Instruction No. 7/2019

Instruction No. 7/2019 BO No. 5/2019 Supplement • 2019/05/30 .................................................................................................................................................................................................. Topics Supervision :: Supervision Mod. 99999940/T – 01/14 Index Text of the Instruction Text of the Instruction Subject: Instruction incorporating the EBA Guidelines on the STS criteria applicable to ABCP and non-ABCP securitization (EBA/GL/2018/08 and EBA/GL/2018/09)

Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 establishes a general framework for securitization and creates a specific regime for simple, transparent and standardized securitization, amending Directives 2009/65/EC, 2009/138/EU and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (“Regulation (EU) 2017/2402”).

The aforementioned Regulation introduced into European law the definition of simple, transparent and standardized securitization (“STS”, an acronym in English for simple, transparent and standardised), establishing specific rules for a securitization operation to be qualified as such (namely, the “STS criteria”).

Simultaneously, Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 was published, which amends Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms, enshrining a risk-sensitive prudential regime for STS securitization operations.

On 12 December 2018, the European Banking Authority (EBA) issued Guidelines on the interpretation and harmonised application of the STS criteria applicable to ABCP (asset-backed commercial paper) securitizations and to non-ABCP securitizations (i.e., securitization secured by assets other than commercial paper), respectively, under Article 23(3) (EBA/GL/2018/08) and Article 19(2) (EBA/GL/2018/09) of Regulation (EU) 2017/2402, which are published on the EBA website.

The Guidelines, addressed to all participants in securitization operations and competent authorities, as established in Article 1(1), Article 2 and Article 29(1) and (5) of Regulation (EU) 2017/2402, must be applied on an intersectoral and harmonised basis throughout the European Union, with the aim of ensuring a common and coherent understanding of the STS criteria.

According to Article 29(1) of Regulation (EU) 2017/2402, with regard to institutional investors other than the originator, sponsor or original lender, it is the responsibility of the authorities specifically designated by the national legislator under the harmonised European prudential regimes to supervise the due diligence duties provided for in Article 5 of the same Regulation to which those investors are bound. Thus, with regard to credit institutions and investment firms, the competences of the Bank of Portugal derive from its designation as competent authority under Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC.

Within the Single Supervisory Mechanism (SSM), given the distribution of supervisory powers between the Bank of Portugal, as the competent national authority, and the European Central Bank (ECB), in accordance with Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (“Regulation (EU) No 1024/2013”), it is for the Bank of Portugal to supervise compliance with the obligations set out in Article 5 of Regulation (EU) 2017/2402 by less significant credit institutions, within the meaning of Article 6(4) of Regulation (EU) No 1024/2013, in their capacity as institutional investors other than the originator, sponsor or original lender.

In light of the above, in compliance with EBA Guidelines EBA/GL/2018/08 and EBA/GL/2018/09, this Instruction of the Bank of Portugal proceeds to incorporate the aforementioned Guidelines into Portuguese law, assuming that they must be applied for the purposes of due diligence requirements - and, in particular, when assessing the compliance of a securitization operation with the STS criteria - by less significant credit institutions and investment firms acting as institutional investors other than the originator, sponsor or original lender, for the purposes of Regulation (EU) 2017/2402.

In the context of supervisory activity, the Bank of Portugal verifies compliance with the aforementioned requirements by the entities identified in accordance with the cited Guidelines.

In this regard, it should be emphasized that the provision of information by participants in a securitization operation (including, the designation of a securitization operation classified as meeting the STS criteria) does not exempt institutional investors from carrying out a solid and rigorous assessment of such operation, as well as the inherent risks, in the context of compliance with their due diligence duties. Thus, although STS notifications and other information made available to them should be considered by institutional investors within the scope of due diligence, they should not be based exclusively and mechanically on those elements.

In these terms, the Bank of Portugal, using the competence conferred upon it by point (e) of Article 29(1) of Regulation (EU) 2017/2402, by Article 17 of its Organic Law, approved by Law No. 5/98 of 31 January, and by point (f) of Article 116(1) of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92 of 31 December, determines the following:

Instruction No. 7/2019 BO No. 5/2019 Supplement • 2019/05/30 Topics Supervision :: Supervision .................................................................................................................................................................................................. Mod. 99999940/T – 01/14

Article 1. Object This Instruction incorporates into the national legal order the Guidelines of the European Banking Authority on the interpretation of the STS (simple, transparent and standardised) criteria applicable to ABCP and non-ABCP securitization, of 12 December 2018 (hereinafter referred to as “EBA Guidelines EBA/GL/2018/08 and EBA/GL/2018/09”), for the purposes of compliance with the due diligence requirements provided for in Article 5 of Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017, which establishes a general framework for securitization and creates a specific regime for simple, transparent and standardized securitization, and which amends Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (“Regulation (EU) 2017/2402”).

Article 2. Scope of application This Instruction is applicable: a) When acting as institutional investors, within the meaning of point (g) of point 12 of Article 2 of Regulation (EU) 2017/2402, other than the originator, sponsor or original lender: i. To less significant credit institutions, within the meaning of Article 6(4) of Council Regulation (EU) No 1024/2013 of 15 October; ii. To investment firms qualified as financial companies under point (a) of Article 6(1) of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law No. 289/92 of 31 December. b) When acting as sponsors, within the meaning of point 5 of Article 2 of Regulation (EU) 2017/2402, for the purposes of Article 25(4) of that Regulation, to credit institutions. Text amended by Instruction No. 1/2020, published in BO No. 1/2020 of 15 January.

Article 3. Application of the Guidelines The entities listed in the previous article ensure, in accordance with the specifics arising from EBA Guidelines EBA/GL/2018/08 and EBA/GL/2018/09, the implementation of the practices and procedures necessary to ensure compliance with the due diligence duties to which they are bound under Article 5 of Regulation (EU) 2017/2402.

Article 4. Entry into force This Instruction enters into force on the day following its publication.