 64-A is inserted

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Article 64-A Tradable assets that are not securitised debt instruments or covered bonds

1. To be eligible, tradable assets that are not securitised debt instruments, legislative covered bonds or multicurrency covered bonds must be unsecured bonds of the issuer and the guarantor. With respect to tradable assets with more than one issuer or more than one guarantor, the requirement of this paragraph is applicable to each issuer and each guarantor.
2. Eligible collateralised tradable assets before 1 January 2021, but which do not meet the eligibility requirements established in this article, shall remain eligible until 1 January 2026, provided they meet all other eligibility criteria for tradable assets. In derogation of the first sentence of this paragraph, covered bonds that are not legislative covered bonds nor multicurrency covered bonds shall cease to be eligible from 1 January 2021.
3. Article 78 is amended as follows: a) Paragraph 1 shall read as follows:
4. Data on complete and harmonised loans must be submitted, in accordance with the procedures established in Annex VIII, with respect to the pool of assets generating cash flows underlying securitised debt instruments b) Paragraph 2 is deleted.
5. Article 80 is amended and shall read as follows:
6. Without prejudice to the eligibility of legislative covered bonds, under Article 64-A for legislative covered bonds of the EEA secured by securitised debt instruments to be eligible, the underlying asset pool (cover pool) of these bonds (for the purposes of paragraphs 1 to 4, "underlying asset pool") shall contain only securitised debt instruments that meet all of the following conditions: a) The underlying assets generating cash flows to securitised debt instruments must meet the criteria set out in Article 129(1)(d) to (f) of Regulation (EU) No 575/2013. b) The underlying assets generating cash flows must have been originated by an entity with a close relationship with the issuer, as described in Article 138;

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 c) They are used as a technical instrument to transfer mortgages or loans for the purchase of real estate collateral from the originating entity to the underlying asset pool. 2. Without prejudice to paragraph 4, the Bp must use the following measures to ensure that securitised debt instruments that do not comply with paragraph 1 are excluded from the underlying asset pool: a) Request quarterly self-certification and commitment from the issuer that the underlying asset pool does not contain securitised debt instruments that do not comply with paragraph 1. The request must specify that the self-certification must be signed by the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) or a manager of the issuer with an equivalent level of responsibility, or by an authorized signatory on behalf of one of them. b) Request annually from the issuer ex post confirmation by external auditors, or by persons responsible for the control of the underlying asset pool of the issuer, that securitised debt instruments that do not comply with paragraph 1 are excluded from this underlying asset pool during the controlled period. 3. If the issuer does not satisfy a specific request, or if the Eurosystem considers that the content of a confirmation is so incorrect or insufficient that it does not allow verification that the underlying asset pool meets the criteria set out in paragraph 1, the Eurosystem will not accept legislative covered bonds of the EEA as eligible collateral assets, or will suspend their eligibility. 4. If applicable legislation or the prospectus excludes the inclusion of securitised debt instruments whose underlying asset pool does not comply with paragraph 1, no verification under paragraph 2 shall be required. 5. For the purposes of paragraph 1(b), close relationships are determined at the moment when the senior tranches of securitised debt instruments are transferred to the underlying asset pool of the legislative covered bond of the EEA. 6. The underlying asset pool of legislative covered bonds of a G-10 country not belonging to the EEA shall not contain securitised debt instruments. 8. Article 81-A is amended and shall read as follows:

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Article 81-A Eligibility criteria for certain unsecured debt instruments issued by credit institutions or investment firms or by entities having close relationships with them

1. In derogation of Article 64 and provided they meet all other eligibility criteria, the following unsecured subordinated debt instruments issued by credit institutions or investment firms or by entities having close relationships with them within the meaning of Article 136(3) are eligible until their maturity, provided they are issued before 31 December 2018 and that their subordination does not result from contractual subordination, as defined in paragraph 2, nor from structural subordination, as defined in paragraph 3:

• debt instruments issued by agencies,
• debt instruments guaranteed by a public sector entity of the Union that has the right to levy taxes, with a guarantee having the characteristics set out in Article 114(1) to (4) and Article 115.

2. For the purposes of paragraph 1, "contractual subordination" means subordination based on the terms and conditions of an unsecured debt instrument, regardless of whether that subordination is legally recognized.
3. Unsecured debt instruments issued by holding companies, including any intermediate holding company, that are subject to national legislation transposing Directive 2014/59/EU or equivalent recovery and resolution regimes are not eligible.
4. In the case of unsecured debt instruments issued by credit institutions or investment firms, or by entities having close relationships with them within the meaning of Article 136(3), with the exception of unsecured debt instruments issued by multilateral development banks or international organizations referred to in Article 70(4), the issuer must be established in the Union.
5. Article 87 is amended, taking the following form: a) Paragraph 2(c) shall read as follows: c) If the issuers or guarantors are "public sector entities" within the meaning of Article 2, paragraph 75), and are not included in paragraphs a) or b), the credit assessment is not implicitly inferred, and debt instruments issued or guaranteed by these entities must be equated to debt instruments issued or guaranteed by private sector entities, i.e. to instruments that do not have an adequate credit assessment. b) Paragraph 3 shall read as follows:

