Instruction No. 10/2019

Instruction No. 10/2019 BO No. 6/2019 • 2019/06/17 .................................................................................................................................................................................................. Topics Payment Systems :: Clearing Mod. 99999940/T – 01/14 Index Text of the Instruction Text of the Instruction Subject: Amendment to Instruction No. 8/2018, of March 22, which regulates the Interbank Clearing System (SICOI)

This Instruction aims to revise the regulation of the Interbank Clearing System (SICOI), contained in Instruction No. 8/2018, of March 22 (BO No. 3/2018 Supplement), with the purpose of i) allowing the execution of the financial pledge, constituted in favor of the Banco de Portugal, in case of non-compliance with the participant's obligation, in a deferred compensation and settlement subsystem, for reimbursement of funds used guaranteed by assets eligible for Eurosystem credit operations; and ii) adapting the method of collecting penalties for late settlement to the SICOI guarantee fund account mechanism in TARGET2-PT.

Complementarily, the text of the Instruction was updated with the aim of: i) harmonizing the reference to the General Regime of Credit Institutions and Financial Companies; ii) correcting lapses in references between numbers; and iii) clarifying that the minimum advance period of ten business days, for communication by the Banco de Portugal to participants regarding participation, change of participation type, or cessation of participation in any subsystem, does not apply in cases of exclusion and suspension of SICOI participants, which occur without prior notice.

Thus, under the competence attributed to it by Article 14 of its Organic Law and by Article 92 of the General Regime of Credit Institutions and Financial Companies (RGICSF) regarding the regulation, supervision, and promotion of the proper functioning of payment systems, the Banco de Portugal alters the articles of Instruction No. 8/2018 – Regulation of the Interbank Clearing System (SICOI), determining the following:

1. A new number 5.3 is added to Instruction No. 8/2018, of March 22, renumbering the following, with the following wording:

"5.3. Direct participation in the subsystems with deferred compensation and settlement implies the acceptance, by direct participants who constitute the value reserve through liquidity granted by the Banco de Portugal guaranteed by assets eligible for Eurosystem credit operations, of the terms and conditions defined in the 'Framework Agreement for the opening of credit with guarantee of financial instruments and credit rights in the form of bank loans within the framework of the guarantee fund account mechanism of the Interbank Clearing System in TARGET2-PT', contained in Annex VII of this Regulation."

2. A new number 5.5 is added to Instruction No. 8/2018, of March 22, with the following wording:

"5.5. Direct participation in the immediate transfers subsystem implies the acceptance, by direct participants, of the terms and conditions defined in the 'Framework Agreement for financial guarantee for operations in the immediate transfers subsystem', contained in Annex VIII of this Regulation."

3. Number 6.1 of Instruction 8/2018, of March 22, shall have the following wording:

"6.1. For indirect participation in any of the compensation subsystems, one of the following conditions must be met: a) The representation of the applicant is ensured by a direct participant in SICOI that settles in an account opened in TARGET2-PT in its own name; or b) The representation of the applicant is ensured by a direct participant in SICOI that is in a relationship of control or group with the indirect participant."

4. Number 7.1 of Instruction 8/2018, of March 22, shall have the following wording:

"7.1. Participation in any subsystem of SICOI is subject to the following procedures and requirements:"

5. Number 7.5 of Instruction 8/2018, of March 22, shall have the following wording:

"7.5. Participation, change of participation type, or cessation of participation in any subsystem is communicated by the Banco de Portugal to all participants with a minimum advance of 10 business days, without prejudice to the provisions of the following number."

6. Number 8.4 of Instruction 8/2018, of March 22, shall have the following wording:

"8.4. The suspension or exclusion of a participant may also be determined if any occurrence related to them occurs, which, in the opinion of the Banco de Portugal, prejudices the performance of its duties, as described in its Organic Law, in the General Regime of Credit Institutions and Financial Companies and in the Statutes of the European System of Central Banks and the European Central Bank, or constitutes a risk of a prudential or systemic nature."

