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

SECTION 1 Credit risk

Article 18 Credit risk management framework

1. For the purposes of point (a) of Article 17(1), a CSD-banking service provider shall design and implement policies and procedures that comply with the following requirements:

(a) measure intraday and overnight credit risk in accordance with Sub-section 1;

(b) monitor intraday and overnight credit risk in accordance with Sub-section 2;

(c) manage intraday and overnight credit risk in accordance with Sub-section 3;

(d) measure, monitor and manage the collateral and other equivalent financial resources, as referred to in points (c) and (d) of Article 59(3) of Regulation (EU) No 909/2014, in accordance with Chapter I of this Regulation;

(e) analyses and plans how to address any potential residual credit exposures, in accordance with Sub-section 4;

(f) manage its reimbursement procedures and sanctioning rates, in accordance with Sub-section 5;

(g) report its credit risks in accordance with Sub-section 6;

(h) publicly disclose its credit risks in accordance with Sub-section 7.

2. The CSD-banking service provider shall review the policies and procedures referred to in paragraph 1 at least annually.

3. The CSD-banking service provider shall also review those policies and procedures whenever either of the following occurs and where either of the changes referred to in points (a) or (b) affects the risk exposure of the CSD-banking service provider:

(a) the policies and procedures are subject to a material change;

(b) where the CSD-banking service provider voluntarily carries out a change following the assessment referred to in Article 19.

4. The policies and procedures referred to in paragraph 1 shall include the preparation and update of a report relating to credit risks. That report shall include the following:

(a) the metrics referred to in Article 19;

(b) haircuts applied in accordance with Article 13, reported per type of collateral;

(c) changes to the policies or procedures referred to in paragraph 3.

5. The report referred to in paragraph 4 shall be subject to monthly review by the relevant committees established by the management body of the CSD-banking service provider. Where the CSD-banking service provider is a credit institution designated by the CSD in accordance with point (b) of Article 54(2) of Regulation (EU) No 909/2014, the report referred to in paragraph 4 shall also be made available to the risk committee established under Article 48 of the Delegated Regulation (EU) 2017/392 of the CSD with the same monthly frequency.

6. Where the CSD-banking service provider breaches one or more of the concentration limits referred to in Article 14, it shall immediately report this to its relevant committee in charge of risk control, and, where it is a credit institution referred to in paragraph 5 of this Article, it shall immediately report to the risk committee of the CSD.

Sub Section 1 Measurement of Credit Risks

Article 19 Measurement of intraday credit risk

1. A CSD-banking service provider shall identify and measure intraday credit risk exposures and anticipate peak intraday credit exposures by way of operational and analytical tools that identify and measure intraday credit exposures, and that record, in particular, all of the following metrics for each counterparty:

(a) peak and average intraday credit exposures for banking-type ancillary services set out in Section C of the Annex to Regulation (EU) No 909/2014;

(b) peak and average intraday credit exposures per borrowing participant, and further breakdown of collateral covering these credit exposures;

(c) peak and average intraday credit exposures to other counterparties and, if it is secured by collateral, further breakdown of collateral covering these intraday credit exposures;

(d) total value of intraday credit lines extended to participants;

(e) further breakdown of credit exposures referred to in points (b) and (c) shall cover the following:

(i)

collateral that meets the requirements of Article 10;

(ii)

other collateral in accordance with Article 11(1);

(iii)

other collateral in accordance with Article 11(2);

(iv)

other equivalent financial resources in accordance with Article 15 and 16.

2. A CSD-banking service provider shall carry out the measurement referred to in paragraph 1 on an ongoing basis.

Where ongoing identification and measurement of intraday credit risk is not possible due to the dependency on the availablity of external data, the CSD-banking service provider shall measure intraday credit exposures on the highest frequency possible and on at least a daily basis.

Article 20 Measurement of overnight credit exposures

A CSD-banking service provider shall measure the overnight credit exposures for banking-type ancillary services set out in Section C of the Annex to Regulation (EU) No 909/2014 by recording the outstanding credit exposures from the previous day on a daily basis, at the end of the business day.

