Commission Delegated Regulation (EU) 2017/392Show full title

Article 85 U.K. Monitoring and management of additional risks resulting from the use of indirect links or intermediaries to operate CSD links

1. In addition to complying with the requirements under Article 84, where a requesting CSD uses an indirect link or an intermediary to operate a CSD link, it shall ensure that:

(a) the intermediary is one of the following:

(i)

a credit institution as defined in point (1) of Article 4(1) of Regulation (EU) No 575/2013 that complies with the following requirements:

• it complies with Article 38(5) and (6) of Regulation (EU) No 909/2014 or with segregation and disclosure requirements at least equivalent to those laid down in Article 38(5) and (6) of Regulation (EU) No 909/2014 where the link is established with a third- country CSD,

• it ensures prompt access by the requesting CSD to the securities of the requesting CSD when required,

• it has low credit risk, which shall be established in an internal assessment by the requesting CSD by employing a defined and objective methodology that does not exclusively rely on external opinions;

(ii)

a third-country financial institution that complies with the following requirements:

• it is subject to and complies with prudential rules at least equivalent to those laid down in Regulation (EU) No 575/2013,

• it has robust accounting practices, safekeeping procedures, and internal controls,

• it complies with Article 38(5) and (6) of Regulation (EU) No 909/2014 or with segregation and disclosure requirements at least equivalent to those laid down in Article 38(5) and (6) of Regulation (EU) No 909/2014 where the link is established with a third- country CSD,

• it ensures prompt access by the requesting CSD to the securities of the requesting CSD when required,

• it has low credit risk, based upon an internal assessment by the requesting CSD by employing a defined and objective methodology that does not exclusively rely on external opinions;

(b) the intermediary complies with the rules and requirements of the requesting CSD, as evidenced by the information provided by that intermediary, including any relevant legal opinions or arrangements;

(c) the intermediary ensures the confidentiality of information concerning the operation of the CSD link, as evidenced by the information provided by that intermediary, including any relevant legal opinions or arrangements;

(d) the intermediary has the operational capacity and systems for:

(i)

handling the services provided to the requesting CSD;

(ii)

sending the CSD any information relevant to the services provided in relation to the CSD link in a timely manner;

(iii)

complying with the reconciliation measures in accordance with Article 86 and Chapter IX;

(e) the intermediary adheres to and complies with the risk-management policies and procedures of the requesting CSD and it has an appropriate risk-management expertise;

(f) the intermediary has put in place measures that include business continuity policies and associated business continuity and disaster recovery plans, to ensure the continuity of its services, the timely recovery of its operations and the fulfilment of its obligations in events that pose a significant risk of disrupting its operations;

(g) the intermediary holds sufficient financial resources to fulfil its obligations towards the requesting CSD and to cover any losses for which it may be held liable;

(h) an individually segregated account at the receiving CSD is used for the operations of the CSD link;

(i) the condition referred to in point (e) of Article 84(1) is fulfilled;

(j) the requesting CSD is informed of the continuity arrangements between the intermediary and the receiving CSD;

(k) the proceeds from settlement are promptly transferred to the requesting CSD.

For the purposes of the first indent in point (a)(i), the third indent in point (a)(ii) and point (h), the requesting CSD shall ensure that it can have access to the securities held in the individually segregated account at any point in time. Where an individually segregated account at the receiving CSD is however not available for the operations of a CSD link established with a third-country CSD, the requesting CSD shall inform its competent authority about the reasons justifying the unavailability of individually segregated accounts and shall provide it with the details on the risks resulting from the unavailability of individually segregated accounts. The requesting CSD shall in any case ensure an adequate level of protection of its assets held with the third-country CSD.

2. In addition to complying with the requirements under paragraph 1, when a requesting CSD uses an intermediary to operate a CSD link and that intermediary operates the securities accounts of the requesting CSD on its behalf in the books of the receiving CSD, the requesting CSD shall ensure that:

(a) the intermediary does not have any entitlement to the securities held;

(b) the account in the books of the receiving CSD is opened in the name of the requesting CSD and the liabilities and obligations as regards the registration, transfer and custody of securities are only enforceable between both CSDs;

(c) the requesting CSD is able to immediately access the securities held with the receiving CSD, including in the event of a change or insolvency of the intermediary.

3. Requesting CSDs referred to in paragraphs 1 and 2 shall perform a yearly due diligence to ensure that the conditions referred to therein are fulfilled.