Commission Delegated Regulation (EU) 2017/390Show full title

Article 36 Stress testing the sufficiency of liquid financial resources

1. A CSD-banking service provider shall determine and test the sufficiency of its liquidity resources at relevant currency level by regular and rigorous stress testing that meets all of the following requirements:

(a) it is conducted on the basis of the factors referred to in paragraphs 4 and 5, as well as the specific scenarios referred to in paragraph 6;

(b) it includes regular testing of the CSD-banking service provider's procedures for accessing its qualifying liquid resources from a liquidity provider using intraday scenarios;

(c) it complies with the requirements of paragraphs 2 to 6.

2. The CSD-banking service provider shall ensure, at least through rigorous due diligence and stress testing that each liquidity provider of its minimum required qualifying liquid resources established in accordance with Article 34, has sufficient information to understand and manage its associated liquidity risk, and is able to comply with the conditions of a prearranged and highly reliable funding arrangement set out in points (d) and (e) of Article 59(4) of Regulation (EU) No 909/2014.

3. The CSD-banking service provider shall have rules and procedures in place to address the insufficiency of qualifying liquid financial resources highlighted by its stress tests.

4. Where the stress tests result in breaches to the agreed risk appetite referred to in point (b) of Article 32(1), the CSD-banking service provider shall:

(a) report to both its own risk committee and, where relevant, to the risk committee of the CSD the results of the stress tests;

(b) review and adjust its contingency plan referred to in point (c) of Article 32(1) where breaches cannot be restored by the end of the day;

(c) have rules and procedures to evaluate and adjust the adequacy of its liquidity risk management framework and liquidity providers in accordance with the results and analysis of its stress tests.

5. The stress testing scenarios used in the stress testing of liquid financial resources shall be designed taking into account the design and operation of the CSD-banking service provider, and include all entities that may pose material liquidity risk to it.

6. The stress testing scenarios used in the stress testing of the qualifying liquid financial resources shall be designed taking into account the default, in isolation or combined, of at least two participants of the CSD-banking service provider, including their parent undertaking and subsidiaries, to which the CSD-banking service provider has the largest liquidity exposure.

7. The scenarios used in the stress testing of liquid financial resources shall be designed taking into account a wide range of relevant extreme but plausible scenarios, covering short-term and prolonged stress, and institution specific and market-wide stress, including:

(a) the missed receipt of payments from participants on a timely basis;

(b) the temporary failure or inability of one of the CSD-banking service provider's liquidity providers to provide liquidity, including those referred to in point (e) of Article 59(4) of Regulation (EU) No 909/2014, custodian banks, nostro agents, or any related infrastructure, including interoperable CSDs;

(c) simultaneous pressures in funding and asset markets, including a decrease in the value of the qualifying liquid resources;

(d) stress in foreign exchange convertibility and access to foreign exchange markets;

(e) adverse changes in the reputation of a CSD-banking services provider that casue certain liquidity providers to withdraw liquidity;

(f) relevant peak historic price volatilities of collateral or assets as recurrent events;

(g) changes in the credit availability in the market.

8. The CSD-banking service provider shall determine the relevant currencies referred to in point (c) of Article 59(4) of Regulation (EU) No 909/2014 by applying the following steps in sequence:

(a) rank the currencies from highest to lowest based on the average of the three largest daily negative net cumulative positions, converted into euro, within a period of 12 months;

(b) consider as relevant:

(i)

the most relevant Union currencies that meet the conditions specified in the Delegated Regulation (EU) 2017/392;

(ii)

all remaining currencies until the corresponding aggregated amount of the average largest net negative cumulative positions measured according to (a) is equal to or exceeds 95 % for all currencies.

9. The CSD-banking service provider shall identify and update relevant currencies referred to in paragraph 8 regularly but at least on a monthly basis. It shall provide in its rules that, under stress situations, the provisional settlement services in non-relevant currencies could be executed for their equivalent value in a relevant currency.