Instruction No. 17/2020 — BDP — PT

Instruction No. 17/2020
BO No. 6/2020 2nd Supplement • 2020/06/23
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Topics
Markets :: Money Markets
Mod. 99999940/T – 01/14
Index
Text of the Instruction
Text of the Instruction
Subject: Implementation of the Eurosystem monetary policy On 7 April 2020, the Governing Council of the ECB approved Decision (EU) 2020/506 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 (ECB/2018/3), and Guideline (EU) 2016/65 on the haircuts to be applied in the implementation of the Eurosystem monetary policy (ECB/2018/4). Following the implementation of the aforementioned Decision, minor changes were introduced and the Framework Agreement for repurchase operations and the Framework Agreement for currency swaps for monetary policy purposes were revoked, respectively Part II and Part III of Annex XIII of Instruction No. 3/2015, given that the Bp uses the financial pledge as a legal mobilization technique. 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 31 January, in its current version, the Bp determines:
Instruction No. 3/2015 (BO No. 5, of 15-05-2015) is amended as follows:

Article 99 is amended, to read as follows:

Each underlying credit right must meet the eligibility criteria established in Part IV, Title III, Chapter 1, Section 1, with the modifications provided for in this Article.
To ensure the establishment of a valid security interest over the underlying credit rights that allows the issuer and holders of debt instruments secured by eligible credit rights to be rapidly executed in the event of the originator's default, the additional legal requirements specified in points 3 to 9 must be met:
a) verification of the existence of the underlying credit rights; b) validity of the contract for the mobilization of underlying credit rights; c) full production of the effects of mobilization vis-à-vis third parties; d) absence of restrictions on the transfer of the underlying credit rights; e) absence of restrictions on the execution of the underlying credit rights; f) absence of restrictions arising from banking secrecy and confidentiality requirements. The relevant national documentation of each NCB must contain the specific characteristics of the national jurisdictions.
The NCB of the country in which the originator is established, the supervisors or external auditors must carry out a spot check of the adequacy of the procedures used by the originator to present to the Eurosystem information on underlying credit rights.
The NCB of the country in which the originator is established must, at a minimum, take the following steps to verify the existence of the underlying credit rights:
a) obtain from the originator, at least quarterly, written confirmation, certifying:
i) the existence of the underlying credit rights (this information may be replaced by cross-checking information contained in credit registries, if they exist);

