## cr17260

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### Core activities, scale, and systemic importance
- Core functions:
  - Operates a multi-currency Securities Settlement System (SSS) and Central Securities Depository (CSD); provides collateral management services worldwide.
- 2015 activity and balances:
  - Average daily settlement value in 2015: €480 billion.
  - Value of securities held on accounts with CBL: approximately €6 trillion.
  - Collateral management services amount to around €460 billion on average per month.
- Client base and links:
  - Delivers services to more than 1,400 financial institutions.
  - Clients from over 110 countries.
  - Maintains links to 56 markets.
  - Settlement in over 40 currencies.
  - More than 60 central banks have opened an account with CBL.
- Systemic role:
  - One of the largest securities settlement systems worldwide; highly interconnected. Failure or disruption would cause major disruptions and spillovers to banks, corporations, CCPs, and other FMIs.

### Settlement services, volumes, and currencies (2015)
- Settlement modes and 2015 volumes/values:
  - Internal settlement:
    - Number of instructions: 15,421,756
    - Value in billions EUR equivalent: 54,992
    - 2015 internal settlement total: €55 trillion equivalent (approximately 250 billion on a daily basis)
  - Bridge settlement (CBL–Euroclear Bank):
    - Number of instructions: 6,683,784
    - Value in billions EUR equivalent: 25,355
    - 2015 bridge settlement total: €25 trillion equivalent (approximately 115 billion on a daily basis)
  - External settlement:
    - Number of instructions: 1,872,658
    - Value in billions EUR equivalent: 25,614
    - 2015 external settlement total: more than €25 trillion equivalent (more than 115 billion on a daily basis)
  - Total:
    - Number of instructions: 23,978,198
    - Value in billions EUR equivalent: 105,961
- Cash settlement and currencies:
  - Cash settlement offered in over 40 currencies.
  - Most trades settled in euros (45 percent), U.S. dollars (40 percent) and British pounds (5 percent).
  - Cash settlement conducted in commercial bank money on CBL books (delivery versus payment model 1).
  - BCL funds around half of the EUR-denominated settlements for clients where central bank money is used.
  - Migration of euro payments to Target2Securities (T2S) will change cash settlement arrangements; Clearstream Banking AG Frankfurt migration planned for February 2017 (as noted).

### Legal and contractual foundations
- Legal framework:
  - Settlement activities in Luxembourg governed by consistent laws, regulations and contractual arrangements forming a sound legal foundation.
  - Luxembourg implementation of European directives provides statutory basis for netting, finality and securities lending.
  - CBL Governing Documents: General Terms and Conditions (GTCs), Customer Handbook, fee schedule, Creation Link Guides (56 markets), Disclosure Guides.
- Finality and DVP:
  - CBL SSS is a designated system under the Payment Services Law; internal instruction finality reflects Article 111 Payment Services Law and Section 4.2 of the Customer Handbook.
  - CBL uses a DVP model 1 mechanism; principal risk is eliminated for linked obligations.
  - Finality differs by instruction type: internal, Bridge, external (domestic rules in Creation Link Guides).
- Collateral and securities lending legalities:
  - Collateral governed by Luxembourg Collateral Law implementing Financial Collateral Directive 2002/47/EC.
  - ASL and ASLplus governed by ASL rules and GMSLA; specific contractual arrangements (some governed by English law for ASLplus lending).

### Risk management, governance, and recovery
- Governance and organizational structure:
  - CBL is a société anonyme incorporated under Luxembourg law; wholly owned by Deutsche Börse AG via Clearstream Holding AG.
  - Outsourcing: IT and operations to Clearstream Services; credit, legal, HR, audit and risk management provided by Clearstream Group under SLAs.
  - Two SB members considered independent; SB performance review not extensive (annual when shareholder approves financials).
- Risk framework highlights:
  - Comprehensive risk management framework covering operational, business, liquidity and credit risks.
  - KRIs, stress testing (daily, monthly, quarterly), VaR aggregation and Basel-aligned capital models used.
  - Recovery plan maintained and updated at least annually.
- Recovery scenarios and options:
  - Six recovery scenarios (idiosyncratic/market-wide; sudden/gradual) including:
    - Scenario 1: OpRisk/litigation event in a cash correspondent bank (idiosyncratic, sudden).
    - Scenario 2: Several operational risks materialize at once (idiosyncratic, gradual).
    - Scenario 3: A globally systemically important client defaults (market-wide, sudden).
    - Scenario 4: Breakup of the European Monetary Union (market-wide, gradual).
    - Combinations: 1 & 3; 2 & 4.
  - Recovery options categories:
    - (i) Strengthening capital (retain earnings, equity increase by parent DBAG, third-party investor)
    - (ii) Increase profitability (cost reduction, increase fees)
    - (iii) Reduce risk positions (reduce business volume, liquidate collateral)
    - (iv) Divestment (sale of subsidiaries REGIS-TR and LuxCSD)
    - (v) Liquidity options (use EUR and USD liquidity buffers, repo facilities, cancel 75 percent of participant UCF/i-TOF lines, revolving credit, EURO-commercial paper programme, intra-group funding, letter of credit for Bridge)
    - (vi) Operational recovery (switch to backup data centres, relocate units, transfer business)
  - Key recovery assessment point: CBL’s key recovery option is a capital injection by parent DBAG and CBL does not consider failure of DBAG as a recovery scenario; dependency should be explicitly recognized and managed.
- Key risk metrics and liquidity statistics:
  - Overnight participant borrowings (last two years averaged): 230 million EUR equivalent; peak of 2.3 billion EUR equivalent, representing 0.13 percent of total settlement limits granted by CBL.
  - Settlement prefinancing (last two years averaged): EUR 909 million; peak EUR 5.9 billion.
  - As of December 31, 2015: liquid net assets funded by equity amounts to €1,071.7 million.
  - For financial year 2015: operating costs €344 million (55 million personnel, 286 million administrative, 3 million amortization); six months of operations = €172 million; available capital as of 31/12/2015 = €645 million.

### Key findings, gaps, and vulnerabilities
- Overall PFMI observance: 8 out of 21 principles found to be in broad observance (range includes Observed, Broadly Observed, Not applicable as detailed).
- Principal concerns and vulnerabilities:
  - Concentration risk: dependencies on a limited number of depository and cash correspondent banks, notably in U.S. and U.K. markets (only 1 CCB in the U.K. and only 2 in the U.S. noted).
  - Not all credit exposures fully collateralized:
    - CBL offers uncommitted credit lines (mostly secured); EB can extend uncollateralized credit to individual participants.
    - Advancement of income payments and Bridge features may create uncovered exposures.
    - At end-December 2015, 6 percent of custody and settlement limits were granted unsecured (bulk to central banks and supranationals).
  - Collateral policy weaknesses:
    - Cash collateral, including foreign currencies, lacks haircuts due to system limitations.
    - No ex ante collateral concentration measures; concentration thresholds monitored ex-post.
    - Haircut model requires independent validations; no independent validation noted.
  - Independence of risk management:
    - CRO has operational responsibilities (leads Group Credit unit); independence should be improved.
    - Clearstream Risk and Compliance Committee (CRCC) at Holding level is not chaired by an independent board member; recommendation to have independent chair.
  - Operational resilience:
    - Two synchronised data centers in close proximity; absence of a third geographically distant data center is a material contingency gap.
    - No full failover test conducted; partial failovers tested only.
  - Recovery plan dependency:
    - Heavy reliance on parent DBAG funding; dependency not identified as a failure scenario.

### Priority recommendations for Clearstream Banking Luxembourg (CBL)
- High priority:
  - Reduce dependencies on commercial banks in daily operations by increasing the number of contracted depository and cash correspondent banks and, where possible, establishing direct links with local CSDs and central banks.
  - End practice allowing EB to extend uncollateralized credit to individual participants; fully collateralize all credit exposures.
  - Apply haircuts to cash collateral, including foreign currencies.
  - Subject the haircut model to independent validation by technical experts.
  - Diversify CCB base for GBP, USD and other larger currencies; continue pursuit of direct access to central banks.
  - Prepare contingency plans to manage a crisis event where FX markets are unavailable to obtain liquidity in GBP and other currencies.
  - Conduct a full failover test demonstrating remote sites can assume all critical operations and recovery timelines.
- Medium priority:
  - CRO should be responsible only for risk management (no operational line responsibilities).
  - CRCC should be chaired by an independent board member.
  - Introduce ex ante collateral concentration measures and address pro-cyclicality explicitly in collateral policy.
  - Invest in a fully automated credit risk management system to aggregate exposures across roles and reduce manual reconciliation needs.
  - Include relevant external stakeholders (authorities, Euroclear Bank, major depository banks/CCBs) in default management tests.
  - Establish a third data site at a location with a significantly different risk-profile than existing datacenters.
  - Develop tools to identify, monitor and mitigate risks from indirect participants.
  - Conduct daily reconciliations with Euroclear Bank (move from weekly/monthly).
- Low priority:
  - Continue seeking opening direct accounts in central banks where practical.
  - Adopt procedures to regularly review SB performance.

### Recommendations for authorities, cooperation, and supervisory scope
- Oversight and supervision:
  - Oversight and supervision by Banque centrale du Luxembourg (BCL) and Commission de Surveillance du Secteur Financier (CSSF).
  - CSSF supervises CBL as a bank and has no dedicated CSD-specific supervision; implementation of CSDR expected to strengthen supervisory application of PFMI.
- Resourcing and powers:
  - Current resources considered sufficient for the time being; additional resources may be needed as responsibilities increase.
  - Authorities have powers to obtain timely information and enforce corrective action; BCL relies effectively on moral suasion but could strengthen enforcement powers by adopting a general legal sanctioning power in its organic law.
- Cooperation and crisis arrangements:
  - Formalize cooperation domestically (BCL–CSSF MoU) for supervisory activities and ex ante crisis-management arrangements.
  - Consult international authorities and central banks as part of PFMI assessments; finalize planned MoU with Belgian authorities and involve ECB as observer for Bridge coordination.
- European single supervision and resolution:
  - Recommendation: designate CBL (and Euroclear Bank) as Significant Institutions (SI) under the Single Supervisory Mechanism (SSM) rather than remain Less Significant Institution (LSI).
  - Recommendation: include CBL under the remit of the Single Resolution Board (SRB).
  - Rationale: both ICSDs highly relevant for global financial stability; consistent implementation promotes harmonization and a level playing field.
- Authorities’ prioritized recommendations (selected):
  - Responsibility E: Recognize the two ICSDs as significant institutions within the SSM (Priority: High).
  - Responsibility E: Bring CBL under the remit of the SRB (Priority: High).
  - Responsibility B: Consider strengthening BCL’s enforcement power with a general legal sanctioning power (Priority: Low).
  - Responsibility D: Integrate PFMI in day-to-day supervision and apply a two-year assessment cycle (Priority: Medium).
  - Responsibility E: Conclude national MoU between BCL and CSSF and finalize MoU with Belgian authorities and ECB as observer (Priority: Medium).

### Default management, testing, and participant protections
- Default framework:
  - Detailed default management framework with rules and procedures; discretionary powers to implement rules.
  - Tests of default procedures performed annually, mainly internal; limited external stakeholder involvement.
  - Client asset protection: client assets segregated on dedicated accounts and not subject to liquidation or offset in a participant default.
- Recommendations:
  - Include relevant external stakeholders in default management testing (authorities, Euroclear Bank, key depository banks/CCBs).

### Links, Bridge specifics, and Principle 20 observations
- Links overview:
  - CBL linked to 56 domestic markets via direct, relayed and indirect links; interoperable Bridge with Euroclear Bank exists.
  - Pre-link approval includes CRCC recommendation, Network Management risk assessment and EB approval.
- Bridge specifics and risks:
  - Bridge exposures managed via letter of credit from a syndicate of 29 international banks; no call on the Bridge letter of credit to date.
  - Remaining risks: uncollateralized credit risks in current Bridge practices, reconciliation frequency for securities (weekly/monthly) should move to daily.
- Recommendations for links:
  - Continue mitigation of uncollateralized credit risks on the Bridge; perform daily reconciliations; reduce dependencies on commercial banks for outbound links via additional depositories/CCBs or direct links with CSDs and central banks; increase transparency on settlement finality for local markets.

### Operational resilience, IT, and business continuity
- IT and operational profile:
  - Two data centers with full synchronous mirroring and ability to switch operations without data loss.
  - Average system availability for core system in 2015: 99.99 percent.
  - RTO for critical daily functions: 2 hours.
  - No third geographically distant data center; full failover test not performed.
- Recommendations:
  - Establish a third data center with significantly different risk profile.
  - Conduct a full failover test with other locations taking over all critical operations.

### Systemic interdependencies and potential impacts of CBL failure
- Immediate effects of CBL failure:
  - Participants may not be able to access or trade securities held at CBL.
  - Payment of dividends, principal and interest to investors may be delayed or halted.
- Spillover effects:
  - Financing activities of banks and corporations could be affected, reducing availability of secured credit.
  - Other FMIs, particularly CCPs, may lose access to financial buffers or be indirectly impacted because participants cannot provide collateral held at CBL.
- Stakeholder exposure highlights (Appendix I):
  - Participants: Significant systemic impact; value of assets kept in CBL is €6 trillion and average €480 billion for collateral management per month.
  - Euroclear Bank: Substantial systemic impact (bridge daily average €115 billion).
  - Cash Correspondent Banks and National Central Banks: Substantial systemic impact if disrupted.
  - Deutsche Börse / Clearstream Group dependencies: Substantial systemic impact due to shared services and reliance on parent funding.

_Italic: Source: IMF assessment of Clearstream Banking Luxembourg (CBL) — EXECUTIVE SUMMARY (cutoff date December 10, 2016)._

### EXECUTIVE SUMMARY __________________________________________________________________________________ 5

### EXECUTIVE SUMMARY

### Background, scope, and methodology
- Assessor: Froukelien Wendt, IMF Monetary and Capital Markets Department.
- Assessment context: IMF’s FSAP in Luxembourg in December 2016.
- Cutoff date for information considered: December 10, 2016.
- Scope: CBL assessed against CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) — Principles 1–5, 7–13, and 15–23. BCL and CSSF assessed against the five responsibilities for authorities of the PFMI.
- Sources: Assessments and self-assessments by BCL and CSSF, responses to questionnaire, relevant EU directives, national laws, rules and procedures, discussions with authorities, CBL, ECB, banks, and market participants.
- Rating methodology: Based on CPSS-IOSCO Disclosure Framework and Assessment Methodology (December 2012); ratings reflect gravity and urgency of gaps and conditions as of the cutoff date.

### Core activities and systemic importance of Clearstream Banking Luxembourg (CBL)
- Core functions: Operates a multi-currency Securities Settlement System (SSS) and Central Securities Depository (CSD); provides collateral management services worldwide.
- Average daily settlement value in 2015: €480 billion.
- Value of securities held on accounts with CBL: approximately €6 trillion.
- Client base and links:
  - Delivers services to more than 1,400 financial institutions (banks, supranationals, central banks, broker/dealers, CSDs).
  - Clients from over 110 countries.
  - Maintains links to 56 markets.
  - Settlement in over 40 currencies.
  - More than 60 central banks have opened an account with CBL.
- Systemic role: CBL is one of the largest securities settlement systems worldwide and is highly interconnected; failure or disruption would cause major disruptions to served markets and could produce financial losses and spillovers to banks, corporations, CCPs, and other FMIs.

