Instruction No. 13/2019

Instruction No. 13/2019
BO No. 7/2019 • 2019/07/15
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Topics
Supervision :: Prudential Standards
Mod. 99999911/T – 01/14
Index
Text of the Instruction
Annex I – Reporting models
Annex II – Requirements for the declaration by the administrative body
Annex I – Reporting models
Annex II – Requirements for the declaration by the administrative body
Text of the Instruction
Subject: Communications under Regulation (EU) No 648/2012 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (Regulation (EU) No 648/2012 or, as it is commonly known, EMIR - European Market Infrastructure Regulation), established the obligation for certain classes of these derivative contracts, due to their standardization and financial relevance, to be cleared through central counterparties (CCPs) in order to ensure the regular functioning of the market, avoiding the spread of default episodes with significant systemic effects.

Although Regulation (EU) No 648/2012 entered into force on 16 August 2012, in order to ensure consistent application of this regulation, particularly the clearing obligation provided for in Article 4 thereof, the European Securities and Markets Authority (ESMA) was tasked with drafting various regulatory technical standards specifying the contracts considered to have a direct, substantial and predictable effect in the Union, and the Commission has already adopted several Delegated Regulations.

Classes of derivative contracts not eligible for clearing through a central counterparty, insofar as they also involve operational risk and counterparty credit risk, are subject, under Regulation (EU) No 648/2012, to appropriate procedures and mechanisms to measure, monitor and mitigate the aforementioned risks, requiring the provision of adequate and segregated collateral between counterparties.

For this purpose, Commission Delegated Regulation (EU) 2016/2251 of 16 October 2016 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories, as regards regulatory technical standards on risk mitigation techniques for OTC derivative contracts not cleared through a central counterparty (Delegated Regulation (EU) 2016/2251) was adopted.

Although Delegated Regulation (EU) 2016/2251 already establishes general principles to be followed by counterparties and competent authorities in the application of exemptions to intra-group derivative contracts, it is considered necessary to ensure the implementation at national level of procedures that allow operationalizing the various interactions, within the scope of Regulation (EU) No 648/2012, between counterparties and the Bank of Portugal.

Thus, the Bank of Portugal, using the competence attributed to it by Article 17 of its Organic Law, approved by Law No. 5/98 of 31 January, in its current wording, and by point (f) of paragraph 1 of Article 116 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, in its current wording, and by paragraph 1 of Article 23 of Decree-Law No. 40/2014 of 18 March, approves the following Instruction:

Article 1.
Object
1 – This Instruction has as its object:
a) To define the procedures for communication to the Bank of Portugal of the intention to use the exemption from the clearing obligation, in accordance with paragraph 2 of Article 4 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (Regulation (EU) No 648/2012), regarding OTC derivative contracts that are intra-group transactions; b) To define the procedures for communication to the Bank of Portugal of the intention to use the total or partial exemption from the collateral exchange requirement established in paragraph 3 of Article 11 of Regulation (EU) No 648/2012 in intra-group transactions; c) To define the communication procedures to the Bank of Portugal specified in Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council as regards regulatory technical standards on indirect clearing agreements, the clearing obligation, the public register, access to a trading venue or organization, non-financial counterparties and risk mitigation techniques for OTC derivative contracts not cleared through a CCP (Delegated Regulation (EU) No 149/2013), namely:
i) Of unconfirmed transactions, in accordance with paragraph 4 of Article 12 of that Regulation; ii) Of disputes between counterparties, in accordance with paragraph 2 of Article 15 of that Regulation.
2 – This Instruction complements Regulation (EU) No 648/2012 and Delegated Regulation (EU) 2016/2251, and must be complied with together with the rules provided therein.

Article 3.
Definitions
For the purposes of this Instruction, the definitions contained in Article 2-A of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, in its current wording (RGICSF), as well as the definitions of Article 2 of Regulation (EU) No 648/2012, are applicable.

Article 4.
Exemption from the clearing obligation for intra-group transactions 1 – The communication, in accordance with paragraph 2 of Article 4 of Regulation (EU) No 648/2012, of the intention to use the exemption from the clearing obligation for intra-group transactions, must be preceded by approval by the administrative body (members performing executive functions) of the interested entity and sent to the Bank of Portugal together with the following information elements:
a) Models 1 and 2 provided for in Annex I to this Instruction, which forms an integral part thereof (Annex I); b) Description of risk management procedures and controls and how they are defined and applied in a centralized manner; c) Declaration by the administrative body (members performing executive functions) of the interested entity subject to the supervision of the Bank of Portugal, in accordance with requirements nos. 1 and 2 provided for in Annex II to this Instruction, which forms an integral part thereof (Annex II); d) Supporting documentation proving the conditions required in requirements nos. 1 and 2 of Annex II; e) Transaction history for the last year and open positions as of the end of the previous quarter, with identification of the type of derivative, counterparties, notional and mark-to-market; f) Copy and proof of sending the communication of the intention to use the exemption from the clearing obligation sent to the competent authority of the group counterparty, when not subject to the supervision of the Bank of Portugal. 2 – After receiving the communication provided for in the preceding paragraph, the Bank of Portugal requests any additional information it deems necessary for its assessment, and may notify the interested entity to hold a hearing and provide further clarifications considered necessary. 3 – In accordance with point (b) of paragraph 2 of Article 4 of Regulation (EU) No 648/2012, if the Bank of Portugal does not issue a decision within 30 days from the date of receipt of the communication, the