Instruction No. 17/2020 BO No. 6/2020 2nd Supplement • 2020/06/23 Topics Markets :: Money Markets
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Mod. 99999940/T – 01/14 ii) compliance by the underlying credit rights with the Eurosystem eligibility criteria; iii) that the underlying credit rights are not being used simultaneously as security for third parties, and that the originator will not mobilize the aforementioned underlying credit rights as collateral assets for the Eurosystem or third parties; iv) that the originator undertakes to communicate to the competent NCB, no later than on the next business day, any event that materially affects the value of the credit rights as collateral assets, in particular early repayment (partial or total), downgrades in ratings and any other relevant changes in the conditions of the underlying credit rights. b) The NCB of the country in which the originator is established, the credit liability registry, the competent banking supervision authority, or the external auditor competent for this purpose, must carry out random checks on the quality and rigor of the written confirmation presented by counterparties by requiring the presentation of documentation or on-site inspections. The information verified for each underlying credit right must cover, at a minimum, the characteristics that determine the existence and eligibility of underlying credit rights. For originators with approved internal rating-based (IRB) systems, additional checks must be carried out regarding the assessment of the credit quality of the underlying credit rights involving the confirmation of the probability of default (PD) of the debtors of the underlying credit rights for eligible debt instruments used as collateral assets in Eurosystem credit operations. c) The checks carried out, in accordance with the provisions of this Article, paragraphs 3 and 4, points a) or b), by the NCB of the country in which the originator is established or by supervisory authorities, external auditors or credit liability registries must be governed by the applicable national rules or, if necessary, established contractually.
5. The contract for the transfer of the underlying credit rights to the issuer, or their mobilization by means of transfer, assignment or pledge, concluded between the issuer and the originator and/or the transferor/assignee/pledgee creditor, as the case may be, must be valid under the applicable national legislation. The originator and/or the transferor, as the case may be, must comply with all necessary legal formalities to ensure the validity of the contract and the mobilization of the underlying credit rights as collateral assets.
Regarding notification to the debtor, the following is mandatory, depending on national legislation:
a) It may be necessary to notify the debtor or carry out public registration: i) of the transfer (direct or indirect) to the issuer of the underlying credit right; or (ii) of the mobilization, by counterparties, of debt instruments secured by eligible credit rights as collateral assets with their home NCB, to ensure full effectiveness, vis-à-vis third parties, of such transfer or mobilization; and, in particular, (iii) to ensure the priority of the issuer's real security right (with regard to the underlying credit rights) and/or the home NCB's (with regard to debt instruments secured by eligible credit rights used as collateral assets) vis-à-vis other creditors. In such cases, the following notification or registration conditions must be met: i) they must be carried out previously or at the time of the effective transfer to the issuer (direct or indirect) of the underlying credit rights; or ii) at the time of mobilization, by the counterparty, to the home NCB, of the debt instruments secured by eligible credit rights, as collateral assets. b) If the applicable national documentation does not require ex ante notification of the debtor or public registration under point a), ex post notification of the debtor is required. Ex-post notification implies that the debtor is notified, in the manner specified in the national documentation, of the transfer or mobilization of the credit rights immediately after the occurrence of a default situation or similar credit event, as specified in the applicable national documentation. c) Points a) and b) contain minimum requirements. The Eurosystem may also decide to require ex ante notification or registration in other cases beyond those mentioned above, including in the case of bearer instruments.
6. The underlying credit rights must be fully transferable and capable of being transferred to the issuer without any restrictions. Loan contracts, or other contractual acts concluded between the originator and the debtor, concerning the underlying credit rights must not contain any provisions limiting the transfer of the collateral assets. Contracts, or other contractual acts between the originator and the debtor, concerning the underlying credit rights must not contain any provisions limiting the execution of the underlying credit rights, including any restrictions regarding the form, timing or other condition relating to execution, that prevent the Eurosystem from proceeding to the execution of the debt instruments secured by eligible credit rights.
7. Without prejudice to the provisions of paragraph 6, provisions that restrict the assignment of participations in syndicated loans to banks, financial institutions and entities regularly involved in the creation, purchase or investment in loans, securities or other financial assets, or established for these purposes, are not considered as limiting the execution of the underlying credit rights.
8. Without prejudice to the provisions of paragraphs 6 and 7, the existence of a coordinating agent (facility agent) for the collection and distribution of payments and administration of the loan is not considered as a restriction on the transfer and execution of a participation in a syndicated loan, in the case of:
a) the coordinating agent being a credit institution established in the European Union; and b) the service provision relationship between the relevant syndicate member and the coordinating agent can be transferred together with, or as part of, the participation in the syndicated loan.
9. The originator and the debtor must have contractually agreed that the debtor unconditionally authorizes the disclosure to the Eurosystem, by the originator, by the issuer or by any counterparty that mobilizes the debt instruments secured by eligible credit rights, of information on the details of the underlying credit rights and their respective debtor that are required by the competent home NCB with the aim of ensuring the creation of a valid security interest over the credit rights and their rapid execution in the event of the originator/issuer's default.
4. Article 176 is amended, to read as follows:
Article 176
Establishment and execution of security
1. In contracts for the assignment of liquidity in the form of loans secured by pledge of eligible assets listed in Annex XIII, the following are included: (i) the procedures and formalities required for the establishment of a financial pledge; (ii) the execution of the assets without them being subject to previously established rights over them; (iii) the impossibility of third parties (including the liquidation authority, in the event of insolvency) to intervene and successfully claim the assets given as security (if there has been no fraud), nor any accessory rights, and (iv) the recovery by the Bp of the economic value of the assets delivered to it as security, in the event of one of the default situations provided for in Article 160.
2. These situations are also reflected in the repurchase contract, in the event of a counterparty's default.
5. Clause 6 of Annex XIII – Part I is amended, to read as follows:
Clause 6
Other obligations of the counterparty
The Counterparty undertakes to:
1. Act as a faithful depositary, on behalf of the Bp, of the originals of the contracts relating to credit rights over third parties given as security concluded between the Counterparty and the debtors.
2. Deliver to the Bp, when requested, the contracts referred to in the previous paragraph, or authorize their consultation at the Counterparty's premises.
3. Perform, in the name and on behalf of the Bp, if requested, all acts necessary for the proper management of credit rights over third parties and their respective guarantees, including collection services and relations with debtors, even in the liquidation of the Counterparty.
4. Not fix in the loan contract any restrictions on the mobilization and execution of the credit resulting from the loan in favor of the Eurosystem, i.e. in favor of the national central banks of the countries that have adopted the euro.

Lineage: No known changes