Sub-Section 2 Monitoring Credit Risks

Article 21 Monitoring intraday credit exposures

For the purposes of monitoring intraday credit risk, a CSD- banking service provider shall, in particular:

(a)

monitor on an ongoing basis, through an automatic reporting system, the intraday credit exposures arising from the banking-type ancillary services referred to in Section C of the Annex to Regulation (EU) No 909/2014;

(b)

maintain, for a period of at least 10 years, a record of the daily intraday peak and average intraday credit exposures arising from banking-type ancillary services referred to in Section C of the Annex to Regulation (EU) No 909/2014;

(c)

record the intraday credit exposures stemming from each entity on which intraday credit exposures are incurred, including the following:

(i)

issuers;

(ii)

participants to the securities settlement system operated by a CSD, at entity and group levels;

(iii)

CSDs with interoperable links;

(iv)

banks and other financial institutions used to make or receive payments;

(d)

fully describe how the credit risk management framework takes into account the interdependencies and the multiple relationships that a CSD-banking service provider may have with each of the entities referred to in point (c);

(e)

specify, for each counterparty, how the CSD-banking service provider monitors the concentration of its intraday credit exposures, including its exposures to the entities of the groups comprising the entities listed in point (c);

(f)

specify how the CSD-banking service provider assesses the adequacy of the haircuts applied to the collateral collected;

(g)

specify how the CSD-banking service provider monitors the collateral coverage of the credit exposures and the coverage of credit exposures with other equivalent financial resources.

Article 22 Monitoring overnight credit risk

For the purposes of monitoring overnight credit exposures, a CSD-banking service provider shall, in relation to the overnight credit:

(a)

maintain a record of the sum of the actual end of day credit exposures, for a period of at least 10 years;

(b)

record the information referred to in point (a) on a daily basis.

Sub-Section 3 Management of Intraday Credit Risks

Article 23 General requirements for the management of intraday credit risk

1. For the purposes of management of intraday credit risk, a CSD-banking service provider shall:

(a) specify how it assesses the design and operation of its credit risk management framework relating to all the activities listed in Section C of the Annex to Regulation (EU) No 909/2014;

(b) only grant credit lines that are unconditionally cancellable at any time by the CSD-banking service provider and without prior notice to the borrowing participants of the securities settlement system operated by the CSD;

(c) where a bank guarantee referred to in Article 16 is used in interoperable links, a CSD-banking service provider shall assess and analyse the interconnectedness that may arise from having the same participants providing that bank guarantee.

2. The following exposures are exempt from the application of Articles 9 to 15 and 24:

(a) exposures to the members of the European System of Central Banks and other Member States' bodies performing similar functions and other Union public bodies charged with or intervening in the management of the public debt;

(b) exposures to one of the multilateral development banks listed in Article 117(2) of Regulation (EU) No 575/2013;

(c) exposures to one of the international organisations listed in Article 118 of Regulation (EU) No 575/2013;

(d) exposures to public sector entities within the meaning of Article 4(8) of Regulation (EU) No 575/2013 where they are owned by central governments and have explicit arrangements provided by central governments guaranteeing their credit exposures;

(e) exposures to third country central banks that are denominated in the domestic currency of that central bank provided that the Commision has adopted an implementing act in accordance with Article 114(7) of Regulation (EU) No 575/2013 confirming that this third country is considered as applying supervisory and regulatory arrangements at least equivalent to those applied in the Union.

Article 24 Credit limits

For the purposes of managing intraday credit risk, and where setting the credit limits to an individual borrowing participant at the group level, a CSD-banking service provider shall comply with all of the following:

(a)

assess the creditworthiness of the borrowing participant based on a methodology that does not exclusively rely on external opinions;

(b)

verify the compliance of collateral and other equivalent financial resources provided by a participant to cover intraday credit exposures, with the requirements set out in Articles 9 and 15, respectively;

(c)

set the credit limits to a borrowing participant based on the multiple relationships that the CSD-banking service provider has with the borrowing participant, including where the CSD-banking service provider provides more than one banking-type ancillary service among those referred to in Section C of the Annex to Regulation (EU) No 909/2014 to the same participant;

(d)

take into account the level of qualifying liquid resources in accordance with Article 34;

(e)

review the credit limits to a borrowing participant with the view to ensuring both of the following:

(i)

where the creditworthiness of a borrowing participant decreases, that the credit limits are reviewed or reduced;

(ii)

where the value of collateral provided by a borrowing participant decreases, that the credit availability is reduced.

