Instruction No. 17/2021 of October 27

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INSTRUCTION NO. 17/2021 of October 27
SUBJECT: FINANCIAL SYSTEM

• Calculation and Regulatory Capital Requirements for Settlement Risk and Incomplete Transactions

Whereas it is necessary to regulate the technical specifics regarding the capital requirement for settlement risk and incomplete transactions, as provided in Notice No. 08/21 of July 5 on Prudential Requirements; In accordance with the combined provisions of letters d) and f) of paragraph 1 of Article 31, and letter c) of paragraph 1 of Article 54, both of Law No. 24/21 of October 18, the Law of the Banco Nacional de Angola, and Article 166 of Law No. 14/21 of May 19, the General Regime for Financial Institutions Law. I DETERMINE:

1. Object
   This Instruction establishes the capital requirements for settlement risk and incomplete transactions, in accordance with Notice No. 08/21 of July 5 on Prudential Requirements.

2. Scope
   This Instruction applies to Banking Financial Institutions under the supervision of the Banco Nacional de Angola, hereinafter abbreviated as Institutions, provided for in Law No. 14/21 of May 19, the General Regime for Financial Institutions Law.

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3. Definitions
Without prejudice to the definitions established in Law No. 14/21 of May 19, the General Regime for Financial Institutions Law, for the purposes of this Instruction, the following shall be understood:
a) Risk Position - an asset or an off-balance sheet obligation. b) Settlement/Delivery Risk - arising from payments by Institutions for debt instruments, equity securities, currencies, or commodities that remain to be settled after the agreed delivery date. c) Incomplete Transaction Risk - resulting from price differences to which Institutions are exposed in cases where they have paid for securities, currencies, or commodities before receiving them, or have delivered securities, currencies, or commodities before receiving the corresponding payment.

4. Capital Requirements for Settlement and Incomplete Transaction Risk
   4.1. Institutions are subject to capital requirements for settlement risk, as provided in subpoints 4.2 to 4.4 of this section, and must make deductions from capital or calculate capital requirements for incomplete transaction risk, as applicable, in accordance with subpoints 4.5 to 4.7.
   4.2. Capital requirements for settlement risk apply to transactions in which debt instruments, equity securities, currencies, or commodities remain physically and financially unsettled after the agreed delivery date.
   4.3. The provisions of the preceding subpoint do not apply to sale and repurchase agreements, purchase and resale agreements, as well as securities or commodity lending and borrowing operations.
   4.4. If one (1) or more business days have elapsed after the agreed settlement date, the capital requirement referred to in subpoint 4.2 corresponds to the result of multiplying the value of the difference between the agreed settlement price for the relevant assets and their current market value by the corresponding factor, if the difference represents a loss to the institution, according to the table below:
   Table 01
   Number of business days after the agreed settlement date | Factor 1 – 15 | 8 % 16 – 30 | 50 % 31 – 45 | 75 % 46 or more | 100 %

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4.5. If Institutions have paid for securities, currencies, or commodities before receiving them, or have delivered them before receiving the corresponding payment, they must calculate capital requirements according to the table below:
Table 02
1 | Up to the first contractual payment or delivery | No capital requirement 2 | From the first payment or delivery until 4 business days after the second contractual payment or delivery | The provisions of subpoint 4.7 must be observed and reported as a risk position, in accordance with Instruction No. 15/21 of October 27 on the calculation and regulatory capital requirements for credit risk and counterparty credit risk 3 | From 5 business days after the second payment or delivery until the transaction is extinguished | The transferred value and the net risk position value (if positive) must be deducted from capital
4.6. In the case of international transactions, the requirement established in the preceding subpoint applies only after at least one (1) day has elapsed since the actual payment or delivery.
4.7. For incomplete transactions, treated according to item 2 of Table 02 in subpoint 4.5, the capital requirement is 8% (eight percent) of the value of securities, currencies, commodities, or the amount owed, multiplied by the risk weight applicable to the counterparty.

5. Information Reporting
   5.1. Institutions must report to the Banco Nacional de Angola quarterly, information regarding capital requirements for settlement risk, as provided in Article 33 of Notice No. 08/21 of July 5 on Prudential Requirements, on an individual and consolidated basis, through the form provided in Annex I of this Instruction.
   5.2. For the purposes of the preceding subpoint, the values to be filled in must comply with the filling notes in Annex II of this Instruction.
   5.3. The capital requirement for incomplete transactions must be calculated as defined in Instruction No. 15/21 of October 27 on regulatory capital requirements for credit risk and counterparty credit risk.
   5.4. For the purposes of the preceding subpoint, in the case of a financial group, the parent company must report information according to the consolidation perimeter provided in Article 5 of Notice No. 08/21 of July 5 on Prudential Requirements.
   5.5. Institutions must ensure that the data reported in the tables annexed to this Instruction are properly documented.

6. Sanctions
   Non-compliance with the mandatory norms established in this Instruction constitutes an offense punishable under Law No. 14/21 of May 19, the General Regime for Financial Activity and Institutions Law.

7. Transitional Provisions
   Institutions must comply with the provisions of this Instruction starting from December 31, 2021.

8. Doubts and Omissions
   Doubts and omissions arising from the interpretation and application of this Instruction are resolved by the Banco Nacional de Angola.

9. Entry into Force
   This Instruction enters into force on the date of its publication.
   PUBLISHED.
   Luanda, October 27, 2021.
   THE GOVERNOR
   JOSÉ DE LIMA MASSANO

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ANNEX I
Form "Capital Requirement for Coverage of Settlement Risk"

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ANNEX II
Filling Notes for the Form "Capital Requirement for Coverage of Settlement Risk"

1. The elements necessary for quantitative information reporting to the Banco Nacional de Angola, within the scope of capital requirements for settlement risk, are described below:
   a) Line 1 comprises the aggregate of lines 1.1, 1.2, 1.3 and 1.4, and corresponds to aggregated information on settlement risk for off-trading book positions. b) Line 2 comprises the aggregate of lines 2.1, 2.1, 2.3 and 2.4, and corresponds to aggregated information on settlement risk for trading book positions. c) Column 1 must record unsettled operations after the expected delivery date at their agreed settlement prices, regardless of whether they imply a gain or a loss after the expected settlement date. d) Column 2 must record, in the respective category, the value of the difference between the agreed settlement price for debt instruments, equity securities, currencies, or commodities that remain physically and financially unsettled after the agreed delivery date and their current market value, if this difference represents a loss to the institution. e) Column 3 lists the risk weights to be applied to each of the categories of exposures subject to settlement risk. f) The value in column 4 results from multiplying the value of column 2 by the value of column 3 for each line, obtaining the capital requirements for settlement risk per line. g) The value of the last line corresponds to the sum of the requirements for lines 1 and 2, representing the total requirement for the purposes of this annex. ---