Commission Delegated Regulation (EU) 2017/390 of 11 November 2016 supplementing Regulation (EU) No 909/2014 of the European Parliament and of the Council with regard to regulatory technical standards on certain prudential requirements for central securities depositories and designated credit institutions offering banking-type ancillary services (Text with EEA relevance. )

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

Article 2

Conditions regarding capital instruments

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.

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

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.

Article 4

Level of capital requirements for operational, legal and custody risks

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

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.

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.

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.

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.

Article 6

Capital requirements for business risk

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 previous financial year where audited results are not yet available;

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

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.

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.

TITLE II

CAPITAL SURCHARGE FOR CSDS AUTHORISED TO OFFER BANKING-TYPE ANCILLARY SERVICES AND FOR DESIGNATED CREDIT INSTITUTIONS, AS REFERRED TO IN ARTICLE 54 OF REGULATION (EU) No 909/2014

Article 8

Capital surcharge resulting from the provision of intraday credit

For the purposes of calculating the additional capital surcharge resulting from the provision of intra-day credit, as set out in point (d) of Article 54(3) of Regulation (EU) No 909/2014, and in point (e) of Article 54(4) of that Regulation, CSD-banking service provider shall apply the following steps in sequence:

(a) it shall calculate, over the most recent calendar year, the average of the five highest intraday credit exposures (‘peak exposures’) resulting from providing the services set out in Section C of the Annex to Regulation (EU) No 909/2014;

(b) it shall apply haircuts to all the collateral collected in relation to the peak exposures, and shall assume that, after the application of haircuts in accordance with Articles 222 to 227 of Regulation (EU) No 575/2013, collateral loses 5 % of its market value;

(c) it shall calculate the average of the own funds requirements with regard to the peak exposures calculated in accordance with paragraph 2 considering those exposures as end-of-the-day exposures (‘capital surcharge’).

For the calculation of the capital surcharge referred to in paragraph 1, institutions shall apply one of the following approaches:

(a) the Standardised Approach for credit risk referred to in Articles 107 to 141 of Regulation (EU) No 575/2013, where they do not have permission to use the IRB Approach;

(b) the IRB Approach and the requirements of Articles 142 to 191 of Regulation (EU) No 575/2013, where they have permission to use the IRB approach.

TITLE III

PRUDENTIAL REQUIREMENTS APPLICABLE TO CREDIT INSTITUTIONS OR CSDS AUTHORISED TO PROVIDE BANKING-TYPE ANCILLARY SERVICES, AS REFERRED TO IN ARTICLE 59 OF REGULATION (EU) No 909/2014

CHAPTER I

COLLATERAL AND OTHER EQUIVALENT FINANCIAL RESOURCES FOR CREDIT AND LIQUIDITY RISKS

Article 9

General rules on collateral and other equivalent financial resources

A CSD-banking service provider shall fulfil the following conditions with regard to collateral:

(a) it shall clearly distinguish the collateral from the other securities of the borrowing participant;

(b) it shall accept collateral that meets the conditions of Article 10, or other types of collateral that meet the requirements of Article 11 in the following hierarchy: (i) firstly accept as collateral all the securities in the account of the borrowing participant that meet the requirements of Article 10 and only those; (ii) secondly accept as collateral all the securities in the account of the borrowing participant that meet the requirements set out in Article 11(1) and only those; (iii) finally accept as collateral all the securities in the account of the borrowing participant that meet the requirements set out in Article 11(2), within the limits of available qualifying liquid resources referred to in Article 34 with the view to meeting the minimum liquid resources requirement referred to in Article 35(3);

(c) it shall monitor on at least a daily basis the credit quality, market liquidity and price volatility of each security accepted as collateral and value it in accordance with Article 12;

(d) it shall specify methodologies related to the haircuts applied to the collateral value in accordance with Article 13;

(e) it shall ensure that the collateral remains sufficiently diversified to allow its liquidation within the periods referred to in Articles 10 and 11 without a significant market impact, in accordance with Article 14.