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 3. Without prejudice to Article 61(1), if debt instruments are issued or guaranteed by non-financial companies established in a Member State whose currency is the euro, the credit quality assessment shall be carried out by the Eurosystem based on the credit quality assessment rules applicable to claims set out in Chapter 2 of Title III. c) In Table 9, the expression "Entities treated as private sector issuers or debtors" is replaced by "Entities treated as private sector issuers or debtors, i.e. whose tradable assets are not eligible". 10. Article 90 is amended, taking the following form: a) The preamble shall read as follows: To be eligible, claims must meet the following requirements from the moment they are mobilized until their final repayment or their demobilization: b) Paragraph a) shall read as follows: Have a fixed and unconditional capital amount; and c) Paragraph b) shall read as follows: Have one of the following interest rates: d) In paragraph b), sub-paragraph iii), the dash "a euro money market rate, for example, EURIBOR, LIBOR or similar indices" shall read as follows: a euro money market rate, for example the €STR (including the daily compounded or average €STR), Euribor, LIBOR or similar indices; 11. Article 100 shall read as follows: Article 100 Verification of procedures and systems used for the submission of claims The Bp imposes that external auditors carry out a verification of the adequacy of the procedures and systems used by the counterparty to submit information on claims to the Eurosystem, before the first mobilization of credits by the counterparty. Subsequent verifications of the procedures and systems must take place at least every five years. In the event of significant changes to these procedures or systems, new verifications may be carried out. 12. In Article 100-A, the heading and paragraphs 2 and 3 are amended, taking the following form:

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Article 100-A Certifications

1. (...)
2. The certification mentioned in the previous paragraph must be repeated at least every five years (regular certification).
3. The certification shall be carried out by submitting to the Bp a report, the responsibility of external auditors, verifying the procedures used by the counterparty in communicating to the Eurosystem information on claims, in which the aspects mentioned in paragraph 1 shall be certified. This report shall also cover the aspects mentioned in section 4 of Annex XIV to this Instruction "Procedures for the use of collateral assets in Eurosystem credit operations (Claims in the form of bank loans and tradable assets without credit quality assessment by an ECAI)".
4. (...)
5. In Article 101, paragraph 1, the following sub-paragraph a-A) is inserted after sub-paragraph a): a-A) Require counterparties to present, with respect to claims mobilized as collateral assets, from May 2021, if applicable, the relevant identifiers (i.e. the observed agent identifier, the contract identifier and the instrument identifier) from the Analytical Data Base for Credit (AnaCredit), presented in accordance with the statistical reporting requirements of Regulation (EU) 2016/867 of the European Central Bank (ECB/2016/13)(), or, the Bp may proceed to collect the identifiers in the national credit liability register () Regulation (EU) 2016/867 of the European Central Bank of 18 May 2016 on the collection of granular data on credit and credit risk (ECB/2016/13) (OJ L 144 of 1.6.2016, p. 44).
6. In Article 101-A, paragraph 1 is amended, taking the following form: Article 101-A Additional requirements for the verification of the existence of claims
7. The quarterly certificate referred to in Article 101(1)(a) must comply with the following operational procedures: a) Be sent to the Bp within 30 days after the end of each calendar quarter; b) Attached to the certificate must be the identification codes of the assets mobilized at the end of the reference quarter, and these codes must be sent in electronic format, to the address teb@bportugal.pt;

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 c) This certificate may be digitally signed, via the citizen card (qualified signature) or another digital certificate issued by a recognized certification entity, duly accredited under Decree-Law No. 290-D/99 of 2 August; d) If the headings/signatures on the quarterly certificate are different from those on the initial signed contract, their holders must present proof of representation powers for the act and respective signature. e) The sending of digitally signed documents must be carried out via the file transfer service of the BPnet Portal. To this end, the file must respect the following nomenclature: EB_PTF_CerTrimestral_yyyymmdd.docx or EB_PTF_CerTrimestral_yyyymmdd.pdf [* – free alphanumeric characters / yyyymmdd – date of sending day]. 15. In Article 102, the second sentence shall read as follows: The counterparty and/or the assignee, as the case may be, must comply with all necessary legal formalities to ensure the validity of the contract and the mobilization of claims as collateral 16. In Article 120, paragraphs 2 and 2-a) shall read as follows: 2. Following the application process described in Annex IX-C, the Eurosystem reserves the right to decide on the initiation of an acceptance procedure in the ECAF, in the event of a request submitted by a credit rating agency (CRA). In its decision, the Eurosystem will take into account, among other aspects, the fact that the CRA provides adequate coverage for the efficient implementation of the ECAF, in accordance with the requirements set out in Annex IX-A. 2 a) Following the initiation of an acceptance procedure in the ECAF, the Eurosystem must investigate all additional information considered relevant to ensure the efficient implementation of the ECAF, including the ability of the ECAI to i) meet the criteria and rules of the ECAF performance control process, in accordance with the requirements set out in Annex IX and with the specific criteria set out in Annex IX-B (if relevant) and ii) meet the acceptance criteria set out in Annex IX-C. The Eurosystem reserves the right to decide whether to accept an ECAI for the purposes of the ECAF, based on the information provided and its own assessment 17. Article 133 is amended, taking the following form: a) In paragraph 3, sub-paragraphs a), b) and c) shall read as follows: 3. The provisions of paragraph 1 are not applicable:

Instruction No. 34/2020 BO No. 12/2020 4th Supplement • 2020/12/31 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 a) To close relationships within the meaning of paragraph 2, created as a consequence of the existence of a public sector entity of the EEA with the right to levy taxes and that is i