7. Number 15 of Instruction 8/2018, of March 22, is deleted.

8. Annex VII "Framework Agreement for the opening of credit with guarantee of financial instruments and credit rights in the form of bank loans within the framework of the guarantee fund account mechanism of the Interbank Clearing System in TARGET2-PT" is added to Instruction No. 8/2018, of March 22, renumbering the following Annexes, which shall have the following wording:

"Annex VII - Framework Agreement for the opening of credit with guarantee of financial instruments and credit rights in the form of bank loans within the framework of the guarantee fund account mechanism of the Interbank Clearing System in TARGET2-PT

In accordance with the provisions of Instruction No. 8/2018, of March 22, 2018, which establishes and regulates the Interbank Clearing System (SICOI), direct participation in any of the compensation and deferred settlement subsystems requires the constitution of a value reserve, within the framework of the SICOI guarantee fund account mechanism in TARGET2-PT.

This value reserve may be provided through the deposit of cash in an account opened by the participant in AGIL (Integrated Liquidity Management Application, regulated by Instruction No. 2/2009), and/or through liquidity granted by the Banco de Portugal guaranteed by assets eligible for Eurosystem credit operations.

In the event of a lack or insufficiency of liquidity in the TARGET2 settlement account indicated by the direct participant, the Banco de Portugal may, under the SICOI Regulation, and if the direct participant does not have sufficient funds in their account opened in AGIL, effect a liquidity transfer to the SICOI guarantee fund account in TARGET2-PT, which is guaranteed by assets eligible for Eurosystem credit operations, with the constitution of a financial pledge in favor of the Banco de Portugal, under the terms and according to the provisions of Decree-Law No. 105/2014, of May 8, and Instructions No. 3/2015 and 7/2012 of the Banco de Portugal, hereinafter referred to as Instructions.

For this purpose, each direct participant wishing to provide the value reserve through liquidity granted by the Banco de Portugal guaranteed by assets eligible for Eurosystem credit operations must request the Banco de Portugal to open a guaranteed credit in their favor (i) by financial instruments (tradable debt instruments) and/or (ii) by credit rights, in the form of bank loans (non-tradable debt instruments) with the constitution of a financial pledge, in light of the provisions of Decree-Law No. 105/2004, of May 8, hereinafter referred to as credit rights, subject to the terms and conditions contained in the clauses of this Framework Agreement (hereinafter referred to as Agreement).

First Clause (Object)

1. The Banco de Portugal, within the framework of the guarantee fund account mechanism of the Interbank Clearing System in TARGET2-PT, proceeds to open a credit in favor of the direct participant, which is registered in the Collateral Management System and Operations (COLMS), regulated by Instruction No. 10/2015.
2. As security for the opened credit, it accepts to receive financial instruments and credit rights, delivered by the direct participant, hereinafter referred to as collateral assets, through the constitution of a financial pledge on them, under the terms and according to the established in Decree-Law No. 105/2004, of May 8.

Second Clause (Amount of Credit) The amount of the credit is limited to the amount required and calculated by the Banco de Portugal, in accordance with number 33 of Instruction No. 8/2018, referred to as value reserve, which is communicated by email to the direct participant.

Third Clause (Provision of Guarantees)

1. The eligibility of collateral assets is subject to the requirements and conditions established in the Instructions.

2. The guarantees provided by the direct participant shall be discriminated by it and subject to the acceptance of the Banco de Portugal.

3. The direct participant guarantees, under its responsibility, that: (i) the financial instruments are its property; (ii) the bank loans exist and are valid; and that (iii) no encumbrance, charge, limitation, or restriction applies to them, other than the registration of a financial pledge in favor of the Banco de Portugal.

4. This contract is only effective after the Banco de Portugal (i) has received communication from the Central Securities Depository or the depositary entity, as applicable, that the financial instruments have been transferred to the Banco de Portugal's account and that the exercise of the right of disposal is duly registered therein, and (ii) has verified, accepted, and registered the credit rights.

5. The direct participant cedes to the Banco de Portugal, by virtue of this contract, the possession of the pledged credits, henceforth acting with respect to these credits merely as holder in the name of the Banco de Portugal.

6. The Banco de Portugal reserves the right to notify the debtor of the credit rights of the existence of the financial pledge, at any time it deems convenient, such notification always occurring in case of non-compliance by the direct participant, in which case the direct participant ceases to hold the credit, which becomes the property of the Banco de Portugal.