### Key findings from the PFMI assessment
- Overall observance: A range of principles are found to be in broad observance — 8 out of 21.
- Legal and contractual framework:
  - Settlement activities in Luxembourg are governed by a consistent set of laws, regulations, and contractual arrangements forming a sound legal foundation.
  - Luxembourg’s implementation of European directives provides a solid statutory basis for netting, finality of settlement, and securities lending.
- Risk management strengths:
  - CBL uses a comprehensive risk management framework for operational, business and liquidity risks.
  - CBL has a business continuity plan and a detailed default management framework with defined rules and procedures.
- Key areas of concern and vulnerabilities:
  - Concentration on a limited number of depository and cash correspondent banks, notably for U.S. and U.K. markets, creating important dependencies in daily operations.
  - Not all credit exposures are fully collateralized:
    - CBL offers uncommitted credit lines (mostly secured) and securities lending; the executive board can extend uncollateralized credit to individual participants.
    - Advancement of income payments and certain features of the Bridge with Euroclear Bank may create further uncovered exposures.
  - Collateral policy weaknesses:
    - Cash collateral, including foreign currencies, lacks haircuts.
    - No ex ante collateral concentration measures.
    - Haircut model requires independent validations to ensure robustness.
  - Independence of risk management:
    - Chief Risk Officer (CRO) has operational responsibilities in addition to risk management.
    - Clearstream Holding A.G. board committee on risk management should be chaired by an independent board member.
  - Operational resilience:
    - Two data centers can switch operations without data loss, and this is tested regularly.
    - Both data centers are in close proximity; absence of a third, more distant data center is a material contingency gap given CBL’s systemic importance.
    - A partial, but not full, failover test has been conducted where remote sites concurrently assume operations; it is not clear whether or how swiftly remote locations can assume all critical operations.
  - Dependencies on parent group funding:
    - Dependence on parent funding of DBAG needs explicit recognition and management, relevant for CBL’s recovery plan.

### Policy recommendations for Clearstream Banking Luxembourg (CBL)
- Reduce dependencies on commercial banks in daily operations:
  - Increase the number of contracted depository and cash correspondent banks.
  - Where possible, establish direct links with local CSDs and central banks.
- Ensure full collateralization of credit exposures:
  - End the practice allowing the executive board to extend uncollateralized credit to individual participants.
  - Apply haircuts to cash collateral, including foreign currencies.
  - Introduce ex ante collateral concentration measures.
  - Subject the haircut model to independent validations.
- Strengthen independence of risk management:
  - CRO should be responsible only for risk management and not for operational activities.
  - Clearstream Holding A.G. board committee on risk management should be chaired by an independent board member.
- Operational risk and business continuity:
  - Establish a third, geographically more distant data center as contingency against extreme circumstances affecting the two existing data centers.
  - Conduct full failover tests demonstrating that remote sites can assume all critical operations and recovery timelines.
- Recovery planning:
  - Explicitly recognize and manage dependence on parent funding of DBAG within the recovery plan.

### Recommendations for authorities and supervisory/oversight observations
- Oversight and supervisory framework:
  - Oversight and supervision of CBL is conducted by Banque centrale du Luxembourg (BCL) and Commission de Surveillance du Secteur Financier (CSSF).
  - Supervision is based on a clear and transparent legal framework; CSSF supervises CBL as a bank and has no specific requirements for CBL as a CSD.
  - Implementation of the EU CSD Regulation (CSDR) and related regulatory technical standards is expected to strengthen application of the PFMI in day-to-day supervision.
- Resourcing and powers:
  - Current resources of the authorities are considered sufficient for the time being; additional resources may be needed in the future to address increased regulatory responsibilities.
  - Under respective laws, authorities have powers to obtain information timely and to enforce corrective action.
  - BCL relies on moral suasion effectively in practice; enforcement powers could be strengthened by adoption of a general legal sanctioning power in its organic law.
- Cooperation and crisis arrangements:
  - Authorities are encouraged to strengthen cooperation arrangements domestically and internationally:
    - Formalize modalities of cooperation between BCL and CSSF (e.g., Memorandum of Understanding) for supervisory activities for CSDs and ex ante crisis-management arrangements.
    - Consult international authorities and central banks as part of PFMI assessments.
  - Formalize and enhance cooperation between Belgian and Luxembourg authorities regarding the link with Euroclear Bank, involving the ECB, to facilitate coordination and parallel implementation of risk measures in both ICSDs.
- European single supervision and resolution recommendations:
  - Strong case for designating CBL as a Significant Institution (SI) under the Single Supervisory Mechanism (SSM) supervision, alongside Belgium’s Euroclear Bank.
  - Inclusion of CBL under the remit of the Single Resolution Board (SRB) is recommended.
  - Rationale: both ICSDs are highly relevant for global financial stability; consistent implementation of supervisory requirements would promote harmonization and a level playing field.

### Potential impact of CBL failure
- Immediate effects:
  - Participants may not be able to access or trade some or all securities held at CBL.
  - Payment of dividends, principal and interest to investors may be delayed or halted.
- Spillover effects:
  - Financing activities of banks and corporations could be affected, reducing availability of secured credit.
  - Other FMIs, particularly CCPs, may lose access to financial buffers or be indirectly impacted because participants cannot provide collateral held at CBL.
- Appendix 1 of the assessment describes systemic interdependencies and impacts on different stakeholders in more detail.

*Source: IMF assessment of Clearstream Banking Luxembourg (CBL) — EXECUTIVE SUMMARY (cutoff date December 10, 2016).*

### 11. CBL provides settlement and custody services for securities transactions in three main

### 11. CBL provides settlement and custody services for securities transactions in three main

### Settlement services: modes and scope
- Internal settlement: matching and settlement of securities transactions between two counterparties that are both a participant of CBL.
  - CBL settles OTC transactions as well as transactions conducted on stock exchanges and trading platforms.
  - CBL is linked to major CCPs, including Eurex Clearing, LCH.Clearnet SA, and LCH.Clearnet Ltd.
  - Eligible securities include bonds, warrants, short-term debt and equities issued in CBL and in linked CSDs.
  - In 2015, the value of internal settlement amounted to €55 trillion equivalent (approximately 250 billion on a daily basis).
- Bridge settlement: interoperable direct link between CBL and Euroclear Bank permitting cross-system settlement of trades between participants of CBL and participants of Euroclear Bank.
  - Both ICSDs have a securities and cash account with each other.
  - Eligible instruments include a wide range of Eurobonds and international securities, and foreign securities issued in local CSDs for which both Euroclear and Clearstream have established links.
  - In 2015, the value of bridge settlement was €25 trillion equivalent (approximately 115 billion on a daily basis).
- External settlement: settlement of securities transactions conducted between CBL participants and external counterparties in local markets abroad, in line with local market rules.
  - Links facilitate settlement in securities issued, traded and safekept in the local or “domestic” market.
  - CBL can have direct links with local CSDs or access local CSDs through depository banks (local or international commercial banks).
  - Depositories can act as agent (servicing CBL’s account in the local CSD) or subcustodian (CBL holds the securities at an account of the depository bank).
  - Links can be ‘outbound’ (CBL acting as custodian on behalf of its participants) or ‘inbound’ (local CSD or depository bank acting as custodian to offer access to CBL).
  - Types of eligible securities: short- and medium-term notes, commercial paper and certificates of deposit, domestic bonds (government, municipal and corporate, including convertibles), equities, depository receipts, investment funds and warrants.
  - In 2015, the value of external settlement was more than €25 trillion equivalent (more than 115 billion on a daily basis).

### Volumes and value (CBL, 2015)
- Table: Total Volume and Value of Settlement Instructions CBL, 2015
  - Internal: Number of instructions 15,421,756; Value in billions EUR equivalent 54,992
  - Bridge: Number of instructions 6,683,784; Value in billions EUR equivalent 25,355
  - External: Number of instructions 1,872,658; Value in billions EUR equivalent 25,614
  - Total: Number of instructions 23,978,198; Value in billions EUR equivalent 105,961

### Cash settlement, currencies and funding
- CBL settles transactions in multiple currencies in its own books, which is commercial bank money.
- Cash settlement offered in over 40 currencies.
  - Most trades settled in euros (45 percent), U.S. dollars (40 percent) and British pounds (5 percent).
- All CBL members have multi-currency cash accounts in the books of CBL.
- Currencies can be full settlement or denomination only.
- Settlement is conducted on a transaction by transaction basis (delivery versus payment model 1).
- Participants use cash correspondent banks (CCBs) to fund their accounts at CBL.
  - CCBs are appointed by CBL and can be commercial banks and central banks (BCL).
  - BCL has been increasingly used and is now funding around half of the EUR-denominated settlements.
- For cash settlements in external markets through outbound links, CBL uses central bank money where feasible (currently Germany, Greece, and Belgium).
  - For such cash settlements CBL uses its central bank cash account at BCL linked to omnibus securities accounts opened in the specific market.
- For other domestic markets, CBL uses depositories for cash settlements according to local market practices.
- Migration of euro payments to Target2Securities (T2S) will change cash settlement arrangements.

### Credit, securities lending and collateral services
- Credit facilities:
  - Under its banking license CBL provides credit lines to participants to facilitate settlement and increase settlement efficiency.
  - Credit extended only to enable settlement of securities transactions within participant's credit limits and subject to sufficient collateral.
  - Credit facilities can be intraday and overnight.
- Securities lending and borrowing:
  - CBL acts as agent in the Automated Securities Lending and Borrowing (ASL) linking securities lenders and borrowers to avoid settlement failures.
  - ASLplus: CBL acts as principal counterparty to borrower and lender of collateralized loans, protecting participants against credit losses even if a counterpart fails.
  - Credit risks managed through haircuts on collateral.
- Collateral management:
  - CBL provides tri-party collateral management services across currencies, asset classes and time zones.
  - As an ICSD, CBL enables participants to obtain aggregate views on securities holdings held with CBL, including securities held via the links.
  - CBL runs an optimization process and may automatically generate collateral allocation instructions.
  - CBL processes movement of securities on the books of the ICSD.
  - Collateral management services amount to around €460 billion on average per month.

### Other services
- Single access point and standardized processes for all investment fund types, including mutual funds, exchange-traded funds and hedge funds.
- Collection and processing of interest and dividend payments and payments of principal, with pre-advice.
- Withholding tax services, corporate actions, proxy voting and FX services.

### Governance and organizational structure
- Ownership and legal form:
  - CBL is a for-profit entity, wholly owned by Deutsche Börse AG (DBAG).
  - CBL is a société anonyme incorporated under the laws of Luxembourg.
  - CBL is wholly owned by Clearstream International S.A., which is owned by Clearstream Holding AG; DBAG owns Clearstream Holding AG.
- Dependencies and outsourcing:
  - CBL has outsourced IT and operations to Clearstream Services within the Clearstream Group.
  - Credit, legal, HR, audit and risk management functions are provided by the Clearstream Group.
  - Outsourcing governed through service level agreements (SLAs).
  - Shared services with DBAG include HR, risk management, accounting, audit, compliance and some IT services.
  - CBL may receive parent funding from DBAG if needed.
- Locations and operational replication:
  - CBL has two branches (London and Singapore), a subsidiary in Tokyo, and representative offices in Dubai, Hong Kong, New York, Tokyo and Zurich.
  - Singapore branch, Prague and Eschborn locations replicate all critical operations of the Luxembourg site (Prague being a subsidiary of Clearstream International).

### TARGET2SECURITIES (T2S) implications
- CBL will participate in T2S through Clearstream Banking A.G. in Frankfurt; CBL will not migrate to T2S.
  - CBL’s cash account at the BCL will be linked to the securities accounts opened by Clearstream Banking AG in Frankfurt within T2S and with other CSDs participating in T2S.
  - CBL is already settling the cash leg of securities transactions and asset services proceeds in Greece through its central bank account.
  - CBL will add additional markets as T2S waves progress.
  - Migration of Clearstream Banking AG Frankfurt to T2S is planned for February 2017.
- Impact on settlement model:
  - CBL will offer T2S settlement as an option to settle in central bank money (Target2).
  - Clients retain the option to settle securities according to existing links with European CSDs and thereby settle in commercial bank money.
  - All non-T2S securities will remain settled under current CBL settlement arrangements.

### Regulatory, supervisory and oversight structure
- CBL is regulated, supervised and overseen by the BCL and CSSF.
- Licensing and legal bases:
  - CBL is licensed as a credit institution in accordance with the law of 5 April 1993 on the financial sector.
  - CBL is considered as a market operator and a systemically important FMI based on the law of 23 December 1998 concerning the monetary status and the Banque centrale du Luxembourg (BCL Law).
- Three-pronged supervision/oversight:
  - As a credit institution CBL is supervised by the CSSF (Article 2 of the law of 23 December 1998 establishing the CSSF).
  - As an FMI CBL is overseen by the BCL (Article 2 (5) of the BCL Law and the BCL Oversight Regulation).
  - As a credit institution CBL is subject to liquidity supervision by the BCL (Article 2 (4) of the BCL Law).
- International and EU cooperation:
  - Luxembourg authorities cooperate with German authorities Bundesanstalt für Finanzdienstleistungsaufsicht (Bafin) and the Bundesbank on consolidated supervision of the Clearstream Group.
  - German Federal Agency for Financial Market Stabilisation (FMSA) has responsibility for group resolution planning.
  - At EU level cooperation with the Single Supervisory Mechanism (SSM); CBL identified as a Less Significant Institution (LSI) with high priority under SSM Regulation.
  - ECB-SSM receives regular reportings and other information; BCL cooperates with ECB Market Infrastructure department in user assessment for ECB credit operations.
  - Several MoUs concluded with individual foreign authorities.
- EU CSD Regulation (CSDR) implications:
  - CSDR adopted in September 2014 will be a dedicated law governing CSDs and prescribes a designated National Competent Authority (NCA) for CSDs; Luxembourg legislator has not yet designated the NCA.
  - CSDR prescribes involvement of other competent authorities (Article 12 and Article 24): authority responsible for oversight of SSS, central banks issuing the most relevant currencies, and central bank in whose books the cash leg is settled.
  - Article 55: authorization to provide banking-type ancillary services shall involve a significant number of authorities; ESMA and EBA will receive the authorization file.
  - NCA of Luxembourg will most probably set up a college for cooperation under CSDR including authorities of Member States for which CBL is of substantial importance.
  - CSDR expected to harmonize supervisory approach and practices towards CSDs in the EU.

### Key findings and follow up (selected)
- Legal and risk foundations:
  - Legal risk mitigated through a sound and enforceable legal basis for settlement, custody and banking activities.
  - Luxembourg’s implementation of European directives provides a firm statutory foundation for finality, netting, and securities lending.
  - Collateral arrangements are governed by a sound legal framework; securities and payment transfers when finalized are protected from ordinary operation of Luxembourg insolvency law.
  - CBL identifies and mitigates cross-jurisdictional legal risks through legal opinions.
- Governance and risk management:
  - Governance arrangements are comprehensive, but independence of the risk management function should be strengthened.
    - CRO should be responsible only for risk management and not for operational activities.
    - Most risk management issues are discussed in the Clearstream Risk and Compliance Committee (CRCC) at Clearstream Holding level (not at the ACRC at CBL level); CRCC should be chaired by an independent board member.
    - All risk management models should be subject to an independent validation by technical experts, including the haircut calculation model.
    - CBL should conduct regular reviews of the performance of its supervisory board (SB).
- Risk coverage and controls:
  - CBL has risk management policies, procedures and systems enabling identification, monitoring and management of risks.
  - Coverage of credit risk could be enhanced.
  - Effective use of key risk indicators (KRIs) for operational and business risks; risk management involved in calculation of financial buffers in line with Basel capital model requirements and liquidity stress tests.
  - Risk management in credit, liquidity and market risks could be further enhanced by developing KRIs in these areas and ensuring risk models receive independent validation by technical experts.

*Source: IMF staff.*

### 33. CBL should more actively manage its dependencies on commercial entities. CBL is able

### 33. CBL should more actively manage its dependencies on commercial entities. CBL is able

### Key recommendation
- CBL should more actively mitigate dependencies on a limited number of depository banks and CCBs (in particular in the U.S. and U.K. market) by increasing the number of depositories or, where possible, establishing direct links with the CSDs and central banks.
- CBL’s comprehensive recovery plan heavily relies on DBAG financial support in extreme but plausible circumstances; this dependency should be more explicitly recognized and managed.

