BANQUE CENTRALE DU LUXEMBOURG

Regulation of the Central Bank of Luxembourg 2023/ No. 33

of 29 June 2023

amending the Regulation of the Central Bank of Luxembourg 2014/ No. 18

of 21 August 2014 implementing ECB Guideline 2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility

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 Articles 3.1, 12.1, and 18;

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) Pursuant to Article 18.1 of the Statute of the European System of Central Banks and of the European Central Bank, the European Central Bank (ECB) and the national central banks of the Member States whose currency is the euro (hereinafter the "NCBs") may conduct credit operations with credit institutions and other market participants on the basis of appropriate collateral for loans, in order to achieve the objectives of the European System of Central Banks. The general conditions under which the ECB and the NCBs are willing to conduct credit operations, including the criteria determining the eligibility of collateral for Eurosystem credit operations, are defined in European Central Bank Guideline (EU) 2015/510 (ECB/2014/60).

(2) All assets eligible for Eurosystem credit operations are subject to specific risk control measures to avoid financial losses to the Eurosystem when its collateral must be realized due to the default of a counterparty. The Eurosystem's risk control framework is regularly reviewed to ensure adequate protection. Following this regular review, the Governing Council decided on 15 July 2022 to make certain modifications to the risk control framework.

(3) The Governing Council has decided to continue the gradual removal of the temporary haircut reduction decided under the temporary collateral easing measures taken by the Eurosystem in response to the exceptional economic and financial situation related to the spread of the coronavirus disease (COVID-19). This constitutes the second and final step of the gradual removal decided by the Governing Council on 23 March 2022.

(4) In order to allow for more detailed and appropriate treatment of risks associated with long-dated instruments and thus improve the risk coverage of the haircut schedule, it has been decided to divide the category of instruments with the longest residual maturity (i.e., more than ten years ([10-∞))) into three new categories: from ten to fifteen years ([10-15)), from fifteen to thirty years ([15-30)), and thirty years or more ([30-∞)). This decision, combined with the decision to apply a reduction in theoretical valuation based on maturity, also aims to improve the granularity of the risk coverage of this theoretical valuation, which is particularly useful for instruments with longer maturities.

(5) Furthermore, the Governing Council has decided to replace, within the framework of permanent and temporary collateral, the flat 5% reduction of the theoretical value currently applicable to negotiable assets pursuant to Article 134 of Guideline (EU) 2015/510 (ECB/2014/60) with a maturity-based haircut schedule, for all negotiable assets whose valuation is calculated theoretically, with the exception of those falling under haircut category I. The aim is to refine the protection of Eurosystem collateral against model risks arising from the theoretical valuation of negotiable assets.

(6) Moreover, in order to adequately reflect the risks associated with variable coupon negotiable assets and to better protect the Eurosystem against risks, it has been decided to align the haircut classification of fixed coupon negotiable assets and variable coupon negotiable assets, as they present comparable total risk levels.

(7) It is therefore appropriate to amend ECB Guideline 2014/31 accordingly,

(7) Since ECB Guideline 2014/31 has been amended accordingly by ECB Guideline 2022/50, it is appropriate to implement the new measures by amending the Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 implementing ECB Guideline 2014/31 on temporary additional measures concerning Eurosystem refinancing operations and collateral eligibility, as amended.

HAS ADOPTED THIS REGULATION:

Article 1. Amendments

The Regulation of the Central Bank of Luxembourg 2014/ No. 18 of 21 August 2014 is amended as follows:

1. The following paragraph is inserted into Article 3:

"2ter Eligible asset-backed securities pursuant to Article 3(1) whose value is calculated theoretically in accordance with the rules set out in Article 134 of Guideline (EU) 2015/510 (ECB/2014/60) shall be subject to an additional haircut in the form of a reduced valuation. The reduced valuation depends on the weighted average life of the asset, at the levels indicated in Table 4 of the Annex to Guideline (EU) 2016/65 (ECB/2015/35).";

2. Article 8ter entitled "Admission of certain negotiable assets and certain eligible issuers as of 7 April 2020" is deleted;

3. Annex IIbis is replaced by Annex I of this Regulation;

4. Annex IIter is replaced by Annex II of this Regulation;

Article 2. Entry into force

This Regulation shall enter into force on the day following its publication.

Article 3. Publication

This Regulation shall be published in the Official Journal of the Grand Duchy of Luxembourg and on the website of the Central Bank (www.bcl.lu).

BANQUE CENTRALE DU LUXEMBOURG
The Directorate

ANNEX I

"Annex IIbis
Haircut rates (%) applied to eligible asset-backed securities pursuant to Article 3(2) of this Guideline

Credit Quality	Weighted Average Life (*)	Haircut
Tier 3	[0,1)	7.0
	[1,3)	10.0
	[3,5)	13.0
	[5,7)	15.0
	[7,10)	18.0
	[10,15)	27.0
	[15,30)	31.0
	[30,∞)	33.0

• That is, [0,1) weighted average life less than one year, [1,3) weighted average life equal to or greater than one year but less than three years, etc.";

ANNEX II

"Annex IIter
Haircut rates (%) applied to eligible assets referred to in Article 8bis

Credit Quality	Residual Maturity (in years) (*)	Category I
		Fixed or Variable Coupon	Zero Coupon
Tier 4	[0,1)	8.0	8.0
	[1,3)	12.0	13.0
	[3,5)	14.0	15.0
	[5,7)	15.5	17.0
	[7,10)	16.5	18.0
	[10,15)	17.0	20.0
	[15,30)	19.0	22.0
	[30,∞)	20.0	23.0
Tier 5	[0,1)	10.0	10.0
	[1,3)	14.0	15.0
	[3,5)	16.5	17.5
	[5,7)	18.0	19.5
	[7,10)	19.0	20.5
	[10,15)	20.0	23.0
	[15,30)	21.0	24.0
	[30,∞)	23.0	26.0

• That is, [0,1) residual maturity less than one year, [1,3) residual maturity equal to or greater than one year but less than three years, etc.".