7. The financial instruments and credit rights pledged are affected indistinctly to the guarantee of reimbursement of capital, interest, and expenses of all credits that the Banco de Portugal holds against the direct participant and that have been granted under the First Clause.

Fourth Clause (Amortization) Whenever, during the validity of the contract, there is amortization, settlement, or non-compliance with the credit rights or financial instruments subject to financial pledge, the amount of the credit opening fixed by the Banco de Portugal shall be reduced accordingly, unless the direct participant proceeds to its replacement or reinforcement of the financial pledge.

Fifth Clause (Other Obligations of the Direct Participant Regarding Credit Rights) The direct participant undertakes to:

1. Act as faithful depositary, on behalf of the Banco de Portugal, of the originals of the contracts regarding the credit rights on third parties given as guarantee, celebrated between the direct participant and the debtors.

2. Deliver to the Banco de Portugal, when requested, the contracts referred to in the previous number, or authorize their consultation at the premises of the direct participant.

3. Not establish in the loan contract any restrictions on the mobilization and realization of the credit resulting from the loan in favor of the Eurosystem, i.e., in favor of the national central banks of countries that have adopted the euro.

4. Not use the credit rights given as guarantee to the Banco de Portugal to secure credits towards third parties or for any other purposes.

5. Inform the Banco de Portugal, at the latest during the next business day, about any early repayments of the credit rights given as guarantee, as well as about downgrades in the credit risk rating of the debtor or other materially relevant subsequent changes that may affect the guarantee provided.

6. In case of non-compliance by the direct participant, keep in a separate account, for the benefit of the Banco de Portugal, the amounts related to any payments made by the debtor of the bank loan.

7. Obtain the waiver from debtors, in writing or other legally equivalent form, of the rights of set-off against their respective institution and the Banco de Portugal, as well as of the rights arising from bank secrecy rules, in contracts celebrated from November 2, 2012.

Sixth Clause (Proof Documents)

1. In the event that the direct participant does not have sufficient funds in its cash value reserve account opened in the Integrated Liquidity Management Application (AGIL), the Banco de Portugal proceeds to the liquidity transfer to the SICOI guarantee fund account in TARGET2-PT.
2. After the settlement of the liquidity transfer in TARGET2-PT: a) The Banco de Portugal immediately sends to the participant a proof document of the execution of the operation, via email, which must contain a copy of the operation details, as present in the TARGET2-PT query screen; b) The participant must confirm, immediately via email, the receipt of the information regarding the transfer made.
3. The proof documents of the transfer made, together with the provisions of this Contract and the Instructions, constitute sufficient proof of the terms agreed between the participant and the Banco de Portugal for that operation. In the event of any conflict between the proof documents and the provisions of this Contract and the Instructions, the proof documents shall prevail, but only with respect to the operation to which they relate.

Seventh Clause (Communications and Information)

1. The direct participant shall inform the Banco de Portugal of the identity of the person or persons, who, by obligating them, are authorized to make communications within the scope of this Contract, and to update this information, in the same manner, when necessary.
2. The communications and information to be made under the Contract, which include, among others, the changes to the contract thus constituted, the declaration of the existence and validity of the credit rights, the constitution of the financial pledge, and the alteration of the set of credit rights that constitute it, must be sent to the recipient in writing, via certified or registered mail, or by email.
3. Any communication or information to be made under the Contract becomes effective: a) If delivered in person or by unregistered mail, at the moment it comes to the power of the recipient; b) If sent by registered mail, on the date of receipt fixed by the postmark; c) If sent by email, at the moment of receipt of the transmission.
4. The previous number does not apply when the actual or presumed receipt of the communication takes place after the closing of the respective business day or on a non-business day; in this case, it is considered that such communication comes to the power of the recipient on the next business day.
5. Direct participants must communicate to the Banco de Portugal the change of their postal and email address.
6. All telephone communications related to the operations carried out within the scope of this Contract may be recorded.