### Credit and liquidity risk management (Principles 4–7)
- CBL has a framework to identify, monitor and manage credit risks but it needs modifications to ensure full collateralization of credit exposures.
- CBL offers uncommitted credit lines (mostly secured) and securities lending and places participant funds on its books.
- As a bank, CBL is subject to regulatory limits and must maintain solvency and liquidity ratios above the mandatory threshold.
- Uncollateralized exposures can arise because the executive board (EB) can decide to extend uncollateralized credit to individual participants.
- Credit losses may occur through advancement of income payments if the issuer and investor fail simultaneously.
- Uncovered exposures may occur as part of transactions settled through the bridge with Euroclear Bank.
- CBL is encouraged to invest, as planned, in a credit risk management tool that will, on a fully automatic basis, collect and display all credit exposures resulting from entities that fulfil multiple roles (participants, depositories, CCBs and investment banks) to reduce manual-comparison risks.

- Collateral policy:
  - Collateral eligibility criteria are defined and conservative haircuts are applied to securities collateral.
  - Haircuts are not applied to cash collateral due to technical limitations of the collateral system.
  - Collateral arrangements do not explicitly consider potential pro-cyclical adjustments.
  - Tools to monitor and limit concentration can be further strengthened and applied ex ante.
  - The haircut model should be subject to independent validation by technical experts.

- Liquidity risk:
  - CBL holds sufficient liquid resources in euros and U.S. dollars and can obtain liquidity in other currencies through reverse repo contracts with a range of counterparts.
  - CBL conducts stress tests daily, monthly and quarterly, including scenarios of the default of the two participants with the largest exposures.
  - Results of stress tests are compared with available liquid resources in euros and U.S. dollars.
  - CBL is encouraged to diversify its CCB base for British pounds and other larger currencies and continue discussions with relevant central banks to obtain direct access.
  - CBL should prepare contingency plans to manage a crisis event in which it cannot access FX markets to obtain liquidity in GBP and other currencies.

### Settlement (Principles 8–10)
- Internal settlements are final under the CBL securities settlement system rules; Payment Services Law provides statutory basis for finality arrangements.
- Settlements over the bridge with Euroclear Bank are final after completion of the checking process by the receiving ICSD during day time, and after completion of the verification process by the delivering ICSD during night time.
- Money settlements are conducted in commercial bank money via the cash accounts in CBL’s systems.
  - Internal settlement in central bank money is not considered practical because (i) CBL settles more than 40 currencies and (ii) many clients do not have access to central bank money in these currencies.
  - Cash accounts at CBL are funded through CCBs, which in most cases are commercial banks; CCBs are supervised banks that comply with a range of criteria as defined by CBL.
  - CBL monitors its risks towards CCBs on an ongoing basis, including concentration of exposures.

- External settlement:
  - For outbound links CBL uses depository banks/CCBs to fund settlements in local markets.
  - CCBs execute payments and may provide free and mostly unsecured intra-day liquidity facilities, as well as overnight credit.
  - For some markets accounts are funded through central banks; the use of central banks is expected to increase with full migration to T2S.
  - In many markets exposures are very concentrated in only a few CCBs, exposing CBL to credit, liquidity and operational risks if a CCB defaults—risks particularly significant in the U.S. and U.K. markets.
  - CBL is encouraged to continue diversifying its CCB base in these markets and generally strive for direct access to local CSDs and central banks where possible.

### Central securities depositories and exchange-of-value settlement systems (Principles 11–12)
- Securities in CBL systems are immobilized and held in book-entry form.
- CBL secures integrity of securities issues and segregates its own assets from participants’ assets; participants are required to indicate proprietary vs client assets and maintain a list.
- For some participant types CBL requires reliance on a segregated account structure for CBL own risk management purposes.
- Depositories must maintain strict segregation between their own assets and client assets.
- CBL prohibits overdrafts of securities accounts and requires daily reconciliation for all securities accounts.
- CBL uses a DVP model 1 mechanism: settlement of cash and securities legs take place trade-by-trade (gross) with settlement of securities conditioned upon final settlement of cash and vice versa; securities are earmarked and blocked in the pre-settlement run on the value date.

### Default management (Principles 13–14)
- CBL has an effective default management framework with defined rules and procedures to manage a participant default in an orderly manner and has appropriate discretionary power to implement these rules.
- CBL tests default procedures on an annual basis, mainly with internal stakeholders and all relevant hierarchical levels; there is limited involvement of external stakeholders (supervisory authorities, Euroclear Bank, depository banks or CCBs).

### General business and operational risk management (Principles 15–17)
- CBL has robust arrangements to manage general business risks.
  - CBL has sufficient resources available to cover at least six months of operating expenses through capital as the difference between the total volume of own funds and the amount of own funds needed for satisfying the CRR/CRD requirements is sufficient for this purpose.
- Custody and investment policy is well laid-out; assets are kept at supervised and regulated entities with prompt access when required; custodian and investment banks are included in aggregated credit risk monitoring; investment policy is publicly disclosed.
- Operational risk management:
  - Systems, policies, procedures and controls are in place, reviewed, tested and audited periodically.
  - Operational risks are reviewed through an annual top-down approach and an annual bottom-up risk self-assessment exercise.
  - The system is reliable, secure, has adequate, scalable capacity and future capacity needs are regularly reviewed.
  - CBL is actively involved in enhancing cyber resilience.

- Business continuity management weaknesses:
  - Two data centers are in close proximity; operations can switch between both sites without data loss in case of a contingency.
  - There is no third data center; given CBL’s systemic importance, establishment of a third datacenter is warranted to manage extreme circumstances where both datacenters in Luxembourg are impacted.
  - CBL has not conducted a full failover test; only partial failovers of critical operations have been tested, so it is unclear whether and how swiftly other locations can take over all critical operations conducted in Luxembourg.

### Access (Principles 18–20)
- CBL has risk-based and publicly disclosed criteria for participation (stipulated in its Customer Handbook) and defined criteria for granting participants access to credit lines and other services.
  - Criteria are risk-based but grant CBL’s EB substantial discretion to admit or decline participants.
  - Implementation of the CSDR and its regulatory technical standards is expected to further impose requirements on the formulation of CBL’s access criteria.
- CBL is not able to identify indirect clients and has not developed tools to identify, monitor and mitigate risks from indirect participants.
- Risks related to links:
  - CBL is linked to Euroclear Bank via the Bridge and to 56 local CSDs worldwide, often through depository banks and CCBs.
  - Remaining risks should be further mitigated:
    - For the Bridge, continue working on mitigation of uncollateralized credit risks that may occur as part of current settlement practices.
    - Reconciliation of securities accounts for Bridge settlements should move from weekly and monthly to daily.
    - The moment of finality for outbound links can be more clearly disclosed in the Creation Link Guides.

### Efficiency (Principles 21–22)
- CBL’s products and services meet requirements of various participants and markets through timely processing, maintenance of sufficient financial resources to minimize market disruptions in the event of a member default, and minimizing systems downtime.
- CBL uses relevant international communication procedures and standards to facilitate efficient settlement of cross-border transactions and uses proprietary applications or message converters where necessary to translate between proprietary messages and SWIFT messages.

### Transparency (Principles 23–24)
- CBL has clear and comprehensive rules and procedures and provides sufficient information to participants for an accurate understanding of the risks.
- Fees and other material costs for participants are publicly disclosed, as well as all relevant rules and key procedures.
- CBL has completed the CPSS-IOSCO Disclosure framework for FMIs.

### Ratings summary (Table 2)
- Observed: 1, 8, 9, 10, 11, 12, 13, 15, 16, 18, 21, 22, 23
- Broadly observed: 2, 3, 4, 5, 7, 17, 19, 20
- Not applicable: 6, 14, 24

### Key findings and follow up for authorities (F)
- Oversight and supervision:
  - FMIs in Luxembourg are subject to oversight and supervision by the BCL and CSSF respectively.
  - BCL’s powers derive from the BCL Act; CSSF’s supervision of FMIs as credit institutions or professional depositories is based on the CSSF Act; CBL is also subject to liquidity supervision by the BCL based on the BCL Act. Relevant laws are publicly disclosed.
- Powers and resources:
  - Authorities’ powers and resources are considered sufficient to obtain relevant and comprehensive information in a timely manner and enforce corrective action.
  - Both authorities employ sufficient staff resources, although additional resources may be needed in the future to address increased supervisory responsibilities.
  - BCL mainly relies on moral suasion in its oversight and liquidity supervision; BCL’s enforcement power could be further strengthened with a general legal sanctioning power in its organic law.
- Policies and integration:
  - BCL’s policies are reflected in regulations publicly disclosed; the CSSF has no specific policies dedicated to SSS but relies on expert judgement.
  - Implementation of the CSDR, in particular regulatory technical standards, will provide dedicated requirements for CSDs.
  - Authorities have adopted the PFMI; BCL leads assessments of FMIs against the PFMI with CSSF contribution for CBL.
  - Authorities are recommended to integrate the PFMI into day-to-day supervision and apply a two-year assessment cycle of FMIs against the PFMI as suggested in the CPMI-IOSCO Disclosure Framework and Assessment Methodology report of December 2012.
- Cooperation:
  - Authorities are encouraged to formalize cooperation domestically (BCL and CSSF) via a Memorandum of Understanding for supervision of the four CSDs and to develop ex ante arrangements to manage a crisis.
  - With foreign authorities and central banks, BCL and CSSF should consult as part of CBL assessments.
  - Existing cooperation between Belgian and Luxembourg authorities will benefit from further formalization in a MoU, as planned, with involvement of the ECB to enable coordination of requirements towards the two ICSDs and allow for parallel implementation of risk measures.

*Source: IMF mission report excerpt on CBL (as provided).*

### 58. Finally, it is important that the CBL and Euroclear Bank  are included in the SSM

### 58. Finally, it is important that the CBL and Euroclear Bank are included in the SSM

### Inclusion in SSM and SRB; supervisory harmonization
- Both ICSDs are highly relevant to global financial stability; the supervisory approach should be further harmonized by a consistent implementation of supervisory requirements.  
- Recommendation: both entities will be subject to direct supervision by the ECB-SSM, beyond the current status of LSI.  
- Recommendation: CBL should be under the remit of the SRB instead of the FSMA for resolution planning.  
- Rationale: Inclusion as significant institutions and inclusion in the SRB list will contribute to the stability of both ICSDs and ensure a level playing field.  
- Note: Although supervisory approaches are expected to be further harmonized with the implementation of the CSDR, this does not address CBL as a bank and does not ensure a fully harmonized implementation of measures.

*Table 3. Luxembourg: Ratings Summary Responsibilities for Authorities* (assessment categories listed in source):
- Observed A, B, C, D
- Broadly observed E
- Partly observed
- Not observed
- Not applicable

### Prioritized recommendations for Clearstream Banking Luxembourg (CBL)
- Principle 2: The risk management function is not sufficiently independent.  
  - Recommended action: The CRO should not manage a business unit in addition to the risk management function. The risk management committee at Holding level should be chaired by an independent board member (CRCC).  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 2: Significant exposures towards depository banks/CCBs.  
  - Recommended action: Reduce CBL’s dependencies on commercial banks, through the use of additional depositories, CCBs and direct links with CSDs and central banks where possible.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 2: The performance of the SB is not regularly reviewed.  
  - Recommended action: Adopt procedures to regularly review the performance of the SB.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 3: The risk management functions does not sufficiently address credit risks.  
  - Recommended action: Risk management of credit risks to be enhanced, for example, through the development of KRIs for these areas.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 3: Dependencies on DBAG not identified and managed.  
  - Recommended action: Identify dependency on parent funding of DBAG in extreme but plausible circumstances, for example, in recovery planning.  
  - Relevant parties: BCL, CSSF, CBL and German authorities.  
  - Priority: Medium
- Principle 4: Not all credit exposures are collateralized.  
  - Recommended action: Fully collateralize all credit exposures.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 4: Manual comparisons are needed because the CEMT is not automatically generating all credit exposures.  
  - Recommended action: CBL is encouraged to invest, as planned, in a fully automated credit risk management control system.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 5: Cash collateral is not subject to haircuts.  
  - Recommended action: Apply haircuts to cash collateral.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 5: Pro-cyclicality is not addressed.  
  - Recommended action: Include provisions in policy on how to address pro-cyclicality.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 5: Concentration limits are checked ex post.  
  - Recommended action: Apply a more rigorous concentration policy by applying the concentration limits on an ex ante basis.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 5: The haircut model is not subject to independent validation.  
  - Recommended action: Subject the haircut model to an independent validation by technical experts.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 7: There is only 1 CCB in the U.K. and only 2 in the U.S.  
  - Recommended action: Diversify the CCB base for GBP, USD and other larger currencies and continue discussions with relevant central banks and CSDs to obtain direct access.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 7: The assumption that FX markets will always be available to obtain FX may not hold in extreme circumstances.  
  - Recommended action: Prepare contingency plans to manage a crisis event in which it cannot access FX markets to obtain liquidity in GBP and other currencies.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 9: Settlement in commercial bank money exposes CBL and investors to the potential failure of the bank.  
  - Recommended action: Continue seeking opening a direct account in central banks.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Low
- Principle 13: The testing of default management procedures does not include main external stakeholders.  
  - Recommended action: Include relevant external stakeholders, in particular authorities, Euroclear Bank and the most relevant depository banks and CCBs, in the default management tests.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 17: No full failover test has taken place with all relevant foreign operational sites.  
  - Recommended action: Conduct a full failover test.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: High
- Principle 17: The two datacenters are in close proximity.  
  - Recommended action: Invest in a third data site at a location with a significantly different risk-profile than other datacenters.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 19: The identification and management of risks related to indirect participants is not part of CBL’s risk management.  
  - Recommended action: Develop tools to identify monitor and mitigate risks from indirect participants to reduce potential exposures of direct participants that may negatively impact CBL.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 20: Reconciliation of securities accounts with Euroclear Bank is done on a weekly/monthly basis.  
  - Recommended action: Conduct daily reconciliations.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Medium
- Principle 20: Moment of settlement finality in local markets not clearly disclosed.  
  - Recommended action: Increase transparency in relation to the moment of settlement finality through Creation Link Guides for local markets.  
  - Relevant parties: BCL, CSSF, CBL  
  - Priority: Low

### Recommendations for the authorities
- Responsibility B: BCL has no legal enforcement tools.  
  - Recommended action: BCL’s enforcement power could be further strengthened with a general legal sanctioning power in its organic law.  
  - Relevant parties: BCL, MOF  
  - Priority: Low
- Responsibility D: PFMI are used to assess FMIs, but not so much in day to day supervision.  
  - Recommended action: Authorities may integrate the PFMI in their day to day supervision. It is recommended to apply a two-year assessment cycle.  
  - Relevant parties: BCL, CSSF  
  - Priority: Medium
- Responsibility E: The cooperation between BCL and CSSF is not formalized. There is no crisis management framework for handling a crisis related to FMIs.  
  - Recommended action: It is recommended to conclude a national MoU between the BCL and CSSF that covers cooperation and coordination arrangements in normal and crisis times.  
  - Relevant parties: BCL, CSSF  
  - Priority: Medium
- Responsibility E: BCL and CSSF do not consult foreign authorities as part of assessment process.  
  - Recommended action: Consult relevant foreign authorities and central banks during assessment of CBL against the PFMI.  
  - Relevant parties: BCL, CSSF  
  - Priority: Medium
- Responsibility E: No formal cooperation arrangement with Belgian authorities.  
  - Recommended action: Finalize and sign the planned MoU with the Belgian authorities, and the ECB as observer.  
  - Relevant parties: BCL, CSSF  
  - Priority: Medium
- Responsibility E: CBL is considered a LSI by the SSM.  
  - Recommended action: Recognize the two ICSDs as significant institutions within the SSM.  
  - Relevant parties: ECB (BCL, CSSF)  
  - Priority: High
- Responsibility E: CBL is not an institution subject to the resolution authority SRB.  
  - Recommended action: Bring CBL under the remit of the SRB.  
  - Relevant parties: SRB (BCL, CSSF)  
  - Priority: High

