Instruction (Historical) No. 33/2020

Instruction No. 33/2020 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: Implementation of monetary policy – Additional temporary measures

On 25 September 2020, the Governing Council of the ECB approved Guideline (EU) 2020/1691 of the European Central Bank, amending Guideline ECB/2014/31 on additional temporary measures regarding Eurosystem refinancing operations and the eligibility of collateral assets (ECB/2020/47). The Governing Council of the ECB decided that debt instruments whose underlying assets include residential mortgage loans or loans to small and medium-sized enterprises, or both, and which do not meet certain requirements specified in Article 15(2) of Instruction No. 7/2012, must cease to be eligible as collateral assets for the Eurosystem, as this category of assets has never been used. Furthermore, the method for calculating monetary penalties applicable to credit rights that do not meet the requirements of Article 149(1)(c) of Instruction No. 3/2015 and which are included in the set of additional credit rights under Article 2 of this Instruction must be changed to avoid imposing disproportionate monetary penalties.

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, Banco de Portugal determines the following:

Instruction No. 7/2012 (BO No. 3, of 15-03-2012) is amended as follows:

1. Article 2 is amended as follows:

a) Paragraph 3 is amended, taking the following wording: 3. It is for the BdP to regulate the constitution and mobilization of additional credit rights, by establishing, among other things, eligibility requirements and risk control measures for this purpose, specifying the deviations from the requirements established in Instruction 3/2015, which were previously subject to approval by the ECB.

b) Paragraphs 5 and 6 are deleted.

c) Paragraph 7 is added, which has the following wording: 7. In the event of non-compliance with the obligations referred to in Article 149(1)(c) of Instruction 3/2015, for the purpose of calculating the monetary penalty under Annex VII of the said Instruction, the sum of the values of all credit rights that violate such obligations included in the set of credit rights shall be taken into account.

2. In Article 4, paragraph 5 is deleted.

3. In Article 8, paragraph 5 is deleted.

4. In Article 11, paragraph 3 is amended, taking the following wording:

5. Unquoted short-term debt instruments that meet the requirements established in paragraph [Error! Reference source not found.] of this article, are issued in the euro area, in another NCB, or in a CSD that (i) has been subject to a positive assessment by the Eurosystem based on the assessment rules and procedures described in the document entitled “Framework for the assessment of securities settlement systems and links to determine their eligibility for use in Eurosystem credit operations”, and (ii) is established in the Member State belonging to the euro area where the other NCB is established, may only be accepted as collateral assets for the Eurosystem's credit operations, if a bilateral agreement has been concluded between the BdP and that NCB.

6. In Article 15, paragraph 2 is deleted.

7. In Annex I,

a) Clause 6(1)(b) is amended, taking the following wording: Monthly, the list referred to in paragraph (a) duly updated of amortizations, settlements, and defaults by debtors, with the inclusion of new credit rights (replenishment), accompanied by a declaration confirming that the credit rights are in effective credit condition and in regular status, and, if applicable, that their reported PD and LGD originate from models approved by the BdP.

b) Clause 10(1) is amended, taking the following wording: The non-payment of any amounts that the Counterparty must pay to the BdP may constitute a situation of breach of the Contract, which, under Clause 11, may lead to its enforcement, without the need for any notice, notification, or formality.

7. In Annex II,

a) Clause 5(1)(b) is amended, taking the following wording: Monthly, the list referred to in paragraph (a) duly updated of amortizations, settlements, and defaults by debtors, with the inclusion of new credit rights (replenishment), accompanied by a declaration confirming that the credit rights are in effective credit condition and in regular status, and, if applicable, that their reported PD and LGD originate from models approved by the BdP.

8. In Annex III,

a) Clause 7(2) is amended, taking the following wording: Communications and information to be provided under the Contract, which include, notably, the proposal to contract and its acceptance, amendments to the contract thus constituted, the declaration of the existence and validity of credit rights, the constitution of the pledge, and the alteration of the set of credit rights and the financial instruments constituting it, must be sent to the recipient in writing, by dedicated information system, email, fax, certified or registered mail.

9. Annex IV has the following amendments:

a) In paragraph 1, A, the following sentence is added at the end of the paragraph: The requirements established in Articles 100 and 100-A of Instruction No. 3/2015 must be repeated at least every 5 years.

b) In paragraph 4, paragraph 2.1.3.18 is added, with the remaining paragraphs renumbered accordingly, with the following wording: 2.1.3.18 Sample situations where the model used in the production of the PD and LGD1 resulting from the application of an internal ratings-based method does not correspond to an approved segment for capital requirements: IEB Observations PTEB... ...

c) In paragraph 4, under 2.3, paragraph 2.3.4 is amended, taking the following wording: 2.3.4. Sample situations where it was found that the credit right has one or more associated guarantees, which were relevant to improve the PD (in cases where the IRB models used allow it) but the fields for the identification of guarantees/assets were not properly filled in2: IEB Observations PTEB... ...

10. This Instruction enters into force on 1 January 2021.

11. This Instruction is republished in its entirety, being available at https://www.bportugal.pt/instrucao/72012

1 Applicable to credit rights portfolios. 2 Applicable to credit rights portfolios.