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

TITLE I CAPITAL REQUIREMENTS FOR ALL CSDS REFERRED TO IN ARTICLE 47 OF REGULATION (EU) No 909/2014

Article 1 Overview of requirements regarding the capital of a CSD

1. For the purposes of Article 47(1) of Regulation (EU) No 909/2014, a central securities depository (‘CSD’) shall hold at all times, together with retained earnings and reserves, the amount of capital specified in Article 3 of this Regulation.

2. The capital requirements referred to in Article 3 shall be met with capital instruments that meet the conditions set out in Article 2 of this Regulation.

Article 2 Conditions regarding capital instruments

1. For the purposes of Article 1, a CSD shall hold capital instruments that meet all of the following conditions:

(a) they are subscribed capital within the meaning of Article 22 of Council Directive 86/635/EEC(1);

(b) they have been paid up, including the related share premium accounts;

(c) they fully absorb losses in going concern situations;

(d) in the event of bankruptcy or liquidation, they rank after all other claims in insolvency actions or under the applicable insolvency law.

2. In addition to the capital instruments that meet the conditions in paragraph 1, a CSD authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services may, in order to meet the requirements in Article 1, use capital instruments that:

(a) meet the conditions in paragraph 1;

(b) are ‘own funds instruments’ as defined in point 119 of Article 4(1) of Regulation (EU) No 575/2013;

(c) are subject to the provisions of Regulation (EU) No 575/2013.

Article 3 Level of capital requirements for a CSD

1. A CSD shall hold capital, together with retained earnings and reserves, which shall be at all times more than or equal to the sum of:

(a) the CSD's capital requirements for operational, legal and custody risks, referred to in point (a) of Article 47(1) of Regulation (EU) No 909/2014, calculated in accordance with Article 4;

(b) the CSD's capital requirements for investment risks, referred to in point (a) of Article 47(1) of Regulation (EU) No 909/2014, calculated in accordance with Article 5;

(c) the CSD's capital requirements for business risks, referred to in point (a) of Article 47(1) of Regulation (EU) No 909/2014, calculated in accordance with Article 6;

(d) the CSD's capital requirements for winding-down or restructuring its activities, referred to in point (b) of Article 47(1) of Regulation (EU) No 909/2014, calculated in accordance with Article 7.

2. A CSD shall have procedures in place to identify all sources of the risks referred to in paragraph 1.

Article 4 Level of capital requirements for operational, legal and custody risks

1. A CSD authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services and with permission to use the Advanced Measurement Approaches (‘AMA’) referred to in Articles 321 to 324 of Regulation (EU) No 575/2013, shall calculate its capital requirements for operational, legal and custody risks in accordance with Articles 231 to 234 of Regulation (EU) No 575/2013.

2. A CSD authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services and using the Standardised Approach for operational risk as referred to in Articles 317 to 320 of Regulation (EU) No 575/2013, shall calculate its capital requirements for operational, legal and custody risks in accordance with the provisions of that Regulation applicable to the Standardised Approach for operational risk referred to in Articles 317 to 320 thereof.

3. A CSD that satisfies any the following conditions shall calculate its capital requirements for operational, legal and custody risks in accordance with the provisions of the Basic Indicator Approach referred to in Articles 315 and 316 of Regulation (EU) No 575/2013:

(a) A CSD that is not authorised in accordance with Article 54(2) of Regulation (EU) No 909/2014;

(b) a CSD that is authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 but which does not have permission to use the AMA referred to in Articles 321 to 324 of Regulation (EU) No 575/2013;

(c) A CSD that is authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 but which does not have permission to use the Standardised approach referred to in Articles 317 to 320 of Regulation (EU) No 575/2013.

Article 5 Level of capital requirements for investment risk

1. A CSD shall calculate its capital requirements for investment risk as the sum of the following:

(a) 8 % of the CSD's risk-weighted exposure amounts relating to both of the following:

(i)

credit risk in accordance with paragraph 2;

(ii)

counterparty credit risk in accordance with paragraph 3;

(b) the CSD's capital requirements for market risk in accordance with paragraphs 4 and 5.

2. For the calculation of a CSD's risk-weighted exposure amounts for credit risk, the following shall apply:

(a) where the CSD is not authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services, the CSD shall apply the Standardised Approach for credit risk referred to in Articles 107 to 141 of Regulation (EU) No 575/2013 in combination with Article 192 to 241 of that Regulation on credit risk mitigation;

(b) where a CSD is authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services but does not have permission to use the Internal Ratings Based Approach (IRB Approach) set out in Articles 142 to 191 of Regulation (EU) No 575/2013, the CSD shall apply the Standardised Approach for credit risk set out in Articles 107 to 141 of Regulation (EU) No 575/2013 in combination with the provisions on credit risk mitigation set out in Articles 192 to 241 of Regulation (EU) No 575/2013;

(c) where a CSD is authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services and has permission to use the IRB Approach, the CSD shall apply the IRB Approach for credit risk provided for in Articles 142 to 191 of Regulation (EU) No 575/2013 in combination with the provisions on credit risk mitigation set out in Articles 192 to 241 of Regulation (EU) No 575/2013.