### Detailed assessment: Legal basis for CBL’s activities (Principle 1)
- Key Consideration 1: The legal basis should provide a high degree of certainty for each material aspect of an FMI’s activities in all relevant jurisdictions.  
- Material aspects to the CBL’s custody and settlement activities are the:  
  - Legal basis for CBL’s activities  
  - Rights and interests in financial instruments under deposit.  
  - Eligibility of financial instruments for book-entry transfer and immobilization/dematerialization of securities.  
  - Settlement finality, netting and arrangements for delivery versus payment (DVP).  
  - Collateral management services.  
  - Securities borrowing and lending services (except made to the Global Master Securities Lending Agreement (GMSLA) terms and conditions as described below).  
  - Default procedures.
- Relevant jurisdictions for CBL’s activities are:  
  - Luxembourg: Luxembourg Law is governing, inter alia, the entitlement of CBL’s participants, CBL’s governing documentation, CBL’s liability, the immobilization and dematerialization of securities, CBL’s insolvency, default procedures and recovery; and settlement finality of internal instructions, which is the matching and settlement of securities transactions conducted between two counterparties that are both a particpant of CBL.  
  - Foreign laws and regulations are applicable to the so-called external settlement instructions, which are settlement instructions following transactions with external counterparties in domestic markets. The settlement rules governing such external instructions and the finality of deliveries of securities to or from a domestic counterparty are determined by the specific domestic market rules.  
  - United Kingdom: In case CBL is acting as lender under ASLplus, CBL is entering into an ISLA Global Master Securities Lending Agreement (GMSLA) 2010 as amended by a specific Schedule governed by English law with borrowers to set out the terms of the lending of the securities. The terms and conditions of the collateral management services remain governed by Luxembourg Law as the collateral accounts are deemed to be located in Luxembourg.
- Legal basis specifics (as stated):  
  - Luxembourg Law is the legal framework applicable to CBL, as public limited liability company incorporated and existing under Luxembourg Law and as credit institution and SSS supervised by the CSSF and overseen by the BCL.  
  - CBL has set out terms and conditions into governing documents binding upon CBL and its participants. These documents are governed and shall be interpreted by Luxembourg Law and any disputes arising in relation to them shall be submitted to the competent courts of Luxembourg. The Governing Documents are applicable to (i) the rights and interests in financial instruments under deposit, (ii) eligibility of financial instruments for book-entry transfer, (iii) registration services, and (iv) settlement finality of the internal instructions.  
  - The Governing Documents of CBL are:  
    - the General Terms and Conditions (GTCs), defining the main terms and conditions applicable to any services provided by CBL,  
    - the Customer Handbook setting out the technical and operational terms and conditions applicable to the services,  
    - the fee schedule,  
    - the Creation Link Guides for each of the 56 markets including, among others, the settlement finality rules applicable by market, and  
    - the Disclosure Guides, that are compiling the mandatory disclosure requirements applicable for each market served by CBL.
- Other material aspects are governed by specific contracts collectively designated as the “Specific Agreements” and include, inter alia:  
  - the CBL Repurchase Conditions governed by Luxembourg Law,  
  - the Collateral Management Services Agreement for the Collateral Giver and the Collateral Management Services Agreement for the Collateral Receiver governed by Luxembourg Law,  
  - ASL rules governing the program where CBL is acting as agent via the Securities Lending and Borrowing Rules,  
  - ASLplus program where CBL is acting as borrower via the ASL plus rules or a Securities Lending Principal Agreement governed by Luxembourg Law and  
  - ASLplus program where CBL is acting as lender based on GMSLA 2000 or GMSLA 2010 which are governed by English law.

### Rights and interests in financial instruments under deposit
- Assets deposited by participants in CBL are governed and protected by Luxembourg law.  
- The rights and interests of CBL’s participants in financial instruments under deposit are first of all set out in the Civil Code (art. 1915 and ff) and the law of 1 August 2001 on the circulation of securities as amended by, inter alia, the law of 6 April 2013 (Securities Law), mainly articles

*Italic source: IMF country report cr17260, "Finally, it is important that the CBL and Euroclear Bank are included in the SSM" (excerpt).*

### 3.1 and 4.1. According to Article 4.1 of the Securities Law, securities are

### cr17260 - 3.1 and 4.1. According to Article 4.1 of the Securities Law, securities are

### Legal and operational framework for securities, dematerialization, and CBL contractual terms
- Securities are acquired by an account holder through the credit of securities to that account holder's securities account (Article 4.1 Securities Law).
- The Securities Law defines proprietary rights and compensation in case of loss or destruction of securities held in custody.
- Dematerialisation Law (implemented on 6 April 2013) governs dematerialisation of capital or debt securities issued under Luxembourg law and debt securities issued under Luxembourg law by foreign-incorporated issuers; dematerialisation is an option in addition to issuer choice of bearer or registered form.
- Immobilisation of bearer shares mandatory for bearer shares and units issued by a Luxembourg issuer under the law of 28 July 2014; bearer bonds excluded.
- CBL contractual framework (GTCs) translates but does not verbatim replicate legal principles:
  - CBL accepts deposits of securities designated eligible on lists published by CBL (Article 4 GTCs).
  - All securities held in CBL are deemed fungible (Article 5 GTCs).
  - Securities deposited must be of good delivery at deposit and thereafter (Article 6 GTCs).
  - Transfers to/from CBL accounts effected by book-entry only (Article 11 GTCs).

### Settlement finality, netting and DVP
- Settlement finality framework implemented under Luxembourg law via:
  - Directive 2009/44/EC transposed by law of 10 November 2009 as amended by law of 20 May 2011 (Payment Service Law) and law of 15 March 2016 on OTC derivatives.
  - Title V of the Payment Service Law protects settlement systems against participant insolvency; covers enforceability of netting.
- CBL SSS is a designated system under the Payment Services Law; finality rules reflect Article 111 of the Payment Services Law and Section 4.2 of the Customer Handbook.
- DVP defined in Customer Handbook Glossary as the irrevocable exchange of securities (delivery) and cash value (payment).
- Settlement finality differs by instruction type:
  - Internal instructions: CBL applies Article 111(1) Payment Services Law rules.
  - Transactions via Bridge with Euroclear subject to specific finality rules.
  - External instructions and finality for domestic counterparties determined by domestic market rules set out in Creation Link Guides (part of Governing Documents).

### Collateral management, securities lending and related contractual protections
- Collateral legal framework under Luxembourg Collateral Law implementing Financial Collateral Directive 2002/47/EC.
- GTCs grant general security interests to secure present and future participant obligations (retention right, pledge, set off: art. 43, 44, 46 GTCs).
- Specific collateral arrangements for non-core services:
  - iTOF (article 12): pledge granted in favour of CBL.
  - ASL (agency/guarantor): Art. 3.5 grants first ranking pledge to CBL.
  - ASLplus (principal): Art. 5 of GMSLA — borrowers transfer title as collateral to CI, which pledges to lenders.
- Collateral arrangements and custody/sub-custodian documentation are subject to legal opinions in relevant jurisdictions to confirm enforceability.
- Securities lending governed by civil code and Collateral Law; services governed by GTCs, ASL rules, ASLplus rules, securities lending principal agreement, and GMSLA.
- CBL does not reuse assets received as collateral for settlement efficiency related cash and securities loans.

### Default procedures and enforcement
- Consequences of participant breaches defined in GTCs articles 52 and 56(2).
- Default procedures for non-core services specified in respective contracts:
  - Intraday credit overdraft: article 17 ITOF agreement.
  - ASL: article 5, particularly 5.3 of ASL rules.
  - ASLplus: articles 9+ of GMSLA.
- Defaults result in netting/close-out of respective obligations.
- Waterfall/allocation on enforcement of collateral: proceeds first used to cover repayment of secured obligation; excess returned to pledgor. If material uncovered amounts remain, Credit Crisis Management Team escalates to EB for decision (including provisioning or write-off).

### Governance (Principle 2) — structure, responsibilities, and observations
- Corporate objective (Articles of Incorporation dated 22 September 2016): receipt of deposits/repayable funds, granting credits for own account, safekeeping/admin/clearing/settlement of securities and related services; holding and managing investment portfolio; lending/borrowing subject to use restrictions.
- CBL a 100 percent subsidiary of Clearstream International S.A.; DBAG owns 100 percent via Clearstream Holding AG.
- Governance documents: Articles of Incorporation, Internal Rules and Regulations (IRR), internal policies. EB manages day-to-day; SB supervises and appoints EB.
- Disclosure: governance information publicly available on CBL website; Articles published in English (binding) and German.
- SB duties, conflicts of interest procedures, and IRR reviewed at least annually; two SB members considered independent.
- Board committees:
  - Audit, Compliance and Risk Management Committee (ACRC): 3 members; responsibilities include review of financial statements, internal audit plan, budgets, accounting systems, independence of internal audit, and compliance status reviews.
  - Clearstream Risk and Compliance Committee (CRCC) at Clearstream Holding AG level: advisory sub-committee, monthly meetings chaired by Chief Compliance Officer.
- Performance review: SB performance assessed annually when shareholder approves annual financial statements; no detailed review beyond that at assessment date.
- Suitability assessments: policy and side letter; CBL performed suitability assessment in October 2015 concluding SB and EB suitably skilled.
- Key governance observations and recommendations:
  - CRO responsible for risk management but also leads Group Credit unit — independence can be improved.
  - Most risk issues handled at CRCC (group level) chaired by Head of Compliance; recommendation that CRCC be chaired by an independent board member and that models be subject to independent validation (PFMIs art 3.2.16).
  - Conduct regular review of SB performance.

### Risk management framework (Principle 3) — organization, scenarios, recovery
- Risk categories: (1) operational (sub-categories: availability risk, processing errors, damage to physical assets, legal/business practice risks), (2) financial (credit, market price, liquidity), (3) business (revenue, cost, macro-economic, regulatory), (4) project.
- Risk governance:
  - EB responsible for risk management framework; SB monitors effectiveness; ACRC monitors risk strategy and quarterly reports.
  - CRO leads risk management and reports to SB via ACRC and to SB of Clearstream International via CRCC.
  - Risk management team: nine employees across two units covering operational, business, project risk, BCP, default management; supported by four employees of Group Risk Monitoring for Basel Pillar I/II models.
  - Internal Audit: 13 staff (8 operational auditors including 2 in Ireland, 3 IT auditors), one admin support, Chief Internal Auditor.
- Risk processes and tools:
  - Five-step risk process: identification, notification, assessment, mitigation, monitoring/reporting.
  - Key Risk Indicators (KRIs) used; KRIs collected monthly/quarterly; exceptions reporting when thresholds exceeded.
  - VaR concept used to quantify aggregated risks; Basel-aligned capital models; conservative approach using correlation of 1 across individual risk types.
  - Models reviewed and validated at least annually; not all models independently validated (e.g., haircut models).
- Interdependencies and scenarios:
  - Identifies material interdependencies with participants, Euroclear Bank, depository banks, linked CSDs, CCBs, external service providers, and DBAG group.
  - Six recovery scenarios (idiosyncratic, market-wide, and combinations; sudden and gradual):
    - Scenario 1: An OpRisk/litigation event in a cash correspondent bank leading to temporary blocking of routed funds (idiosyncratic, sudden).
    - Scenario 2: Several operational risks materialize at once (idiosyncratic, gradual).
    - Scenario 3: A globally systemically important client defaults (market-wide, sudden).
    - Scenario 4: Breakup of the European Monetary Union (EMU) (market-wide, gradual).
    - Combinations: 1 & 3; 2 & 4.
- Recovery options (per EBA/RTS frameworks and EU BRRD references):
  (i) Strengthening of capital – raise of equity:
    - Retain earnings
    - Increasing equity by parent company
    - Equity increase by third-party investor
  (ii) Strengthening of capital – increase of profitability:
    - Cost reduction
    - Increasing fees
  (iii) Reduce risk positions:
    - Reduce business volume
    - Liquidation of collateral in case of participant default
  (iv) Divestment:
    - Sale of subsidiaries REGIS-TR and LuxCSD
  (v) Liquidity options:
    - Usage of remaining EUR liquidity buffer
    - Usage of remaining USD liquidity buffer via committed repo facilities
    - Cancellation of 75 percent of participant UCF/i-TOF lines
    - Flagging income and redemption proceeds
    - Revolving multi-currency credit facility
    - Multi-currency EURO-commercial paper programme
    - Liquidation of collateral in case of participant default
    - Intra-group funding
  (vi) Operational recovery options:
    - Switch to backup data centres in case of system unavailability
    - Relocating critical business units to backup locations in case of workspace unavailability
    - Transferring business to units in another location in case of staff unavailability
- Key recovery assessment points:
  - Each recovery option includes detailed impact and feasibility assessment rated ‘High’, ‘Medium’ or ‘Low’.
  - CBL’s key recovery option is a capital injection by parent DBAG; CBL deems it highly probable DBAG would support CBL; CBL does not consider failure of DBAG as a recovery scenario.
  - Recovery plan maintained and updated at least annually by Risk Management department.
- Conclusions and recommendations (Principle 3):
  - Risk management effective with KRIs and stress testing; scope could be extended to credit risk via KRIs.
  - Dependence on a limited number of depository banks and CCBs (notably US and UK) should be mitigated by increasing number of depositories or direct links to local CSDs/central banks.
  - Recovery plan comprehensive but relies heavily on DBAG support; identify dependence on group service providers in recovery planning.

### Credit risk (Principle 4) — framework, measurements, exposures, and gaps
- Group Credit unit manages credit risk per Clearstream credit strategy aligning with CBL risk strategy and regulatory requirements.
- Credit appetite expressed numerically as the maximum amount of all credit limits available to participants/counterparts.
- Credit tools and processes:
  - Credit Exposure Monitoring Tool (CEMT) aggregates exposures from cash financing, securities financing, treasury activities. CEMT receives feeds from Creation platform and Treasury system.
  - Internal credit ratings scale from ‘AA’ to ‘J’; ‘J’ lowest standing; ‘K’ assigned to participants without credit limits.
  - Credit stress tests for default of largest participant and multiple failures; annual internal credit rating review for participants with limits and for CCBs and subcustodians.
  - Credit Watchlist process and ad-hoc reviews; exceptions reported to EB.
- Identified sources and measured statistics:
  - Intraday and overnight credit usage:
    - Over the last two years, overnight participant borrowings across all currencies averaged 230 million EUR equivalent with a peak of 2.3 billion EUR equivalent, representing 0.13 percent of the total settlement limits granted by CBL.
  - Settlement prefinancing:
    - Settlement prefinancing over the last two years averaged to EUR 909 million with a peak of EUR 5.9 billion.
  - Securities lending exposures (ASL and ASL+) and bridge exposures to Euroclear Bank.
  - Additional credit risks: cash investments and cash holdings at CCBs; redemption and income payment advances.
- Coverage and exceptions:
  - Credit limits applied to all participants; duration for custody/settlement intraday; overnight exposures exceptionally approved and charged debit interest.
  - Collateralization: full collateralization principle with haircuts (up to 100 percent) applied; limits for treasury counterparties range up to 6 months.
  - Instances of unsecured exposure:
    - At end-December 2015, 6 percent of custody and settlement limits were granted on an unsecured basis (bulk to central banks and supranationals).
    - Advances on income payments granted unsecured but mitigated via flags and issuer/beneficiary monitoring; IRMA tool used.
    - Uncovered Bridge-related exposures may arise under certain circumstances.
- Recommendations:
  - Fully collateralize all credit exposures to fully comply with Principle 4.
  - Implement planned investment in a fully automated credit risk management system to aggregate exposures across participants, depositories, CCBs, and investment banks and reduce manual reconciliation risk.
  - Improve framework for advanced income payments and stricter tools for uncovered Bridge exposures.