Article 5.
Exemption from the obligation to exchange collateral in non-cleared intra-group transactions 1 – The communication of the intention to use the total or partial exemption from the collateral exchange requirement in non-cleared intra-group transactions established in paragraph 3 of Article 11 of Regulation (EU) No 648/2012, must be preceded by approval by the administrative body (members performing executive functions) of the interested entity and sent together with the following information elements:
a) Models 1, 2 and 3 provided for in Annex I; b) Description of risk management procedures and controls and how they are defined and applied in a centralized manner; c) Declaration by the administrative body (members performing executive functions) of the interested entity subject to the supervision of the Bank of Portugal, in accordance with requirements nos. 1 to 4 provided for in Annex II; d) Supporting documentation proving the conditions required in requirements nos. 1 to 4 of Annex II; e) A legal opinion, issued by an independent external third party or by the internal legal department, in accordance with requirement no. 4 provided for in Annex II; f) Description of the functioning of the financing mechanisms that will be used in case of financial difficulties, including information on how these mechanisms ensure the existence of funds that a) are available at any time and b) can be transferred freely; g) Transaction history for the last year and open positions as of the end of the previous quarter, with identification of the type of derivative, counterparties, notional and mark-to-market; h) Copy and proof of sending the communication of the intention to use the exemption from the obligation to exchange collateral in non-cleared intra-group transactions sent to the competent authority of the group counterparty, when not subject to the supervision of the Bank of Portugal. 2 – After receiving the communication provided for in the preceding paragraph, the Bank of Portugal requests any additional information it deems necessary for its assessment, and may notify the interested entity to hold a hearing and provide further clarifications considered necessary.

Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15 Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
3 – When the Bank of Portugal considers that all the necessary elements for the assessment of this communication have been presented:
a) It communicates to the interested entity the start of the assessment process of the intention to use the total or partial exemption from the collateral exchange requirement; b) It carries out validation actions regarding compliance with the conditions established in Article 11 of Regulation (EU) No 648/2012. 4 – Without prejudice to the provisions of the preceding paragraphs, the Bank of Portugal may request, at any time, the provision of complementary information it considers relevant to assess the intention to use the total or partial exemption from the aforementioned collateral exchange requirement. 5 – The Bank of Portugal issues a decision within 90 days from the date provided for in point (a) of paragraph 3.

Article 6.
Communication procedures for parent companies
1 – Entities included within the scope of Article 2 that are parent companies must centralize the communication procedures referred to in Articles 4 and 5.
2 – The information elements provided for in paragraph 1 of Article 4 and in paragraph 1 of Article 5 must be prepared by each of the interested entities subject to the supervision of the Bank of Portugal, and the parent company may avoid sending duplicated information that is prepared to respond to points (a), (b), (d) and (e) of paragraph 1 of Article 4 and to points (a), (b), (d) and (e) of Article 5, following the centralization provided for in the preceding paragraph.

Article 7.
Unconfirmed transactions
1 – Entities covered by this Instruction must, taking into account paragraph 4 of Article 12 of Delegated Regulation (EU) No 149/2013, define adequate procedures and controls to identify all OTC derivative transactions, subject to the provisions of paragraphs 1 and 2 of Article 12 of Delegated Regulation (EU) No 149/2013, that are unconfirmed and remain pending for more than five business days. 2 – Additionally, entities covered by this Instruction must prepare a monthly report with all situations, verified during the previous month, and identified under the preceding paragraph, which presents information on the reasons underlying the non-confirmation or period of pending status, as well as on the steps taken by the entities regarding this matter, and which includes a status update on situations verified in previous periods that are still pending resolution. 3 – The reports referred to in the preceding paragraph must be kept for a period of 5 years, in accordance with paragraph 6 of Article 120 of the RGICSF. 4 – The Bank of Portugal may request at any time the availability of the elements referred to in the preceding paragraphs, which must be made available by the aforementioned entities within a maximum period of 10 business days.

Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15 Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
Article 8.
Disputes between counterparties
1 – Disputes between counterparties regarding an OTC derivative contract, its valuation, or the exchange of collateral of an amount or value exceeding 15 million euros and which remain pending for at least 15 business days are, in accordance with paragraph 2 of Article 15 of Delegated Regulation (EU) No 149/2013, communicated to the Bank of Portugal. 2 – The communication provided for in the preceding paragraph must be made within a maximum period of 5 business days from the date of its occurrence, together with information on the reasons for the dispute, the steps taken by the entity towards the resolution of the litigation, and the expected timeframe for its resolution. 3 – Entities covered by the provisions of this Instruction must also prepare a monthly report with all disputes that have occurred and are still pending resolution, including a status update on them. 4 – The reports referred to in the preceding paragraph must be kept for a period of 5 years, in accordance with paragraph 6 of Article 120 of the RGICSF. 5 – The Bank of Portugal may request at any time the availability of these reports, which must be made available by the aforementioned entities within a maximum period of 10 business days.

Article 9.
Submission of communications and requests
The communications and elements referred to in the preceding articles are sent to the Bank of Portugal in electronic format through the “Reports” service – “Submission of ad-hoc reports via correspondence” in the “Prudential Supervision” area of the BPnet System, where the Excel model to be used for this purpose will also be made available.

Article 10.
Entry into force
This Instruction enters into force 30 days after its publication, with the exception of Articles 4 and 5, which enter into force on the day following their publication.

Annex to Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15
Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
Annex I – Reporting models
Model 1
Prudential Supervision Department
Communications and requests under EMIR
Identification of the interested entity
Entity Name
Identification Type
Identification Number
Identification of the interested entity’s group Name of the group’s parent company Identification Type Identification Number Country of headquarters location Data on identification of the interested entity (Model 1)

Annex to Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15
Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
Model 1 – Filling Notes
Field Support/Format
Entity Name
Maximum length of 90 characters
Name of the group’s parent company
Identification Type “Legal Entity Identifier (LEI)” or “Client Code (CLC)” Identification Number LEI ISO 17442: maximum length of 20 characters; CLC: maximum length of 50 characters Country of headquarters location 2-character code of ISO 3166

Annex to Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15
Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
Model 2
Prudential Supervision Department
Communications and requests under EMIR
Data on identification of group entities (Model 2) Entity Name Identification Type Identification Number Country of Location Relationship Nature Type of intra-group transaction Competent Authority Date of request

Communications and requests may cover several group entities as counterparties.
This model must identify the various group entities for which the communication or request is being made.
Field Support/Format
Entity Name Maximum length of 90 characters
Identification Type “Legal Entity Identifier (LEI)” or “Client Code (CLC)” Identification Number LEI ISO 17442: maximum length of 20 characters; CLC: maximum length of 50 characters Country of Location 2-character code of ISO 3166 Relationship “Parent company” when the requesting entity is a subsidiary of the counterparty or “Subsidiary” when the counterparty is a subsidiary of the requesting entity or “Group company” when the counterparty is a company in the group of which the requesting entity is part Nature “Financial” if it is a financial counterparty, in accordance with paragraph 8 of Article 2 of Regulation (EU) No 648/2012 or “Non-financial” if it is a non-financial counterparty, in accordance with paragraph 9 of Article 2 of Regulation (EU) No 648/2012 or “Third country” if it is a financial counterparty established in a third country relative to which the Commission has adopted an implementing act in accordance with paragraph 2 of Article 13 of Regulation (EU) No 648/2012 Type of intra-group transaction Identification of the type of intra-group transaction in accordance with Article 3 of Regulation (EU) No 648/2012: “Article no. 3.1” if it is an intra-group transaction in accordance with paragraph 1 or “Article no. 3.2 a)” if it is an intra-group transaction in accordance with point (a) or “Article no. 3.2 b)” if it is an intra-group transaction in accordance with point (b) or “Article no. 3.2 c)” if it is an intra-group transaction in accordance with point (c) or “Article no. 3.2 d)” if it is an intra-group transaction in accordance with point (d) Competent Authority Identification of the competent authority for supervising the EMIR duties of the group entity identified as the counterparty Date of request Identification of the date on which the communication or request was made to the competent authority for supervising the group entity identified as the counterparty

Annex to Instruction No. 13/2019 BO No. 7/2019 • 2019/07/15
Topics Supervision :: Prudential Standards
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Mod. 99999911/T – 01/14
Model 3
Prudential Supervision Department
Communications and requests under EMIR
Data on identification of derivative classes (Model 3) Identification of derivative classes Derivative Class Type of Derivatives Type of Underlying Notional Currency 1 Notional Currency 2 Settlement Currency Minimum Maturity Maximum Maturity Type of Delivery Data on expected intra-group transactions per year for each derivative class Derivative Class Quantity Entity Name A Entity Name B Average Amount Total Volume

This model must be filled out for each of the intra-group relationships for which the request for exemption from collateral exchange in non-cleared intra-group transactions is made.
This model must characterize the classes and types of derivatives of the non-cleared intra-group transactions for which the request for exemption from collateral exchange is made.
Multiple lines must be filled out per class depending on the type of derivatives, type of underlyings, and combinations of notional and settlement currency, for example:
Field Support/Format
Entity Name Maximum length of 90 characters
Derivative Class “Commodities and emission allowances” or “Credit”

Lineage: No known changes

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