Eighth Clause (Right of Disposal)

1. With the constitution of the guarantee, the Banco de Portugal exercises the right of disposal over the financial instruments and cash given as guarantee, being able to proceed to their alienation or encumbrance, as if it were the owner, in accordance with article 9 of Decree-Law No. 105/2004, of May 8.
2. For the purposes of the provisions of the previous number, the exercise of the right of disposal shall be duly mentioned in the respective account registration.
3. The parties attribute to the transmission of the ownership of the financial instruments to the Banco de Portugal the effects of the exercise of the right of disposal and/or appropriation, in case of non-compliance by the Institution, without any additional registration in the respective account being necessary for the purposes of applying the aforementioned decree.
4. When Portuguese law is not the competent law to regulate the requirements necessary for the constitution of the financial pledge on the financial instruments, the direct participant shall, in the shortest possible time, fill in all the legal requirements required by the competent law so that the financial instruments are made available to the Banco de Portugal on terms equivalent to those provided for in article 9 of Decree-Law No. 105/2004, of May 8.
5. The interest and other patrimonial rights inherent to the financial instruments belong to the direct participant, obliging the Banco de Portugal to proceed to their respective transfer to the direct participant as established in the Instructions, on the same day, except if on that date the financial instruments given as guarantee are not sufficient to cover the financing provided, in which case they will be retained as long as necessary.
6. The Banco de Portugal will disclose to direct participants the corporate events related to the pledged financial instruments of which it has knowledge.

Ninth Clause (Lack of Payment and Default)

1. In case of non-payment of any amounts that the direct participant must settle, the Banco de Portugal may execute the financial pledge, without the need for any notice, notification, or formality, (i) being able to make the credit rights, financial instruments, and cash its own, through sale or appropriation, whether compensating their value, or applying it to settle the guaranteed obligations and/or (ii) paying itself from the net product of the sale of these financial instruments, up to the necessary amount, and/or (iii) demanding from the direct participant the payment of any remaining debt, based on this Contract.
2. It is the responsibility of the direct participant to pay all procedural expenses or other expenses related to them.
3. In the case of appropriation of the credit rights by the Banco de Portugal, the value of them is, according to the will of the parties, what is obtained in the cession of them to third parties, and, in case of non-compliance by the debtor, what results from execution proceedings.
4. The Banco de Portugal undertakes to return to the direct participant the amount corresponding to the difference between the value of the pledged credit rights and the amount of the financing provided, after, (i) in the case of cession to third parties of the pledged credit rights, from the receipt of this value, (ii) the maturity date of the credit rights or (iii) in execution proceedings thereof.
5. Without prejudice to the provisions of the previous numbers, the default in compliance by the direct participant with the obligation to pay the debit balance confers on the Banco de Portugal the right to demand default interest calculated at the rate of the marginal lending facility plus 2.5 percentage points, according to the Actual Number of Days/360 convention, during the period of non-compliance, including the day of default and excluding the day on which payment is made.

Instruction No. 10/2019 Official Gazette No. 6/2019 • 2019/06/17 Topics Payment Systems :: Clearing .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Clause Ten (Non-compliance)

1. Non-compliance with this Contract, as well as the occurrence of any of the situations that, in accordance with the provisions of Instructions No. 8/2018 and No. 3/2015, respectively in point 8 and article 160, constitute non-compliance by the direct participant, determine the early maturity of all its obligations and grant the Bank of Portugal the right to satisfy its credits against it through compensation.
2. In situations of non-compliance, the Bank of Portugal may: a) Realize the financial guarantee (i) by selling or appropriating the financial instruments, or (ii) by making its own the credit rights against third parties, either by offsetting their value or by applying it to settle the covered financial obligations; b) Make its own the cash given as guarantee.
3. The valuation of credit rights and financial instruments is carried out by the Bank of Portugal in accordance with the criteria and methods used at the time of their mobilization.
4. If the direct participant's obligations arising from this Contract are not fulfilled in a timely manner, the granting of credit is automatically suspended until they are fulfilled. Clause Eleven (Unity of the Contract and Assignment of Contractual Position)
5. The Operations are regulated by the provisions of this Contract and the Instructions, and considered as a whole - as a single contractual relationship, thus recognized by the parties - for the purposes of its resolution and its compensation, so that the non-compliance by the direct participant with any of the obligations in one Operation constitutes or may constitute (depending on the understanding of the Bank of Portugal) non-compliance with all other operations.
6. The provisions of this Contract supersede any existing contracts between the parties that contain general terms and conditions for the Operations. Each provision and agreement contained in this Contract shall be treated separately from any other provision or agreement of the same Contract and shall have legal force notwithstanding any other provision or agreement not having it.
7. The rights and obligations of direct participants arising from this Contract and the operations covered by it shall not, under any circumstances, be assigned to third parties, nor in any way negotiated, without the prior and express written consent of the Bank of Portugal.