### Collateral policy and haircuts (Principle 5)
- Collateral eligibility criteria include: low credit risk, low issuer-borrower correlation, liquid/marketable, known/legal/operational risks.
- Cash accepted as collateral for certain currencies; no haircut applied to cash collateral currently due to system limitations.
- Exceptions to collateral policy:
  - Exceptional approvals by EB; as of 31.12.2015 exceptions accounted for 0,02% of total collateral pool value.
  - No pre-set limits on size/number of exceptions; exceptions monitored weekly and reported monthly to EB.
- Valuation and haircut methodology:
  - Revaluations: cash loans revalued 5 times a day; ASL+ re-optimization runs every fifteen minutes on average.
  - Prices from providers: Bloomberg, IDC, WSS, SIXFinancial; algorithm selects price and checks for standard market variation.
  - Automated Collateral Valuation Matrix: final haircut = sum of ten equally weighted risk-factor haircuts (issuer country, credit rating, industry, instrument type, currency, time to maturity, ranking, ECB eligibility, pricing age, pricing source).
  - Testing of haircuts: annual back-testing vs price volatility, comparison with ECB haircuts, benchmarking vs other market participants, annual stress tests using historical crisis price movements.
  - No independent validation within CBL or external validation of haircut procedures noted.
- Concentration and cross-border collateral:
  - Collateral concentration thresholds monitored ex-post; no strict ex-ante concentration limits though thresholds exist by risk factor.
  - Cross-border collateral legal risk mitigated via legal opinions in main jurisdictions; Article 23 Collateral Law implies governing law is Luxembourg where account maintained.
  - GTCs provide broad right of retention (Article 43), right of pledge (Article 44), and right of set-off (Article 46); segregation of client assets must be notified and such assets may not be pledged (Article 45).
- Conclusions and recommendations:
  - Apply haircuts to cash collateral (system limitation).
  - Address pro-cyclicality explicitly and adopt ex-ante concentration limits.
  - Subject collateral and haircut model to independent validation.

### Liquidity risk (Principle 7) — framework, stress testing, resources, and gaps
- Liquidity management framework components:
  - Treasury Liquidity Management policy and Treasury “Intraday Liquidity Controls” procedure.
  - Tools and stress tests (intraday forward-looking, classic, reverse).
  - Crisis management arrangements and escalation procedures.
- Aggregation of exposures across roles and currencies; exposures aggregated daily at participant group level.
- Main liquidity sources and practices:
  - Principle: place participant cash balances with tenor of 1 business day (“overnight”) except for policies allowing limited maturity transformation in EUR, USD, GBP.
  - Mismatch limits set per currency; intraday monitoring and realignment of liquidity across CCBs.
  - CBL holds account at BCL (access to TARGET2) for EUR; aims to open central bank accounts for USD and GBP where practical.
- Stress test scenarios (examples and frequency):
  - Intraday Forward Looking Liquidity Stress Tests (daily for EUR, USD, GBP):
    - Scenario 1: Simultaneous default of participant with largest credit exposure (participant family level) and Euroclear Bank as part of market disruption & idiosyncratic scenario (Cover 1 + Euroclear).
    - Scenario 2: Simultaneous default of two participants with largest credit exposure (participant family level, including CCB activities) as part of market disruption & idiosyncratic scenario (Cover 2).
  - Classic Liquidity Stress Tests (quarterly/ad-hoc; all currencies):
    - Scenario 3: Base scenario — participant cash balances at their lowest level since 5 years.
    - Scenario 4: Market disruption scenario — drop in participant cash balances, reduction of money market funding lines, reduction of overdraft lines at CCBs/depositories.
    - Scenario 5: Market disruption & idiosyncratic scenario — combines market disruption with downgrade of CBL’s external rating; larger drops/loss of lines.
  - Reverse Liquidity Stress Tests (quarterly, EUR):
    - Scenario 6: Reverse test 1 based on Market Disruption & Idiosyncratic Scenario (using all available liquidity sources).
    - Scenario 7: Reverse test 2 based on Market Disruption & Idiosyncratic Scenario (using limited liquidity sources).
- Qualifying liquid resources by currency and supplemental resources:
  - EUR:
    - ECB-eligible collateral pledged to BCL (instant access via credit line).
    - Cash at BCL (when T2 open).
    - Cash at CCBs (available next business day).
    - Cash invested overnight at creditworthy institutions (secured).
  - USD:
    - High quality liquid assets proprietary or received as collateral monetizable via committed repo facilities, repo transactions, or sale of proprietary assets (same day for US issuer securities; 1–2 business days for USD-denominated securities issued by European issuers).
    - Cash at CCBs and at creditworthy institutions.
  - Additional qualifying resources:
    - Syndicated revolving multi-currency credit facility (17 lenders).
    - Intra-group funding.
    - Letter of Credit to cover Bridge exposure; mutual standby letters of credit between CBL and Euroclear Bank to cover daily cash exposures.
  - Supplemental resources:
    - Uncommitted unsecured credit lines from CCBs/depositories and money market counterparties (significant haircuts applied in stress tests).
    - Euro Commercial Paper (ECP) issuance programme used if needed.
- Testing and provider due diligence:
  - Liquidity generation tests performed quarterly, unannounced, overnight; Treasury performs tests on timeliness/reliability.
  - Liquidity providers selected for reputation and access to central bank liquidity; Group Credit evaluates probability of default and ability to repay; ad-hoc assessments when deterioration suspected.
  - Bridge Letter of Credit and revolving credit participants are large European groups; CBL validates participant list and can reject or request contribution changes at renewal.
- Identified liquidity risks and recommendations:
  - Intraday stress testing shows potential significant GBP exposure if large customers fail; target GBP buffer is only 100m.
  - CBL may need to rely on FX swap markets to cover GBP liquidity needs; authorities request contingency plan if FX markets unavailable.
  - Recommendation: prepare contingency plans for inability to access FX markets; diversify CCB base for GBP and other large currencies; pursue direct access to central banks where possible.

### Settlement finality point (start of description)
- Settlement finality for cash and securities defined in Section 4.2 of Customer Handbook; distinctions:
  - Internal instructions: final when matched/validated and entered in CBL system; irrevocable upon matching (reflects Article 111 Payment Services Law).
  - External instructions: finality determined by domestic market rules in Creation Link Guides (part of Governing Documents).
  - Bridge instructions:
    - Daytime: final when instructions have settled in the books of the receiving ICSD (debit of securities transit account of delivering ICSD in receiving ICSD books and, if against payment, credit of cash transit account of delivering ICSD in receiving ICSD books); receiving ICSD informs delivering ICSD via feedback transmission of exact times.
    - Night-time: “Bridge delivery” instructions final upon completion of three events (description begins in source but not fully included in supplied excerpt).

_Italic: Source: cr17260 - 3.1 and 4.1. According to Article 4.1 of the Securities Law, securities are_

### 1. the receipt by the delivering ICSD of the corresponding feedback

### 1. the receipt by the delivering ICSD of the corresponding feedback

### Key points
- 1. the receipt by the delivering ICSD of the corresponding feedback transmission from the receiving ICSD;
- 2. the receipt by the delivering ICSD of the next proposed delivery transmission from the receiving ICSD;

### Context
- LUXEMBOURG 
- INTERNATIONAL MONETAR Y FUND 81

*Source: cr17260 - 1. the receipt by the delivering ICSD of the corresponding feedback*

### 3. either:

### cr17260 - 3. either:

### Finality and settlement processing (CBL SSS and bridge/external links)
- Finality of internal instructions:
  - Unilateral irrevocability occurs upon successful matching of the corresponding settlement instructions.
  - After successful matching, corresponding instructions can only be bilaterally cancelled until their extraction from the applicable transactional system for processing in the CBL settlement system.
- Bridge instructions:
  - A “Bridge receive” instruction can be cancelled unless it has been reported as settled.
  - A “Bridge delivery” cannot be cancelled or amended if (i) provision has been debited from the account during settlement processing but confirmation or refusal of the transaction has not yet been received from the counterparty or (ii) it has been reported as settled.
  - Any Bridge instruction that has not been settled or cancelled remains in suspense for a period of 45 calendar days after the requested settlement date. At the end of this period, the submitting participant is requested to either cancel or confirm it.
  - If the instruction is neither cancelled nor confirmed, it remains in suspense for a further 15 calendar days, after which it is automatically cancelled.
  - If confirmation is received from the participant, the 60 calendar-day period (that is, 45 plus 15) starts over again.
- External instructions: revocation and finality depend on domestic market rules.
- Finality over the bridge with Euroclear Bank:
  - Final after completion of the checking process by the receiving ICSD during day time, and after completion of the verification process by the delivering ICSD during night time.
- CBL SSS is a designated system under the Payment Services Law; CBL finality rules can be considered enforceable under the relevant legal framework.

### Settlement day schedules, processing windows, and batching
- Internal settlement (real-time processing):
  - CBL settlement day begins at 21:30 on SD-1 and continues until 16:10 on SD for against payment instructions in all currencies except CAD, MXN and USD and until 18:10 for against payment instructions in USD, CAD and MXN.
  - Settlement processing of against payment internal instructions then continues on an optional basis for all currencies until 20:35.
  - Settlement processing of free of payment internal instructions runs from 21:30 SD-1 through to 20:35 SD.
- Bridge transactions (ACE transmissions):
  - Bridge transactions are processed through the exchange of 33 matching batches during the course of the settlement day.
  - Settlement processing of Bridge instructions is possible from 21:30 SD-1 until 13:20 SD for against payment instructions in all currencies except ARS, CAD, EUR, GBP, MXN, PEN and USD.
  - For ARS, CAD, EUR, GBP, MXN, PEN and USD, against payment Bridge processing runs until 15:00 SD.
  - Processing of Bridge instructions then continues on an optional basis until 17:25 SD.
  - Settlement processing of free of payment Bridge instructions runs from 21:30 SD-1 to 18:30 SD.
- Settlement processing for external transactions via link arrangements is defined by the respective domestic market rules.

### Key findings and conclusions for finality (Principle 8)
- Internal instructions that have settled in CBL settlement system are final in accordance with the CBL securities settlement system rules.
- The Payment Services Law provides the statutory basis for the finality arrangements.
- Settlements over the bridge with Euroclear Bank are final after completion of the checking/verification processes described above.
- External settlements are final according to local market rules and practices. The moment of finality for external settlements can be more explicitly disclosed in the Creation Link Guides (see also Principle 20).
- Assessment of Principle 8: Observed.

### Money settlements (Principle 9)
- Current model and scope:
  - CBL conducts money settlement with its clients in commercial bank money (CoBM) in all eligible settlement currencies. Settlements are carried out in the books of CBL.
  - All CBL participants have multi-currency cash accounts in the relevant settlement currencies in the books of CBL. Money settlements are effected by crediting and debiting the relevant cash accounts of the clients.
  - For external markets, CBL is using central bank money where feasible; currently the case in 3 markets, namely Germany, Greece and Belgium.
  - Opening hours of CBL cash services: from 21:30 CET in the evening of the business day preceding settlement day until 20:35 CET on settlement date, with different closing times for different types of securities.
  - For operational T2S links, CBL’s cash account at the BCL will be linked to omnibus securities accounts opened via/by Clearstream Banking Frankfurt within T2S and with other CSDs participating in T2S.
  - Money settlement in other than T2S markets will continue to be executed in commercial bank money through the respective CCB.
  - As settlements take place in more than 40 currencies with participants located worldwide, it is not feasible to open accounts at all the respective central banks of issue. Clearstream is working on feasibility to open accounts with central banks of major currencies, such as USD.
- Risk management and governance:
  - CBL is conducting CoBM settlements on its own books and is therefore not relying on settlement banks according to the PFMI definition.
  - Credit and liquidity risk stemming from cash correspondent banks and depositories is covered under Principles 4 and 7.
  - Clearstream relies on a network of CCBs for participants to fund and defund their cash accounts with Clearstream. For funding in Euro Clearstream relies, among others, on BCL.
  - CCBs should be supervised banks that comply with criteria as defined by CBL; CBL monitors its risks towards CCBs on an ongoing basis, including the concentration of exposures.
  - Exposures are very concentrated in only a few CCBs in many markets; risks are particularly significant in the U.S. and U.K. markets.
- Key conclusions for Principle 9:
  - Money settlements take place at the cash accounts at CBL, so in commercial bank money.
  - CBL’s cash accounts are funded through CCBs (in most cases commercial banks); for some markets accounts are funded through central banks.
  - The use of central banks is expected to increase with full migration to T2S.
  - Recommendation: CBL is strongly encouraged to continue diversifying its CCB base in local markets, in particular the U.S. and the U.K., and generally strive for direct access to local CSDs and central banks where possible (see also Principles 3 and 7).
- Assessment of Principle 9: Observed.

### Physical deliveries (Principle 10)
- Frequency and governance:
  - Physical delivery is nearly non-existent, but CBL has arrangements in place.
  - CBL defines asset classes eligible for physical delivery in its Governing Documents.
  - Asset classes accepted for physical delivery include:
    - Financial instruments in bearer form issued by Luxembourg issuers governed by Luxembourg law, deposited with CBL and considered as immobilized;
    - Financial instruments in bearer form issued by foreign issuers and not governed by Luxembourg law deposited with CBL;
    - Financial instruments immobilized in other SSSs;
    - Financial instruments immobilized in the CBL SSS;
    - Precious metals;
    - Other physical securities.
  - Asset classes and instrument types accepted vary by local sub-depositories due to market practice, local requirements and bilateral agreements.
- Safekeeping and operational controls:
  - Securities to be received in CBL must be submitted directly to the depository appointed for that particular issue; CBL works with a network of sub-depositories and does not have its own vaults.
  - Participants must ensure securities are of good delivery when submitting; sub-depositories verify and are liable for failures in this duty.
  - CBL’s obligations and responsibilities for safekeeping start once CBL is notified by the depository that registered securities of good delivery have been received and the beneficiary account has been credited; obligations end with physical restitution.
  - CBL requires sub-depositories to undertake obligations in Link Arrangements to protect sub-deposited securities from loss due to theft, negligence, fraud or default.
- Risk and cost monitoring:
  - Main risks: loss of certificates and receipt of fraudulent certificates.
  - Typical costs: insurance, physical handling and registration fees, custody fees, postal costs.
  - CBL has processes in Depository Agreements, Service Level Agreements, internal procedures and published participant documentation to manage these risks and costs.
  - Annual checks on physical security, processes, controls and insurance at depositories are performed.
- Key conclusions for Principle 10: Physical delivery arrangements exist and risks/costs are identified and managed.
- Assessment of Principle 10: Observed.

### Central securities depository functions and safeguards (Principle 11)
- Legal protection and account structures:
  - Assets deposited by participants in CBL are governed by the law of 1 August 2001 on the circulation of securities as amended by the law of 6 April 2013 (Securities Law).
  - CBL offers segregated account structure or an omnibus account structure; participants may use omnibus accounts as well as individual client accounts.
  - CBL segregates its own assets from participants’ assets in its books and at local depository level; CBL requires depositories to segregate their own assets from client assets.
  - For securities issuers, CBL holds securities in its books equal in number and description to the securities credited on participant accounts.
- Accounting, reconciliation and controls:
  - Via SAP, all entries from operational processes are automatically transferred to the accounting system via interfaces.
  - Accounting internal audit review is performed on a yearly basis, according to a 3-year audit plan.
  - Reconciliation process is audited by internal audit on a bi-yearly basis; scope includes full review for both cash and securities.
  - CBL’s policy is to perform an electronic reconciliation with its depositories for both cash and securities on a daily basis, using the DDR tool.
  - In the interoperable link with Euroclear Bank, securities holdings are generally reconciled only on a weekly and monthly basis between the two ICSDs.
  - CBL maintains direct and indirect links to 56 domestic markets via a network of sub-custodians; any reconciliation with registrars is conducted by sub-custodians.
- Creation/deletion controls and AML screening:
  - Prior to authorizing securities creation, CBL checks New Issues procedure for AML/CFT and sanctions compliance and implements an automated screening process.
  - Creation of securities positions in CBL is performed only upon receipt of securities to be credited to client accounts.
  - Creation and deletion are generally processed without manual intervention upon client instruction and depository confirmation; manual operations require the four-eyes principle.
- Safeguards and participant protections:
  - CBL does not allow securities account overdrafts; provision checks are performed before executing delivery instructions.
  - Participants’ proprietary assets are distinct from client assets; participants are the legal owners of assets held in their accounts.
  - Transfer requires settlement instruction from the direct participant.
- Other services and risk identification:
  - CBL performs cash financing services, securities lending/borrowing and collateral management, asset servicing, order routing for investment funds, and settlement services for investment funds transfer agents—these are closely linked to core services and add risk considerations.
- Key conclusions for Principle 11:
  - Securities are kept in book-entry form and supported by the legal framework.
  - Participants’ assets are segregated from CBL’s assets and client assets are segregated from participants’ assets.
  - Overdrafts of securities accounts are not permitted.
  - Daily reconciliation generally performed, except with Euroclear Bank where reconciliation is weekly/monthly.
- Assessment of Principle 11: Observed.

