BANQUE CENTRALE DU LUXEMBOURG

Regulation of the Central Bank of Luxembourg 2016/ No. 22

of 28 December 2016

amending the Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 implementing Guideline ECB/2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility and amending Guideline ECB/2007/9

The Directorate of the Central Bank of Luxembourg,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 127(2), first indent;

Having regard to the Statute of the European System of Central Banks and of the European Central Bank, and in particular Article 3.1, first indent, and Articles 12.1, 14.3, 18.1 and 18.2;

Having regard to Article 108bis of the Constitution;

Having regard to the Law of 23 December 1998 on the monetary status and the Central Bank of Luxembourg (hereinafter the "Central Bank") as amended, in particular Articles 2(1), 2(2) and 34(1);

Whereas:

(1) All assets eligible for Eurosystem credit operations are subject to specific risk control measures to avoid financial losses to the Eurosystem when its collateral has to be realized due to the default of a counterparty. Following the regular review of the Eurosystem's risk control framework, certain adjustments must be made with regard to asset-backed securities to ensure adequate protection.

(2) It is therefore necessary to amend the Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 implementing Guideline ECB/2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility and amending Guideline ECB/2007/9 in order to implement the modifications made to Guideline ECB/2014/31.

HAS ADOPTED THIS REGULATION:

Article 1. Amendment of the Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014

1. Article 3 is amended as follows:

a) paragraph 2 is replaced by the following text:

"2. Asset-backed securities referred to in paragraph 1 which do not benefit from at least two public ratings of at least level 2 credit quality in the Eurosystem harmonised rating scale in accordance with Article 82(1)(b) of European Central Bank Guideline (EU) 2015/510 (ECB/2014/60) 1 shall be subject to a haircut depending on their weighted average life, as specified in Annex II bis."

b) the following paragraph 2a is inserted:

"2a. The weighted average life of the senior tranche of an asset-backed security is estimated as the anticipated weighted average residual maturity until repayment has been effected for that tranche. With regard to retained securitizations, the calculation of the weighted average life assumes that the issuer's call options will not be exercised."

c) paragraph 3 is deleted;

d) paragraph 5 is replaced by the following text:

"5. A NCB may accept as collateral for Eurosystem monetary policy operations asset-backed securities, the underlying assets of which comprise either mortgage claims or loans to SMEs, or both, and which do not meet the credit assessment requirements set out in Part Two, Title II, Chapter 2 of Guideline ECB/2014/60 nor the requirements set out in paragraph 1, points (a) to (d) and paragraph 4, but which otherwise meet all eligibility criteria applicable to asset-backed securities under Guideline ECB/2014/60 and have at least two public ratings of at least level 3 credit quality in the Eurosystem harmonised rating scale. Only asset-backed securities issued before 20 June 2012 are concerned, and these shall be subject to a haircut depending on their weighted average life, as specified in Annex II bis."

e) paragraph 6 is deleted;

f) in paragraph 7, point (g) is replaced by the following text:

"(g) 'debt service continuity provisions': provisions contained in the legal documentation concerning an asset-backed security which relate either to the substitute servicer (hereinafter the 'substitute servicer') or to the assistance in the appointment of a substitute servicer (in the absence of provisions concerning a substitute servicer). In the case of provisions concerning the assistance in the appointment of a substitute servicer, an assistant to the appointment of a substitute servicer must be appointed and charged with finding a competent substitute servicer within 60 days following a trigger event in order to ensure that the payment and collection of the asset-backed security are effected within the deadlines. These provisions also mention the trigger events for the replacement of the servicer and the appointment of a substitute servicer, which may be based on a rating or on another criterion, such as the non-performance of obligations by the current servicer. In the case of provisions concerning a substitute servicer, the latter has no close link with the servicer. In the case of provisions concerning the assistance in the appointment of a substitute servicer, there is no simultaneous close link between the servicer, the assistant to the appointment of a substitute servicer and the issuer's account bank;"

g) in paragraph 7, the following points (h) and (i) are inserted:

"(h) 'close links': close links within the meaning of Article 138(2) of Guideline (EU) 2015/510 (ECB/2014/60);

(i) 'retained securitizations': asset-backed securities used to a greater than 75% of the nominal amount by a counterparty which is the originator of the underlying loans or by entities closely linked to the originator."

2. The Annex to this Regulation is inserted as Annex II bis.

Article 2. Entry into force

This Regulation shall enter into force on 2 January 2017.

Article 3. Publication

This Regulation shall be published in the Mémorial and on the website of the Central Bank (www.bcl.lu).

BANQUE CENTRALE DU LUXEMBOURG
The Directorate

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ANNEX II bis

HAIRCUT RATES APPLIED TO ASSET-BACKED SECURITIES ELIGIBLE UNDER ARTICLE 3, PARAGRAPH 2, OF THIS REGULATION

Weighted Average Life	Haircut
0-1	6.0
1-3	9.0
3-5	13.0
5-7	15.0
7-10	18.0
>10	30.0