Instruction No. 10/2019 Official Gazette No. 6/2019 • 2019/06/17 Topics Payment Systems :: Clearing .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 Clause Twelve (Term and Termination)

1. The Contract has an indefinite term.
2. The Contract may be terminated at any time, by means of a termination notice by registered letter with acknowledgment of receipt, the notice taking effect thirty days after its receipt.
3. The Contract will continue to govern ongoing operations, contracted between the parties before the termination takes effect.
4. After the delivery of a termination notice, no new Operation shall be carried out under the provisions of this Contract. Clause Thirteen (Jurisdiction and Applicable Law)
5. Operations carried out under this Contract are subject to Portuguese law in general and, in particular, to the provisions of the Instructions.
6. For any dispute, namely regarding the validity, interpretation and application of this Contract, as well as the resolution of any conflicts, a voluntary arbitration court shall be competent, to be constituted under the terms of the applicable law.
7. The court will operate in Lisbon and its object will be defined in the arbitration agreement, unless restricted, which will be for the arbitrators to decide at the request of any of the parties.
8. The right of the Bank of Portugal, at its sole discretion, to bring any actions in any national or foreign jurisdiction is in no way limited.
9. Number 2 of Annex VIII – Pricing and Penalties of Instruction No. 8/2018, of March 22 (renumbered 'Annex IX' by virtue of this Instruction), shall have the following wording: « 2. Penalties for late settlement 2.1. In the clearing subsystems for cheques, commercial effects, cards, and credit transfers (1st closing of the Non-SEPA component and 1st and 2nd closings of the SEPA component), successive one-hour settlement periods are carried out, after which the following cumulative penalties will be applied to participants responsible for delays in settling clearing balances due to insufficient funds in the account: I. Failure in the first settlement period: a penalty of 700 Euros will be applied; II. Failure in the second settlement period: an additional penalty of 1,750 Euros will be applied; III. Failure in the third settlement period: an additional penalty of 3,500 Euros will be applied; IV. From the third settlement failure period onwards: the additional penalty will be 7,000 Euros. 2.2. In the clearing subsystems for credit transfers (2nd closing of the Non-SEPA component and 3rd and 4th closings of the SEPA component) and SEPA direct debits (CORE and B2B components), successive 30-minute settlement periods are carried out, after which the following cumulative penalties will be applied to participants responsible for delays in settling clearing balances due to insufficient funds in the account: I. Failure in the first settlement period: a penalty of 1,050 Euros will be applied; II. Failure in the second settlement period: an additional penalty of 2,625 Euros will be applied; III. Failure in the third settlement period: an additional penalty of 5,250 Euros will be applied; IV. From the third settlement failure period onwards: the additional penalty will be 10,500 Euros. 2.3. In the clearing subsystem for credit transfers (5th closing of SEPA I and II component), a 15-minute settlement period will be carried out, after which a penalty of 2,625 Euros will be applied to participants responsible for delays in settling clearing balances due to insufficient funds in the account, with the Bank of Portugal reserving the right, regardless of the application of the aforementioned penalty, to effect settlement until the end of the business day. 2.3.1. If settlement is not effected until the end of the business day, successive one-hour settlement periods will be carried out, starting at 7:30 a.m. on the next business day, after which the following cumulative penalties will be applied to participants responsible for delays in settling clearing balances due to insufficient funds in the account: I. Failure in the first settlement period: a penalty of 2,625 Euros will be applied;

Instruction No. 10/2019 Official Gazette No. 6/2019 • 2019/06/17 Topics Payment Systems :: Clearing .................................................................................................................................................................................................. Mod. 99999940/T – 01/14 II. Failure in the second settlement period: an additional penalty of 5,250 Euros will be applied; III. From the second settlement failure period onwards: the additional penalty will be 10,500 Euros.» 10. This amendment to Instruction No. 8/2018, of March 22 – Regulation of the Interbank Clearing System (SICOI) – enters into force on the day of its publication.