### Exchange-of-value settlement (Principle 12)
- DVP model and legal basis:
  - CBL applies a delivery versus payment (DVP) model 1 arrangement when settling two linked obligations.
  - Principal risk is eliminated through the irrevocable and simultaneous exchange of securities and cash value during settlement.
  - Article 111 of the Luxembourg Payment Services Law, together with CBL’s DVP mechanism, ensures the elimination of principal risk.
  - Creation platform processes instructions in real time ensuring simultaneous exchange; securities are matched and provisioned prior to settlement.
- Domestic market linkages:
  - DVP transactions involving a domestic counterparty are final depending on receipt of expected settlement results in accordance with local market regulations and practices and the processing mode (batch, real time) of the relevant local market and its time zone.
- Alternative investment funds:
  - Technically, alternative investment funds are generally not settled DVP: subscriptions are prepaid and redemptions are processed as per fund administrator contract notes.
- Protection against third-party claims:
  - Payment Services Law stipulates settlement accounts may not be seized, sequestered or blocked in any way by a participant (other than the system operator or settlement agent), a counterparty or a third party.
- Key conclusions for Principle 12: CBL uses a DVP model 1 mechanism; principal risk is eliminated.
- Assessment of Principle 12: Observed.

### Participant-default rules and procedures (Principle 13)
- Default definitions, objectives and documentation:
  - Two default types: i) legal default (insolvency/bankruptcy) and ii) contractual default (unable or unwilling to fulfil obligations).
  - Objective: avoid/minimize losses to CBL, limit market disruption, timely completion of settlement under stressed conditions, and liquidate defaulting participant’s collateral in a prudent manner.
  - Documentation: Default Definition and Scenarios, Early Warning Indicators and Signals Definition, Liquidation Strategy, Default Management Processes Handbook and Recovery Plan.
- Governance and roles:
  - Default Management unit owns and coordinates Default Management Process; reports to the CRO.
  - Liquidation Strategy describes roles/responsibilities and is reviewed at least annually.
  - Default Management Unit coordinates with insolvency administrator/liquidator or regulator to transfer defaulting participant’s assets to dedicated accounts.
- Monitoring, suspension and client asset protection:
  - Early Warning Indicators and Signals monitor participants’ stability; threshold breaches trigger reports to Default Management and Group Credit.
  - Transactions of defaulting participant are suspended from automatic processing and blocked to allow manual monitoring; releases occur only upon request of responsible regulator, insolvency administrator or legal successor.
  - Only participant’s proprietary assets are subject to liquidation; client assets are segregated on dedicated accounts and are not subject to liquidation or offset in case of participant default.
- Use of financial resources and recovery:
  - Defaulting participant’s assets are the first resource used to cover outstanding exposures.
  - Recovery Plan lists other resources: increase of equity by parent company and/or third-party investor, intragroup funding and earnings retention.
- Preparedness, testing and disclosure:
  - Default Management Procedures define communication path to internal/external stakeholders; communication to regulators ensured via Regulatory Reporting.
  - Processes and procedures are reviewed, tested and updated at least annually.
  - Default Management unit organizes regular and at least annual fire drills with relevant internal participants, including EB members; tests cover the entire Default Management Procedures.
  - Tests are mainly internal and partially with external participants (liquidation agents, interbank counterparties); supervisory authorities, Euroclear Bank, depository banks or CCBs are not involved.
  - Public disclosure: circumstances under which CBL may take actions are publicly disclosed in its GTCs, article 56; article 57 describes actions CBL may take. TOF agreement Article 16 discloses circumstances affecting participant ability to fulfil obligations.
- Key conclusions for Principle 13:
  - CBL has detailed and comprehensive default management rules and procedures and tests them at least annually, mainly with internal stakeholders.
  - Limited involvement of external stakeholders in testing.
- Recommendation:
  - It is recommended that testing of default management procedures includes relevant external stakeholders, in particular authorities, Euroclear Bank and the most relevant depository banks and CCBs.
- Assessment of Principle 13: Observed.

### Segregation and portability (Principle 14)
- Not applicable; Key Considerations 1–4: Not applicable.
- Recommendations and Comments: - 

### General business risk and recovery (Principle 15)
- Risk identification and governance:
  - Business risk is reflected in EBIT and arises from macroeconomic factors, revenue decreases and cost increases.
  - Business Risk Handbook documents responsibilities, processes and is reviewed annually; Internal Audit ensures compliance.
  - Business experts identify and quantify business risk scenarios supported by Risk Management.
- Risk management instruments:
  - Scenario analysis: Risk Management organizes at least annual scenario analysis workshops with business owners.
  - Stress testing: compares outcomes of stress situations with projected annual EBIT; reverse stress tests also performed; stress tests at least annually.
  - Early warning system: KRIs defined; KRIs and thresholds linked to risk scenarios and reviewed at least during scenario analysis; KRIs analyzed monthly and breaches escalated to CRO and EB.
  - Capital model: required capital for business risk calculated via Monte Carlo simulation to derive loss distribution and risk figures such as expected loss and VaR.
- Liquid net assets, investments and liquidity:
  - CBL maintains liquid assets invested in high quality liquid assets issued or guaranteed by euro zone governments, regional governments or supranationals with a minimum rating of AA-.
  - Investment portfolio size exceeds the amount of CBL’s equity and is funded first by (i) CBL’s own funds, (ii) by issuance of ECP paper and (iii) a stable portion of participant cash observed over a 5 year horizon at a 99 percent of confidence level.
  - No internal official calculation of liquid net assets funded by equity is performed; CBL assumes liquid net assets funded by equity correspond to total equity diminished by tangible and intangible fixed assets.
  - As of December 31, 2015, liquid net assets funded by equity amounts to €1,071.7 million.
  - Based on the above figures, this will cover 6 to 12 months of operating expenses.
- Recovery and capital adequacy:
  - Clearstream Holding established a consolidated Clearstream Group recovery plan; CSSF requested CBL be separately identified within the group recovery plan.
  - For financial year 2015, CBL's operating costs were €344 million (55 million personnel expenses, 286 million administrative costs and 3 million amortization costs).
  - Six months of operations (linear approach) = €172 million.
  - Available capital as of 31/12/2015 = €645 million.
  - Available capital (€645 million) exceeds the foreseen costs for 6 months (€172 million).
  - Assets held to cover general business risk are high quality and liquid; monetization options include ECB marginal lending facility or overnight repo trades with high quality counterparties.
  - CBL has currently more than 50 framework agreements allowing monetization operations.
- Capital raising:
  - Recovery plan includes options to strengthen capital base: retain earnings, increase equity through the parent company Deutsche Börse AG (DBAG), or third-party investor.
  - Recovery plan reviewed at least annually and in case of significant structural, business model, financial or legal changes.
  - SB approval required for equity increase.
- Key conclusions for Principle 15:
  - CBL has robust arrangements to manage and control general business risks.
  - CBL has sufficient resources available to cover at least six months of operating expenses through capital as the difference between total own funds and own funds needed for CRR/CRD is sufficient.
- Assessment of Principle 15: Observed.

### Custody and investment risks (Principle 16) — introductory note
- The document continues into Principle 16: Custody and Investment Risks. The first Key Consideration states:
  - An FMI should hold its own and its participants’ assets at supervised and regulated entities that have robust accounting practices, safekeeping procedures, and internal controls that fully protect these assets.
- Further details for Principle 16 are contained in subsequent text beyond the provided excerpt.

*Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17260.pdf*

### 1. Custody and investment risks related to CBL’s investments of its own

### 1. Custody and investment risks related to CBL’s investments of its own assets and the surplus cash of participants.

### Summary
- Custody and investment risks related to CBL’s investments of its own assets and the surplus cash of participants.

*Source: cr17260 - 1. Custody and investment risks related to CBL’s investments of its own assets and the surplus cash of participants.*

### 2. Custody risk related to CBL as an ICSD, holding participants’ and own

### 2. Custody risk related to CBL as an ICSD, holding participants’ and own assets through links in numerous domestic markets and therefore maintaining relationships with depository banks, CSDs and CCBs.

### CBL’s investments of own assets and participants’ assets
- Group Credit assesses creditworthiness of any new Treasury counterpart prior to acceptance; counterparts are subject to credit review at least once a year.
- Group Credit uses a Watchlist as an early warning indicator; any institution added to the Watchlist is subject to specific measures communicated to the EB and internal units.
- Treasury’s investment strategy is driven by cash amounts participants leave on settlement accounts; strict mismatch and interest rate risk limits are established to limit liquidity risk.
- Liquidity requirements are mainly intraday and overnight; Treasury must have a maximum of liquidity available within one business day.
- Mismatch limits are allocated to acquire highly liquid securities usable for liquidity generation in the repo market and to ensure a permanent liquidity buffer.
- All investments are high-quality liquid assets securities issued or guaranteed by governments or supranationals.
- Reverse repo transactions are only allowed with highly reliant market counterparties against high-quality liquid collateral.
- Compliance to the policy is performed by the Treasury Middle Office with regular monthly reports to the EB and to the risk management unit; exposures against limits are monitored on a daily basis and excesses are immediately reported to EB and the risk management unit.

### Assets held through links — selection, due diligence and legal protection
- When entering a new market, only leading banks with appropriate banking or custodian license, credit rating, industry rank, liquidity and management competence are considered within the Request for Proposal process.
- Request for Proposal process elements:
  - (i) detailed operational overview of each business process,
  - (ii) legal and compliance overview of entire infrastructure,
  - (iii) credit review.
- Selection criteria include operational efficiency (deadlines, turnaround times), creditworthiness (capitalization, asset quality, management competence, risk profiles, earnings and liquidity), compliance standing (ownership, shareholders), AML/CFT compliance, credit lines, fees, connectivity and STP standards such as ISO15022 compliance, market presence (market share) and capacity to lobby market on behalf of foreign participants.
- Shortlisted candidates for depository bank and/or CCB undergo on-site due diligence; final approval delivered by the EB.
- CBL requires a legal opinion from external legal counsel when setting up a new link; the opinion considers the Securities Law and confirms enforceability and absence of local supersession risk.
- All sub-custodians and CCBs must obtain and maintain permits, licenses and consents required by applicable law as contractual obligations.

### Monitoring, due diligence and ongoing oversight
- Annual verification of depository banks and CCBs compliance via: (i) officer certificate relating to internal control system, (ii) BCP, and (iii) reply to the AML questionnaire.
- Monitoring methods:
  - Dedicated Network Officer per market performing “end-to-end” control covering suppliers and infrastructures, legal documentation, KPI reporting, incident management and market change communication.
  - CBL may visit CSDs at any time to review relationships and document relevance.
  - Due diligence visits to sub-custodians generally every 24 months and ad-hoc if necessary; questionnaire covers (i) legal and regulatory frameworks, (ii) security and insurance coverage, (iii) operational processes and reconciliation, (iv) BCP, (v) AML measures, and (vi) recent and forthcoming market changes; visits include operations site review and vault visits if applicable.
  - Service reviews focus on specific issues distinct from overall due diligence.
- External auditor may contact custodians to request details of securities balances and outstanding transactions.

### Concentration, exposures and liquidity operations
- CBL monitors exposures to depository banks, CCBs, linked CSDs and investment banks on an aggregate basis; defines limits per role (CCB, participant, issuer) and consolidated monitoring for institutions with multiple roles.
- Concentration of cash exposures to depository banks and CCBs is monitored daily by Treasury within nostro and large exposure limits set by Group Credit.
- Intraday liquidity management: continuously collect participant instructions, compile cash positions to establish expected end of day positions.
- Mitigation of surplus balances during the day:
  - (i) transfer cash for settlement,
  - (ii) place with creditworthy financial institutions in the reverse repo market,
  - (iii) transfer to the Central Bank Account if applicable.
- Group Credit verifies adherence to nostro limits daily by manually comparing end of day nostro balances to preapproved limits; any overnight cash exceeding preapproved nostro limits is investigated and notified to Treasury, Risk Management, Head of Investor Relations and Treasury, and the EB.

### Investment concentration limits and restrictions
- Treasury Policy defines limits to avoid concentration of credit risk for proprietary investments, including:
  - specific country risk limits for securities purchases;
  - a preset list of high-quality issuers;
  - specific issuer limits for non-government issuers set by the Credit department;
  - securities portfolio limits reviewed quarterly, backed by long-term liquidity defined as the sum of the own funds of all Clearstream entities managed by Clearstream Treasury and the stable part of the net participant cash in EUR and USD;
  - a minimum issue or programme size;
  - a maximum limit per issue or programme;
  - a maximum remaining life to maturity.
- CBL does not invest participant assets in participants’ own securities or those of its affiliates.
- CBL’s investment strategy is described in the Pillar III report (publicly available on the CBL website); CBL is not involved in proprietary trading activities and does not maintain a trading book. Securities are, in principle, bonds purchased with a “buy and hold” strategy.

### Key Conclusions & Assessment for Principle 16
- Conclusions:
  - CBL prudently manages custody and investment risks related to participants’ and its own assets.
  - Assets are kept at supervised and regulated entities; CBL ensures prompt access to assets when required.
  - Custodian and investment banks are included in aggregated credit risk monitoring.
  - CBL’s investment policy is publicly disclosed.
- Assessment of Principle 16: Observed
- Recommendation:
  - CBL is encouraged to invest, as planned, in a fully automated credit risk management system (see also Principle 4).

### Operational risk management framework (Principle 17) — overview
- Risk Management documents operational risk policies and procedures in the Operational Risk Handbook.
- Operational risk management building blocks:
  - organizational structure with central and local functions and roles/responsibilities;
  - definitions and categorization of operational risk classes and mapping to event types and root causes;
  - operational risk event data collection;
  - usage of external loss data;
  - KRIs application;
  - scenario analysis;
  - capital model for regulatory capital requirements for operational risk using CBL’s AMA model and an economic capital model for required economic capital and earnings at risk;
  - integrated reporting from operational risk instruments;
  - IT support through adequate IT infrastructure.

### Identification and classification of operational risk
- Risks identified both reactively and proactively (post-event and regular process reviews); participant risks are considered in scenarios.
- Four risk classes:
  - Availability risk: losses from disruption of service delivery due to unavailability of technical or human resources.
  - Service deficiency: losses from impaired processes or execution due to product, process or execution deficiencies (biggest risks: internal human errors).
  - Damage to physical assets: losses from damage to CBL physical assets (e.g., terrorist attack).
  - Legal risks and business practices: losses from non-compliance, inadequate contracts, court decisions, fraud; violations against laws/regulations and compliance topics represent the biggest threat to CBL.
- Risk drivers are identified for every risk class to ensure captured events are attributable.

### Management of operational risk — processes and controls
- Five-step risk process (notification, assessment, controlling/management, monitoring/reporting — tied to Principle 3):
  - Notification: all risks centrally recorded by Risk Management; organizational units and employees must notify Risk Management timely.
  - Assessment: events or potential risks assessed qualitatively or in financial terms using “Value at Risk” methodology and scenario analysis for low frequency/high impact risks.
  - Controlling/management: organizational units implement mitigating actions and monitor them; measures are outlined in operational risk scenarios.
  - Monitoring/reporting: material risks and controls reported at least quarterly and ad hoc if necessary to the EB; line management and Internal Audit receive periodic information; SB and ACRC are informed at least two times a year.
- Policies and documentation:
  - Operational risk strategy (guidelines, risk appetite limits, regulatory capital and stress test requirements);
  - Operational Risk Handbook (comprehensive description of AMA processes and methodologies);
  - Operational Risk Procedure (high-level approach, instruments, internal standards, roles/responsibilities across Clearstream legal entities).