(f)

review the credit lines granted to borrowing participants at least annually based on their actual usage of credit;

(g)

ensure that the amount of overnight credit exposures is integrated in the usage of the credit limit granted to the participant;

(h)

ensure that the amount of overnight credit not yet reimbursed is included in the intraday exposures of the next day and is capped by the credit limit.

Sub-Section 4 Potential residual credit exposures

Article 25 Potential residual credit exposures

1. The policies and procedures referred to in Article 18(1) shall ensure that any potential residual credit exposures are managed, including in the situations where the post-liquidation value of the collateral and other equivalent financial resources are not sufficient to cover the credit exposures of the CSD-banking service provider.

2. Such policies and procedures shall:

(a) specify how potentially uncovered credit losses are allocated, including repayment of any funds that a CSD-banking service provider may borrow from liquidity providers to cover liquidity gaps related to such losses;

(b) include an ongoing assessment of evolving market conditions related to the post-liquidation value of the collateral or of other equivalent financial resources that may develop into a potential residual credit exposure;

(c) specify that the assessment referred to in point (b) shall be accompanied by a procedure setting out:

(i)

the measures that shall be taken to address the market conditions referred to in point (b);

(ii)

the timing of the measures referred to in point (i);

(iii)

any updates of the credit risk management framework as a result of those market conditions referred to in point (b).

3. The risk committee of the CSD-banking service provider and, where relevant, the risk committee of the CSD shall be informed of any risks that may cause potential residual credit exposures and the competent authority referred to in Article 60(1) of Regulation (EU) No 909/2014 shall be promptly informed of such risks.

4. The market and activity developments affecting intraday credit risk exposures shall be analysed and reviewed every six months and reported to the risk committee of the CSD-banking service provider and, where relevant, to the risk committee of the CSD.

Sub-Section 5 Reimbursement procedures and sanctioning rates

Article 26 Reimbursement procedures of intraday credit

1. A CSD-banking service provider shall have effective reimbursement procedures of intraday credit, which comply with the requirements in paragraphs 2 and 3.

2. The reimbursement procedures of intraday credit shall provide for sanctioning rates acting as an effective deterrent to discourage overnight credit exposures, and, in particular, that they shall meet both of the following conditions:

(a) they are higher than the interbank money-market overnight collateralised market rate and the marginal lending rate of a central bank of issue of the currency of the credit exposure;

(b) they take into consideration the funding costs of the currency of the credit exposure and the creditworthiness of the participant that has an overnight credit exposure.

Sub-Section 6 Reporting of credit risk

Article 27 Reporting to authorities on intraday risk management

1. A CSD-banking service provider shall report to the relevant competent authority referred to in Article 60(1) of Regulation (EU) No 909/2014.

2. A CSD-banking service provider shall comply with all of the following reporting requirements:

(a) it shall submit a qualitative statement that specifies the actions taken regarding how credit risks, including intraday credit risks are measured, monitored and managed, with at least an annual frequency;

(b) it shall notify any material changes to the actions taken in accordance with point (a), immediately after such material changes take place;

(c) it shall submit the metrics referred to in Article 19 on a monthly basis.

3. Where the CSD-banking service provider is in breach of, or risks breaching the requirements of this Regulation, including during times of stress, it shall immediately notify this to the relevant competent authority and it shall submit without undue delay to that competent authority a detailed plan for the timely return to compliance.

4. Until compliance with the requirements of this Regulation and of Regulation (EU) No 909/2014 is restored, the CSD-banking service provider shall report the items referred to in paragraph 2, as appropriate, daily by the end of each business day unless the relevant competent authority authorises a lower reporting frequency and a longer reporting delay by taking into account the individual situation of the CSD-banking service provider and the scale and complexity of its activities.

Sub-Section 7 Public disclosure

Article 28 Public Disclosure

For the purposes of point (h) of Article 18(1), the CSD-banking service provider shall publicly disclose annually a comprehensive qualitative statement that specifies how credit risks, including intraday credit risks are measured, monitored and managed.