Article 10

Collateral for the purposes of point (d) of Article 59(3), and point (d) of Article 59(4) of Regulation (EU) No 909/2014

In order for collateral to be considered of the best quality for the purposes of point (d) of Article 59(3), and point (d) of Article 59(4) of Regulation (EU) No 909/2014, it shall consist of debt instruments that meet all of the following conditions:

(a) they are issued or explicitly guaranteed by one of the following: (i) a government; (ii) a central bank; (iii) one of the multilateral development banks listed in Article 117 of Regulation (EU) No 575/2013; (iv) the European Financial Stability Facility or the European Stability Mechanism;

(b) the CSD can demonstrate that they have low credit and market risk based upon its own internal assessment employing a defined and objective methodology that does not exclusively rely on external opinions and that takes into consideration the country risk of the particular country where the issuer is established;

(c) they are denominated in a currency the risks of which the CSD-banking service provider is able to manage;

(d) they are freely transferable without any legal constraint or third party claims that impair their liquidation;

(e) they fulfil one of the following requirements: (i) they have an active outright sale or repurchase agreement market, with a diverse group of buyers and sellers, including in stressed conditions and to which the CSD-banking service provider has reliable access; (ii) they can be liquidated by the CSD-banking service provider through a prearranged and highly reliable funding arrangement as referred to in point (e) of Article 59(4) of Regulation (EU) No 909/2014 and specified in Article 38 of this Regulation;

(f) reliable price data on such debt instruments are published on at least a daily basis;

(g) they are readily available and convertible into cash on a same-day basis.

In order for collateral, to be considered of a lower quality than that referred to in paragraph 1 for the purposes of point (d) of Article 59(3), and point (d) of Article 59(4) of Regulation (EU) No 909/2014, it shall consist of transferable securities and money market instruments that meet all of the following conditions:

(a) the financial instruments have been issued by an issuer that has low credit risk based on an adequate internal assessment by the CSD-banking service provider, employing a defined and objective methodology that does not exclusively rely on external opinions and that takes into consideration the risk arising from the establishment of the issuer in a particular country;

(b) the financial instruments have a low market risk based on an adequate internal assessment by the CSD-banking service provider, employing a defined and objective methodology that does not exclusively rely on external opinions;

(c) they are denominated in a currency the risks of which the CSD-banking service provider is able to manage;

(d) they are freely transferable and without any legal constraint or third party claims that impair their liquidation;

(e) they fulfil one of the following requirements: (i) they have an active outright sale or repurchase agreement market, with a diverse group of buyers and sellers, to which the CSD-banking service provider can demonstrate reliable access, including in stressed conditions; (ii) they can be liquidated by the CSD-banking service provider through a prearranged and highly reliable funding arrangement as referred to in point (e) of Article 59(4) of Regulation (EU) No 909/2014 and specified in Article 38 of this Regulation;

(f) they can be liquidated on a same-day basis;

(g) price data on these instruments are publicly available on a close to real-time basis;

(h) they are not issued by any of the following: (i) the participant providing the collateral, or by an entity that is part of the same group as the participant, except in the case of a covered bond and only where the assets backing that bond are appropriately segregated within a robust legal framework and satisfy the requirements set out in this Article; (ii) a CSD-banking service provider or an entity that is part of the same group as the CSD-banking service provider; (iii) an entity whose business involves providing services critical to the functioning of the CSD-banking service provider, unless that entity is a Union central bank or a central bank that issues a currency in which the CSD-banking service provider has exposures;

(i) they are not otherwise subject to significant wrong-way risk in the meaning of Article 291 of Regulation (EU) No 575/2013.

Article 11

Other collateral

Other types of collateral to be used by a CSD-banking service provider shall consist of financial instruments that meet all of the following conditions:

(a) they are freely transferable without any legal constraint or third party claims that impair their liquidation;

(b) they are eligible at a central bank of the Union, where the CSD-banking service provider has access to regular, non-occasional credit (‘routine credit’) at that central bank;

(c) they are denominated in a currency the risk of which the CSD-banking service provider is able to manage;

(d) the CSD-banking service provider has a prearranged funding arrangement with the type of creditworthy financial institution referred to in point (e) of Article 59(4) of Regulation (EU) No 909/2014 and specified in Article 38 of this Regulation, which provides for the conversion of these instruments into cash on a same-day basis.

For the purposes of (c) of Article 59(3) of Regulation (EU) No 909/2014, other type of collateral to be used by a CSD-banking service provider shall be financial instruments that meet the following conditions:

(a) they are freely transferable without any legal constraint or third party claims that impair their liquidation;