### People, fraud prevention and governance
- Human Resources policy gives preference to internal employees and promotes internal job rotation to mitigate turnover effects; individual performance assessed via annual appraisal and development plan.
- Employee fraud prevention is mainly addressed via the 4-eyes principle in operations.
- Roles for operational risk:
  - Executive management (EB) ultimately responsible and determines aggregate risk tolerance.
  - Risk Owners establish risk culture and ensure notification of identified risks.
  - Operational Risk representative acts as key contact and coordinates mitigation.
  - Individual employees must understand risks and support collection of event data and KRIs.
- EB reviews and endorses the operational risk management framework pursuant to article 60 of the Company Law; SB monitors effectiveness based on EB reporting.

### Review, audit and testing
- Operational risk management framework is approved and reviewed annually by the EB and regularly challenged by Internal Audit, external audit and regulators.
- Internal Audit planning considers operational risks; three-year rolling plan and annual plan reviewed and approved by EB, ACRC, and SB.
- CBL conducts internal or external reviews of its risk management framework as needed.

### Operational reliability, capacity and testing (Key Considerations 3–4)
- CBL maintains approximately 400 KPIs supporting operational reliability objectives across effectiveness, efficiency, automation, turnaround times and operational quality.
- System perspective: service level agreements between IT and Business Operations cover application availability, response time and deadlines; dedicated IT KPIs monitor service levels.
- Historical system availability: average system availability for the core system in 2015 of 99.99 percent of scheduled time.
- Capacity management:
  - Documented capacity management process with automatic daily resource usage reports for mission critical systems; weekly analysis by capacity planning specialist; exception reports for substantial deviations.
  - Annual BCM tests validate predicted resource consumptions.
  - Capacity management meeting quarterly with minutes and tracked recommendations in Change Management System.
  - Contingency Operations Runs (Unix cluster in contingency configuration for one week) performed on schedule.
  - Current system capacity can cope with current volume plus a further 100 percent future growth (internal key indicator known as headroom).
  - Recent spike example: a historically high volume peaked 50 percent over average daily volumes and was absorbed without negative operational impact.
- Capacity management process review is part of the audit plan.

### Security (Key Consideration 5)
- Physical security:
  - DBAG-defined physical security standards based on industry standards (e.g., ISO 27000, DIN-EN rules); ISAE 3402 by KPMG recognizes effectiveness of physical access control management.
  - Group-wide security manual and Corporate Security policy framework cover physical vulnerability sources, third party provider monitoring, information security, data protection and fire protection guidelines.
  - Tools include access control system, Security Management System (SMS), protected computer facilities, and strict project monitoring.
- Information security:
  - Formal Information Security Policy documents organizational roles/responsibilities and guiding principles.
  - Business information owners ensure day-to-day information security and data protection; dedicated Information Security Officer reports to the EB.
  - Information Security Policy follows a risk-based approach and is implemented at DBAG level.
  - IT Operations (Clearstream Services) operates IT environment securely, covering installation, configuration, maintenance, incident handling, user/change management, vulnerability/patch management and escalation.
  - Policies and standards reviewed at least annually.
  - Information security and cyber resilience organized around six teams:
    - Information Security Engineering Team (security tools: access control, intrusion prevention/detection, denial of service, vulnerability scanning, event logging/monitoring).
    - Information Security Assurance Team (coordinate/track/monitor patch implementation).
    - Computer Emergency Response Team (analyze impacts of major cyber incidents, manage information security incidents, maintain cyber situational awareness).
    - Information Security Governance and Risks team (governance, risk, policies, standards, compliance, security awareness).
    - Identity and Access Management team (manage identity, accesses, information assets, cryptography).
    - Information Security Architecture team (design/operation of IS Architect board, IS service catalogue, requirements and enterprise architect coaching).

### Business continuity management (Key Consideration 6)
- BCM policy objectives: resume operations within appropriate time scales to (i) safeguard CBL from significant losses, maintain revenue and shareholder value, (ii) maintain participant confidence, market stability and liquidity and minimize systemic risk, (iii) maintain management control, fulfil contractual obligations and regulatory compliance.
- Recovery Time Objective (RTO):
  - Functions indispensable for critical daily operations must be resumed within an RTO of 2 hours.
  - Further RTO classes defined for functions suspendable up to 24 hours, up to 1 week or more than 1 week.
- Business continuity plans address unavailability of systems, workspace, staff and suppliers; incident and crisis management processes described in Crisis Management Guideline and Alert Escalation Process.
- Incident Managers appointed as unique contacts per business area; in a crisis, a member of the EB acts as Crisis Manager. An alert system classifies incidents/crises via colour-codes by business impact.
- Staff unavailability plans address loss of significant staff numbers (e.g., terrorist attack or pandemic), allowing identified and trained staff in different locations to maintain impacted critical functions.
- Manual paper-based procedures exist in exceptional cases (e.g., fax-based transmission).
- Data centres and secondary site:
  - Two data centres in Luxembourg with full synchronization of data between them; systems can be remotely operated.
  - All components redundant between the data centres and actively used for production; systems are clustered and load balanced or similar mechanism.
  - Failover mechanism ensures processing is taken over by the second data centre in case of an incident.
  - The two datacenters are in close proximity. A third datacenter is being considered.
  - All data is synchronously mirrored in real-time between the two centres; off-line data back-ups are taken at different intervals and duplicated on libraries located in both data centres.
  - Design combined with RTO of 2 hours facilitates completion of settlement by end of day even in extreme circumstances such as full loss of one data centre; if incident occurs less than 2 hours before normal end of day, settlement deadlines could be extended accordingly.
  - CBL runs ‘dual office’ with operations in Luxembourg and critical operations replicated in other locations; secondary site in Luxembourg provides office space for mission critical unit staff in event main office unavailable.
  - Remote access facilities allow staff to work from home; business continuity measures for catastrophic “9/11 type” scenarios include dispersed operations and business transfer.
- Review and testing:
  - At least once a year, disaster recovery simulation is performed including tests of systems in degraded mode for a couple of days.
  - Typical tested scenarios: (i) systems unavailability (loss of one data centre), (ii) workspace unavailability (loss of one building/location), (iii) staff unavailability (loss of staff in one building/location).
  - Tests aim to exercise scenarios close to real-life and to test functional effectiveness.
  - CBL did not test a full failover test where operations were taken over by other locations; failover of parts of critical operations tested, but no full test conducted — unclear whether and how quick other locations can takeover all critical operations conducted in Luxembourg.
  - Test reports issued by Risk Management; recommendations tracked and plans updated as needed; EB members receive test reports.
  - BCM framework and testing approach documented in Business Continuity Management Policy and reviewed by EB and SB annually.
  - CBL invites participants to annual systems unavailability tests (conducted on a Saturday); CBL does not invite critical service providers to participate in tests but ensures adequate support is delivered by critical service providers for IT infrastructure.

### Interdependencies and risk to/from other FMIs (Key Consideration 7)
- Risks from key participants, other FMIs and service/utility providers are identified and managed:
  - Key participant risks (operational problems) mitigated via continuous monitoring of system usage and settlement efficiency, Market Guides, participant training and timely announcements.
  - Other FMIs risks (service deficiencies, credit risk, legal issues) mitigated via BCP arrangements, monitoring performance/creditworthiness of sub-custodians/agents, market evolution monitoring, enforceable legal agreements, and legal opinions confirming key legal requirements.
  - Service/utility provider risks (service disruption) mitigated via choice of messaging provider (CBL proprietary or SWIFT), automatic switch between communication providers, emergency power generators, and fully redundant IT systems/architecture with no single point of failure.
- External service providers are contractually required to meet reliability and contingency requirements; agreements initially reviewed by Legal.
- Risks posed to other FMIs:
  - Main identified risk in context of Bridge link with Euroclear Bank: scenario where an ICSD is not operational and cannot process settlement transaction files from the other ICSD.
  - Mitigants: common operating contingency procedures with Euroclear Bank and dedicated joint contingency scenarios for an ICSD not operational at all.

### Key Conclusions, Assessment & Recommendations for Principle 17
- Conclusions:
  - CBL has appropriate systems, policies, procedures and controls to mitigate operational risk which are reviewed, tested and audited periodically.
  - Operational risks are reviewed through annual top-down and bottom-up self-assessment exercises.
  - The system is reliable, secure and has adequate, scalable capacity; future capacity needs are regularly reviewed.
  - CBL is actively involved in enhancing cyber resilience.
  - Contingency plans and back-up facilities allow timely recovery of operations and completion of settlement; a second datacenter is in proximity of the first one and operations can switch between sites without data loss.
  - There is no third data centre; given systemic importance, the set-up of a third datacenter is justified and should be pursued to manage extreme circumstances where both datacenters in Luxembourg are impacted.
  - CBL did not test a full failover where other locations takeover all critical operations in Luxembourg; therefore unclear whether and how quick the other locations can takeover all critical operations.
- Assessment of Principle 17: Broadly observed
- Recommendations:
  - Conduct a full failover test with other locations taking over all critical operations of Luxembourg.
  - Establish a third data site at a location with a significantly different risk-profile than the other two datacenters.

*Source: cr17260 - 2. Custody risk related to CBL as an ICSD, holding participants’ and own assets through links in numerous domestic markets and therefore maintaining relationships with depository banks, CSDs and CCBs.*

### 1. Proprietary

### 1. Proprietary

### Client account types and KYC practices
- Client account types described:
  - "Client – Segregated"
  - "Client – Omnibus"
- Where a client account is segregated, the direct participant is required to disclose to CBL the identity of its client.
- Where a client account is opened in omnibus form, the direct participant is commingling the assets of several of its clients.
- CBL requirement: no single interest in a client omnibus account should exceed 25% of the total value of assets deposited on that account over time as represented by its direct participant.
- When a single interest does exceed that threshold, CBL requires the direct account holding participant to segregate the corresponding assets onto a client segregated account.
- The 25% threshold is assessed during the annual KYC review.
- CBL gathers information on participants’ clients through three primary mechanisms:
  - (i) the participant onboarding process
  - (ii) the opening of additional accounts of existing direct participants
  - (iii) the regular KYC review
- For client segregated accounts, CBL:
  - seeks to identify the party to whom its direct participant owes the security entitlements deposited on the account and records this information in its KYC file
  - screens the identity of any underlying client disclosed to CBL against EU, U.S. and UN sanctions lists, adverse media lists and lists of politically exposed persons both at point of onboarding and on regular KYC review
  - obtains information on the geography, products and type of client that its direct participant supports through any client accounts held with CBL
  - aims to update this information on an annual basis
- Apart from the aforementioned KYC process, CBL has no formal process in place to gather basic information on direct participants’ clients’ activities.

### Identification and monitoring of indirect participants and tiered arrangements (Principle 19)
- Key Consideration 2: No formal procedure is currently in place in CBL to identify material dependencies between direct participants and the respective participant’s underlying clients which may potentially affect the smooth functioning of CBL.
- Key Consideration 3: An FMI should identify indirect participants responsible for a significant proportion of transactions processed by the FMI and indirect participants whose transaction volumes or values are large relative to the capacity of the direct participants through which they access the FMI in order to manage the risks arising from these transactions.
- CBL tracks continuously the proportion of each direct participant’s business volume that is conducted on behalf of its own accounts and on behalf of clients.
- CBL is currently not capable of adequately identifying:
  - (i) direct participants that act on behalf of a material number of third-party clients
  - (ii) third-party clients responsible for a significant portion of turnover in the system
  - (iii) individual third-party clients whose transaction volumes or values are large relative to the capacity of the direct participant through which they access CBL
- Consequence: In the absence of adequately identifying key third-party clients of direct participants, CBL is unable to adequately manage risks arising from the activities of such key clients.
- Key Consideration 4: An FMI should regularly review risks arising from tiered participation arrangements and should take mitigating action when appropriate.
  - Any risks detected related to tiered participation will be treated similarly to other types of risks.
  - Open cases are reported to both the Compliance and Risk Committee and the EB on a quarterly basis or more frequently if the risk is assessed as heightened.
  - There are no dedicated arrangements to identify and detect risks arising from tiered participation arrangements.

### Key conclusions, assessment, and recommendations (Principle 19)
- Key Conclusions for Principle 19:
  - CBL is not able to identify indirect clients.
  - CBL has not developed tools to identify, monitor and mitigate risks from indirect participants in order to reduce potential exposures towards them that may negatively impact CBL.
- Assessment of Principle 19: Broadly Observed
- Recommendation:
  - In order to observe Principle 19 CBL should develop tools to identify, monitor and mitigate risks from indirect participants to reduce potential exposures of direct participants that may negatively impact CBL.

### Financial Market Infrastructure Links (Principle 20)
- Principle 20 overview: An FMI that establishes a link with one or more FMIs should identify, monitor, and manage link-related risks.
- Key Consideration 1: Before entering into a link arrangement and on an ongoing basis once the link is established, an FMI should identify, monitor, and manage all potential sources of risk arising from the link arrangement. Link arrangements should be designed such that each FMI is able to observe the other principles in this report.
- CBL has established links into 56 domestic markets:
  - Types of links: direct, relayed (via either Clearstream Banking AG or LuxCSD S.A.) and indirect
  - Direct link: between CBL and the local CSD (either operated by CBL or by a domestic agent)
  - Relayed link: CBL accesses the issuer CSD via another CSD
  - Indirect link: CBL's account is maintained within a domestic agent bank (depository bank) having a link with the local CSD
- CBL has established an interoperable link with Euroclear Bank referred to as the “Bridge”.
- Pre-link approval process:
  - Clearstream conducts a general assessment of the prospective link subject to the appreciation of the CRCC.
  - The CRCC will either make a positive recommendation or decline the proposal to develop the link.
  - If approved, a full risk assessment is coordinated by the Network Management Department (at the level of CBL) with input from departments such as Group Credit, Treasury and Operations.
  - The full risk assessment covers aspects such as:
    - (i) criteria on securities registration, ownership restrictions, reporting obligations and disclosure requirements
    - (ii) market assessment including legal, tax and regulatory issues
    - (iii) criteria with regard to anti-money laundering, operational readiness, good reputation, financial soundness as well as access to the local central bank and the capacity to provide liquidity to facilitate CBL’s settlement and payment instructions
  - Ultimately, the EB of CBL is responsible for the approval of every new link set-up.
  - If the risk assessment identifies significant weaknesses resulting from major risks in the local market that cannot be adequately mitigated no link will be established with that market.
- Types of risks that CBL is exposed to through links, including the Bridge:
  - operational, credit, liquidity, business and reputational risks.

*Source: cr17260 - 1. Proprietary*

### Appendix 1.

### Appendix 1.

### Risk identification, monitoring and management of links
- Due diligence visits and ad hoc visits with entities relevant to the link (CSDs, depository banks) are performed; these are also described in Principle 16.
- Service Level Agreement (SLA) is updated when necessary, on average on an annual basis.
- Network Management team has access to statistic-based reports on operational performance relative to the SLA and other providers.
- CBL maintains a database of incident reports documenting deviations from expected procedure.
- Ongoing monitoring of the creditworthiness of CBL's network of agent banks is performed by the Group Credit unit.
- Risks related to existing links are part of the annual risk review and are managed by Network Management in coordination with the Risk Management function.
- Risk management measures on links include:
  - updates to contractual arrangements to emphasize supplier responsibility for identified risks;
  - establishment of action plans with suppliers and subsequent follow-up;
  - ad-hoc testing with suppliers to ensure operating effectiveness of processes and related controls;
  - change of supplier or appointment of second supplier.