3. For the calculation of a CSD's risk-weighted exposure amounts for counterparty credit risk, a CSD shall use both of the following:

(a) one of the methods set out in Articles 271 to 282 of Regulation (EU) No 575/2013;

(b) the Financial Collateral Comprehensive Method applying the volatility adjustments provided for in Articles 220 to 227 of Regulation (EU) No 575/2013.

4. A CSD that satisfies any of the following conditions shall calculate its capital requirements for market risk, in accordance with the provisions of Articles 102 to 106 and 325 to 361 of Regulation (EU) No 575/2013, including through the use of derogation for small trading book business provided in Article 94 of that Regulation:

(a) a CSD that is not authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014;

(b) a CSD that is authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 but is not permitted to use internal models to calculate own funds requirements for market risk.

5. A CSD authorised in accordance with point (a) of Article 54(2) of Regulation (EU) No 909/2014 to provide banking-type ancillary services and permitted to use internal models to calculate own funds requirements for market risk, shall calculate its capital requirements for market risk in accordance with Articles 102 to 106 and 362 to 376 of Regulation (EU) No 575/2013.

Article 6 Capital requirements for business risk

1. The capital requirements of a CSD for business risk shall be whichever of the following is higher:

(a) the estimate resulting from the application of paragraph 2, minus whichever of the following is the lowest:

(i)

the net income after tax of the last audited financial year;

(ii)

the expected net income after tax for the current financial year;

(iii)

the expected net income after tax for the most past financial year where audited results are not yet available;

(b) 25 % of the CSD's annual gross operational expenses referred to in paragraph 3.

2. For the purposes of point (a) of paragraph 1, a CSD shall apply all of the following:

(a) estimate the capital necessary to cover losses resulting from business risk on reasonably foreseeable adverse scenarios relevant to its business model;

(b) document the assumptions and the methodologies used to estimate the expected losses referred to in point (a);

(c) review and update the scenarios referred to in point (a) at least annually.

3. For the calculation of a CSD's annual gross operational expenses, the following shall apply:

(a) the CSD's annual gross operational expenses shall consist of at least the following:

(i)

total personnel expenses including wages, salaries, bonuses and social costs;

(ii)

total general administrative expenses, and, in particular, marketing and representation expenses;

(iii)

insurance expenses;

(iv)

other employees' expenses and travelling;

(v)

real estate expenses;

(vi)

IT support expenses;

(vii)

telecommunications expenses;

(viii)

postage and data transfer expenses;

(ix)

external consultancy expenses;

(x)

tangible and intangible assets' depreciation and amortisation;

(xi)

impairment and disposal of fixed assets;

(b) the CSD's annual gross operational expenses shall be determined in accordance with one of the following:

(i)

International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 of the European Parliament and of the Council(2);

(ii)

Council Directives 78/660/EEC(3), 83/349/EEC(4) and 86/635/EEC;

(iii)

generally accepted accounting principles of a third country determined to be equivalent to IFRS in accordance with Commission Regulation (EC) No 1569/2007(5) or accounting standards of a third country the use of which is permitted in accordance with Article 4 of that Regulation;

(c) the CSD may deduct tangible and intangible assets' depreciation and amortisation from annual gross operational expenses;

(d) the CSD shall use the most recent audited information from their annual financial statement;

(e) where the CSD has not completed business for one year from the date it starts its operations, it shall apply the gross operational expenses projected in its business plan.

Article 7 Capital requirements for winding-down or restructuring

A CSD shall calculate its capital requirements for winding down or restructuring by applying the following steps in sequence:

(a)

estimate the time span required for winding-down or restructuring for all of the stress scenarios referred to in the Annex consistently with the plan referred to in Article 47(2) of Regulation (EU) No 909/2014;

(b)

divide the CSD's annual gross operational expenses determined in accordance with Article 6(3) by twelve (‘monthly gross operational expenses’);

(c)

multiply the monthly gross operational expenses referred to in point (b) by the longer of the following points:

(i)

the time span referred to in point (a);

(ii)

six months.

(1)

Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (OJ L 372, 31.12.1986, p. 1).

(2)

Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ L 243, 11.9.2002, p. 1).

(3)

Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (OJ L 222, 14.8.1978, p. 11).

(4)

Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts (OJ L 193, 18.7.1983, p. 1).

(5)

Commission Regulation (EC) No 1569/2007 of 21 December 2007 establishing a mechanism for the determination of equivalence of accounting standards applied by third country issuers of securities pursuant to Directives 2003/71/EC and 2004/109/EC of the European Parliament and of the Council (OJ L 340, 22.12.2007, p. 66).