Instruction (Historical) No. 6/2021

Instruction No. 6/2021 BO No. 3/2021 Supplement • 2021/03/30 .................................................................................................................................................................................................. Topics Markets :: Money Markets Mod. 99999940/T – 01/14

Index Text of the Instruction Text of the Instruction Subject: Amending Instruction No. 3/2015

The Bank of Portugal has altered the reporting procedures for information necessary for the mobilization of individual credit rights as collateral assets for Eurosystem credit operations, now using for this purpose the information communicated to the Credit Liability Central (CRC), together with the information communicated to the Bank Loan Treatment (TEB) system.

Thus, in the exercise of the competence attributed to it by Articles 12, 15, 16, and 24 of its Organic Law, approved by Law No. 5/98 of January 31, in its current version, the BdP determines:

Instruction No. 3/2015 (BO No. 5, of 15-05-2015) is amended as follows:

1. Article 100-A is amended, to read as follows:

2. The counterparty wishing to present credit rights as collateral assets for Eurosystem credit operations must, in a phase prior to the first mobilization, certify with the BdP: a) The reliability/quality of the information systems used by the counterparty in the internal registration of credit rights: registration in internal systems of the variables required by the BdP for data reporting; correspondence of the information included in the counterparty's internal systems with the information contained in the loan contracts concluded; maintenance of a historical archive for a period of 10 years; guarantee of non-duplication of credit rights by assigning a unique code to each credit right in accordance with BdP instructions; b) The correct application of credit rights reporting rules to the BdP, both in direct communication to the TEB system and regarding communications made to the Credit Liability Central (CRC).

3. The certification mentioned in the previous paragraph must be repeated at least every five years (regular certification).

Instruction No. 6/2021 BO No. 3/2021 Supplement • 2021/03/30 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

3. The certification shall be carried out by presenting to the BdP a report, the responsibility of external auditors, verifying the procedures used by the counterparty in communicating to the Eurosystem information on credit rights, 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 (Credit rights in the form of bank loans and tradable assets without credit quality assessment by an ECAI)".

4. The BdP, after case-by-case analysis, may authorize the mobilization of credit rights as collateral before the presentation of the external auditor's report. In this situation, the counterparty must, before the start of the mobilization of credit rights, send a letter to the BdP with a description of the internal procedures implemented for communicating to the BdP the information on the credit rights to be mobilized, including a declaration of commitment that all requirements are met, namely, the aspects mentioned in paragraph 1. The external auditor's certification report must be presented to the BdP within a maximum period of one year after the start of said mobilization.

5. Annex XIV is amended as follows:

2.1 Number 1.3 shall read as follows: a) Counterparties are responsible for communicating to the BdP the relevant information for the eligibility analysis of credit rights they intend to use as collateral assets in Eurosystem credit operations. b) After the registration of BLs (Bank Loans) at the BdP, the counterparty is responsible for updating all relevant information, relating to the BLs that are mobilized, which must be communicated immediately after its occurrence, or, if not possible, during the next business day. c) The reporting of information regarding the characterization of BLs and their respective participants, as well as their respective changes, shall be made to the CRC, in accordance with the rules stipulated in its respective Technical and Operational Support Guide (GATO). d) Requests for mobilization and demobilization (as well as specific additional information) of these assets as collateral in Eurosystem credit operations must be transmitted to the TEB (Bank Loan Treatment) system, in XML format files, in accordance with the rules defined in the Information Communication Manual, made available by the BdP in the BPnet System (section "Monetary Policy Implementation", under the title "Bank Loans"). e) A BL communicated for the first time to the BdP by 14:00 on day t will, in principle, be submitted to eligibility analysis on that same day and, if it meets the eligibility criteria, will be included in the collateral asset pool until the end of the day, except in the case where it is necessary to proceed to document analysis.

Instruction No. 6/2021 BO No. 3/2021 Supplement • 2021/03/30 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

f) In case of doubt or insufficient information, the BdP reserves the right to request clarifications from the counterparty, or other relevant entities, on specific aspects relating to the characteristics of the BLs transmitted, in which case the eligibility analysis period referred to in the previous subparagraph will be deferred. g) When a BL, proposed by the counterparty and duly received by the BdP, does not meet the requirements to be considered eligible for Eurosystem credit operations, it is not included in the collateral asset pool. The BdP reserves the right to constitute a database with BLs considered ineligible. h) Sending to the BdP changes to the characteristics of a BL included in the pool that make it ineligible implies the valuation of the BL to zero, the release of the pledge, and the consequent demobilization of the BL. i) Commissions may be charged for the handling of BLs, which will be disclosed via Circular Letter (Collateral Asset Management – Fees and Commissions).

2.2 Number 3 shall read as follows: In order to ensure the correct implementation of the procedures and rules defined in this Instruction, namely in this annex, operational procedures and the veracity of the information transmitted by counterparties must be subject to verification. These verifications must cover the information communicated directly to the TEB system and the information communicated to the CRC and used by the TEB system in the context of mobilizing BLs as collateral.

2.3 In number 3.2, the table and its respective legend are altered as follows:

N ≤ 7 | 7 < N < 50 | 50 ≤ N < 100 | 100 ≤ N < 200 | 200 ≤ N < 300 | 300 ≤ N < 500 | 500 ≤ N < 1,000 | 1,000 ≤ N < 2,000 | 2,000 ≤ N < 10,000 | N ≥ 10,000 n | n=N | 7 | 28 | 42 | 52 | 57 | 62 | 67 | 76 | 133

N – Total number of mobilized BLs n – Minimum number of BLs that must be subject to verifications

BLs with a live nominal value equal to or greater than 40 million euros must always be subject to verifications, up to a maximum number of 150 BLs with this characteristic.

2.4 In number 2.1, the following numbers are altered, which shall read as follows:

2.1.3.9.2 Sample situations where the BL accrues interest at a variable interest rate with a new interest rate fixing period greater than one year and the BL was not communicated to the BdP with this characteristic: IEB Observations PTEB... ...

2.1.3.9.3 Sample situations where the BL accrues interest at a variable interest rate with a maximum limit (cap), and the BL was not communicated to the BdP with this characteristic: IEB Observations PTEB... ...

2.1.3.9.4 Sample situations where there was more than one type of interest rate until the maturity date of the BL, and the BL was not communicated to the BdP with this characteristic: IEB Observations PTEB... ...

Instruction No. 6/2021 BO No. 3/2021 Supplement • 2021/03/30 Topics Markets :: Money Markets .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

2.5 In number 4, the first three paragraphs are altered, to read as follows:

In the context of carrying out audit actions, external auditors must verify the adequacy of the procedures and systems used by the counterparty to submit information on credit rights, and the counterparty must forward to this effect the reporting model to the BdP presented below. These verifications must cover the submission of information directly to the TEB system and the submission of information to the CRC and used by the TEB system in the context of mobilizing BLs as collateral.

The initial ex-ante verification must be carried out before the first mobilization of credit rights by the counterparty, and subsequent verifications of procedures and systems must take place at least every five years.

This report will be analyzed by the BdP, and the result of the respective analysis will be transmitted to the counterparty.

2.6 Number 5.3 shall read as follows:

After approval of the request regarding the acceptance of sources mentioned in sub-section 4.2, the requesting counterparty may begin to use this credit assessment source within the ECAF. Accepted sources must comply with the following conditions: ➢ Validity of credit assessments: the credit assessment must be carried out whenever relevant information arises about the entity in question (borrower, issuer, or guarantor) and, at minimum, on an annual basis. ➢ Validity of underlying information: the credit assessment must be based on the most recent information. The financial elements used in the analysis are only considered valid if they relate to a time period not exceeding twelve months from the last closing date of the accounts of the assessed entity.

2. This Instruction enters into force on April 12, 2021.

3. This Instruction is republished in its entirety, and is available at https://www.bportugal.pt/instrucao/32015