### Legal basis for links (Key Consideration 2)
- All links are contractually documented between CBL and the local depository/agent/CSD/CCB.
- Legal frameworks differ by link type:
  - Direct link agreements: terms set out in the CSD rules, generally standardized general terms and conditions governed by laws applicable to the issuer CSD.
  - Direct links operated by a local agent: contractual framework composed of the CSD rules and the agency agreement.
  - Indirect links: terms set out in the depository agreement signed with the local depository, in principle governed by laws applicable to the issuer CSD.
  - Bridge link: governed by the joint CBL – Euroclear Bridge agreement, to be governed and interpreted in accordance with Belgian and Luxembourg law.
- Link agreements clarify: (i) eligible instruments and authorized parties, (ii) defined terms and procedures for settlement, safekeeping and administration, (iii) required insurance coverage, (iv) sub custodian's standard of care, (v) liability of sub-custodian to CBL, (vi) representation and warranties and confidentiality requirements, and (vii) incorporation of Service Level Agreement.
- No specific contractual set up for relayed links: CBL signs custody or standard terms of the intermediary CSD as custody and entitlement are with the intermediary CSD.
- For new links, CBL requires a legal opinion from competent external counsel confirming (i) enforceability of sub-custodian’s obligations, (ii) enforceability of the judgment of Luxembourg Courts, (iii) recoverability of assets in case of bankruptcy, and (iv) legal status and authority of the sub-custodian.
- Legal opinion is updated whenever there is change to the legal framework of the market in question; CSDs/agents/CCBs are contractually obliged to inform CBL of any change affecting CBL’s deposit.

### Credit and liquidity risk measurement and controls (Key Consideration 3)
- Annual full credit assessment of any depository and agent with which CBL has a direct, relayed or indirect link; assessment includes (i) evaluation of annual accounts, (ii) review of management structure and liquidity, (iii) review of external credit rating and quality of assets; an internal rating is performed.
- Group Credit unit monitors nostro balances of all CCBs on a daily basis and sets thresholds for every nostro account; threshold breaches trigger reporting to management and actions. The system identifies large cash balances and monitors possible credit risk.
- CBL does not extend credit as issuer CSD to other investor CSDs.
- CBL grants credit to Euroclear Bank in the context of the interoperable Bridge link; extensions are in principle secured and limited by collateral provided by Euroclear Bank.
  - Currently, collateral is provided by Euroclear Bank in the form of a stand-by letter of credit established by a syndicate of 29 international banks.
  - The stand-by letter of credit is payable on demand; there can be no limitations imposed by the syndicate on the conditions of such a demand.
  - The letter of credit can be called upon the issuance of a notice of demand that should be honoured by participating banks on the third business day after receipt of the notice.
- No Bridge letter of credit has ever been called since mechanism implementation and neither system operator has failed to meet payment obligations in normal course of business.
- Advanced control and remedial mechanisms (e.g., deselection of proposed deliveries) are in place to maintain exposure resulting from settlement between the ICSDs within the limits of the letter of credit.
- Reporting mechanism implemented to respective regulators if exposure is not entirely covered by the letter of credit.
- Uncovered exposures over the Bridge may stem from custody booking calculation differences and refusal of ICSDs to accept proposed deliveries due to lack of cash or credit of the buying participant; most exposures remain uncovered for only a short period due to the Bridge risk management mechanism.

### Provisional transfers and segregation (Key Consideration 4 and 5)
- No provisional transfer of securities and funds within CBL system for internal transactions.
- Provisional transfers possible under certain conditions in context of the link to the CSD in the United States; CBL blocks said securities in the participant’s accounts until they are final in the local market to prohibit re-transfer prior to finality.
- High level of protection for investor CSD participants is provided through:
  - legal framework (link agreements, SLAs, legal opinions);
  - electronic reconciliation with all depositories and agents for both cash and securities on a daily basis for most links.
    - For the Bridge: general reconciliation frequency for securities is weekly and end of month, although certain securities are reconciled daily; CBL and Euroclear Bank perform daily reconciliations for cash positions.
  - Segregation of assets: CBL uses an omnibus account holding participants’ and participants’ clients assets either directly at the CSD or indirectly via a sub-custodian.

### Risks from intermediaries (Key Consideration 6)
- When opening a direct link with an issuer CSD operated by an intermediary, CBL must accept issuer CSD terms and conditions including local liability standards.
- Agency agreements define intermediary terms; as standard CBL requires agent liability for loss/damage due to agent’s negligence.
- For indirect links via a local custodian, CBL defines liability terms in depositary agreements and requires custodian liability for loss/damage due to local custodian’s negligence.
- Contractual relationships with issuer CSDs and intermediaries remain subject to usual force majeure and indirect damages clauses; intermediaries generally exclude liability for losses caused by issuer CSDs.

### Bridge specifics, exposures and reconciliation recommendations
- CBL is linked to Euroclear Bank via the Bridge.
- CBL is linked to 56 local CSDs worldwide, often through depository banks; in addition, CBL uses CCBs.
- Identified points for further mitigation:
  - Continue working on mitigation of uncollateralized credit risks that may occur as part of current settlement practices in the Bridge.
  - Reconciliation of securities accounts for the Bridge happens weekly and monthly; this should be done on a daily basis.
  - Reduce significant exposures towards depository banks / CCBs, particularly in the U.S. and U.K., by extending number of depository banks / CCBs, or where possible opening direct accounts at CSDs and central banks.
  - Improve transparency on settlement finality for outbound links.

### Assessments and key conclusions for Principle 20
- Assessment of Principle 20: Broadly Observed.
- Recommendations:
  - Reduce risks related to the Bridge through daily reconciliations and full collateralization of credit exposures at all times.
  - Reduce dependencies on commercial banks for outbound links via additional depositories, CCBs and direct links with CSDs and central banks where possible.
  - Increase transparency on the moment of settlement finality in local markets.
- Key Conclusions: CBL has a framework to identify, monitor and manage credit, liquidity, operational and legal risks; remaining risks should be further mitigated as noted above.

### Efficiency and effectiveness (Principle 21) — governance and performance monitoring
- Product management teams proactively engage participants through industry surveys, senior executive sessions, participant validation during development cycle, and one-on-one sessions.
- CBL hosts a Customer Consultation Committee on a semi-annual basis.
- Procedures in place to review operational reliability: Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) are monitored; deviations are tackled.
- In 2015, CBL received awards and high scores in various areas and surveys attesting participant satisfaction.
- CBL goals: (i) continuously developing new services, (ii) enhancing efficiency of operations, (iii) reducing overall processing costs.
- Service levels targets are defined in service level agreements.
- KPIs and KRIs developed and monitored monthly; thresholds trigger reporting to Risk Management function.
- At least yearly, target rates are reviewed considering market environment and participant demands.
- In 2015 the average system availability was 99.99 percent.
- During October 2015 systems unavailability test (full loss of one data centre), availability of CBL’s business critical applications was validated within the two hour recovery time objective and infrastructure security was maintained.
- Conclusion for Principle 21: CBL is focusing on meeting participant and market requirements; mechanisms are in place for regular review of efficiency and effectiveness.
- Assessment of Principle 21: Observed.

### Communications and standards (Principle 22)
- CBL uses internationally accepted communication procedures and standards; mandates providers to use such standards.
- CBL offers STP compliant settlement services via multiple connectivity channels: public internet, Virtual Private Network, SWIFT or web portal.
- CBL endorses ISO15022 and ISO20022 messaging standards and adopts main reference data standards including:
  - ISO 4217 – unique 3 digit currency code;
  - ISO 6166 – unique identifiers for securities (ISIN);
  - ISO 8109 – unique identifiers for Eurobonds;
  - ISO 9362 – Business Identifier Codes (BIC);
  - ISO 10962 – Standard for financial instrument classification codes (CFI).
- Conclusion for Principle 22: CBL uses relevant international communication procedures and standards.
- Assessment of Principle 22: Observed.

### Disclosure of rules, procedures and market data (Principle 23)
- Governing Documents: (i) GTCs, (ii) Customer Handbook, (iii) fee schedule, (iv) Creation Link Guides (for each of the 56 markets where CBL is linked), and (v) Disclosure Guides (mandatory disclosure requirements per market).
- Governing Documents available via CBL website www.clearstream.com.
- CBL uses participant feedback, presentations, meetings, trainings, webinars and videos to ensure clarity of rules and procedures.
- GTCs, CPSS-IOSCO Disclosure Framework and Association of Global Custodians questionnaire provide information on non-routine events (participant default, loss of securities) and Business Continuity Framework; publicly available on CBL website.
- Detailed technical system information (system architecture plans and technology stacks) is made available upon request.
- CBL provides documentation and training; Client Services Officers available 24 hours for daily operational queries; registered users informed about enhancements and incidents via alert emails.
- Fee schedule publicly disclosed and details individual services, prices and discounts; updated fee schedule published one month in advance of validity; participants subscribing to email alerts are notified.
- CPSS-IOSCO disclosure framework last updated publicly in August 2014; updated following material changes and at least every two years.
- CBL publishes quantitative information on capital structure and ratios in CBL Pillar III report.
- Monthly figures publicly available: assets under custody, settlement volumes, average outstandings related to Global Securities Financing (GSF) activities, transactional volumes in Investment Fund area.
- CBL provides general information on credit ratings and has started enabling participants to access full credit rating report.
- CBL does not publicly disclose monthly settlement values nor other performance statistics on its website.
- Customer announcements generally made in English.
- Key Conclusions for Principle 23: CBL has clear and comprehensive rules and procedures and generally provides sufficient information to participants; fees and other material costs are disclosed; CBL has completed CPSS-IOSCO Disclosure framework for FMIs. It can increase transparency on settlement finality in linked markets (see Principle 20).
- Assessment of Principle 23: Observed.

### Responsibilities of authorities: oversight, supervision and resources
- BCL oversight legal basis:
  - Article 2 (5) of law of 23 December 1998 concerning Banque centrale du Luxembourg (BCL Law) mandates BCL to ensure efficiency and safety of payment systems and securities settlement systems.
  - Article 2(1) of BCL Oversight Regulation: BCL shall carry out oversight of designated systems operating in Luxembourg.
  - BCL applies ECB decisions and oversight requirements (e.g., ECB/2014/28 Regulation No 795/2014).
- BCL liquidity supervision:
  - Article 2 (4) of BCL Law assigns BCL responsibility for supervising general liquidity situation and evaluating market operators.
  - BCL Liquidity Regulation Article 2(1) specifies primary focus on credit institutions counterparties in monetary policy operations; FMIs with banking license and counterparties in monetary policy operations fall within scope.
- CSSF supervision:
  - Article 2 of law of 23 December 1998 establishing CSSF: competent authority for prudential supervision of credit institutions and professionals of the financial sector.
  - CSDs hold either universal credit institution license or license as professional depository of financial instruments under law of 5 April 1993 (1993 Law).
- Public availability: relevant laws published in Mémorial; BCL and CSSF publish laws/regulations on their webpages.

### Identification and designation of FMIs (Responsibility A)
- FMIs designated and included in BCL oversight:
  - TARGET2-LU payment system;
  - Securities Settlement System operated by CBL;
  - Securities Settlement System operated by VP LUX S.à r.l.;
  - Securities Settlement System operated by LuxCSD S.A.;
  - Securities Settlement System operated by globeSettle S.A.
- These systems are designated and notified to the European Commission under the Settlement finality directive and published on BCL’s website and yearly in the Mémorial.
- BCL liquidity supervision includes CBL.
- CSSF supervisory scope includes:
  - CBL supervised as a credit institution;
  - LuxCSD S.A., VP Lux S.à r.l., and globeSettle S.A. supervised as professional depositories of financial instruments.
- Ministry of Finance licensing:
  - CBL licensed as credit institution;
  - VP LUX S.à r.l., LuxCSD S.A., and globeSettle S.A. licensed as professional depositories of financial instruments.
- Key Conclusions for Responsibility A: FMIs in Luxembourg are subject to appropriate and effective oversight and supervision by BCL and CSSF; BCL powers derived from BCL Act; CSSF supervision based on CSSF Act; CBL subject to liquidity supervision by BCL; relevant laws publicly disclosed.
- Assessment of Responsibility A: Observed.

### Powers, information flows and enforcement (Responsibility B)
- BCL powers to obtain information and induce change:
  - Article 27(3) of BCL Law: BCL may request any information necessary to assess efficiency and safety; may request regular self-assessments; carry out controls including onsite; issue recommendations or specific instructions.
  - Reporting framework: statistical and financial data monthly; major incidents reported soon after occurrence; other information on changes impacting efficiency and safety; ad-hoc information requests.
- BCL liquidity supervision reporting:
  - Daily liquidity report collected from relevant FMIs including forecast of inflows, outflows, liquid stock over next 6 business days including t (t=date of submission before 9.00 am), and actual data for flows on t-1.
- CSSF information powers:
  - 1993 Law articles 40 and 53: regulatory reporting (FINREP monthly balance sheet, profit and loss quarterly; COREP quarterly solvency/leverage; Liquidity reporting LCR/ALMM monthly, NSFR and Asset encumbrance quarterly); documentary reports (Long Form Report, annual accounts, internal control functions reports, ICAAP yearly).
  - Specific information for Clearstream: Monthly Credit report (received on a quarterly basis), Quarterly Risk report, Global Securities Self-assessment report (annual).
  - CSSF can request any information it deems useful.
- Enforcement powers:
  - BCL has no legal sanctioning power but can impose administrative sanctions (e.g., removal of designation); notify breaches to other authorities; publish recommendations/instructions.
  - BCL Liquidity Regulation Art. 3(10) enables BCL to limit access to central bank operations for market operators in breach and to publish measures taken.
  - CSSF powers include injunctions and suspension (Article 59 of 1993 Law), power to require cessation of practices contrary to CRR (Article 53), and a penalty regime (Part V of 1993 Law).

### Resources, staffing and legal protections
- BCL Oversight:
  - Oversight section part of Market Infrastructures and Oversight Department.
  - Oversight section comprises 8 FTE in total; team of 4 FTE dedicated to oversight of designated systems operated in Luxembourg, supported by Head of section and administrative assistant.
  - In 2014, BCL increased oversight staff by 2 persons.
  - Oversight draws on other departments (Legal, Liquidity supervision) as needed.
  - Some oversight costs funded by system operators via voluntary agreements.
- BCL Liquidity supervision:
  - Liquidity Supervision Division comprises 13 FTE, of which 2 staff members entrusted with liquidity supervision of CBL.
  - Close cooperation with oversight function and other supervisory authorities (CSSF, BaFin, Bundesbank).
- CSSF prudential supervision:
  - 2.1 FTE dedicated to daily prudential supervision of CBL and 0.5 FTE dedicated to LuxCSD S.A., VP Lux S.à r.l. and globeSettle S.A..
  - Prudential supervisors can obtain support from other CSSF departments or banking supervision experts on a case-by-case basis.
  - Onsite inspections conducted by CSSF onsite inspections department; prudential supervisors may join inspections.
  - Qualification and experience of staff considered adequate; CSSF funding comes from fees collected from supervised entities.
- Legal protections:
  - Article 34-1 of BCL Law limits BCL civil liability: civil liability may be triggered only if damage caused by gross negligence in choice and application of means to carry out public service tasks.
  - CSSF legal protection anchored in CSSF Law Article 20(2) and 20(3): companies/professionals seeking civil liability must demonstrate damage caused by gross negligence; principle also applies to CSSF staff individually.

*Source: Appendix 1. (cr17260 - Appendix 1.)*

### Chapter 10 of the Luxembourg law of 16 April 1979 covers the protection of

### Chapter 10 of the Luxembourg law of 16 April 1979 covers the protection of

### Protection of civil servants (art. 32(2) and (3))
- The State must protect the civil or former civil servant against any contempt, threats, insults or slanders received in connection with the performance of his/her duties and functions.
- The State must assist the civil servant regarding legal actions which the latter would decide to initiate against perpetrators.

### Responsibility B — Powers, resources, and enforcement
Key conclusions
- The powers and resources of the authorities are considered sufficient.
- Authorities have powers to obtain relevant and comprehensive information in a timely manner and enforce corrective action.
- Resources are considered sufficient for the time being, although additional resources may be needed in the future to address increased regulatory responsibilities.

Assessment and observations
- Observed
- In the absence of legal sanctioning power, the BCL mainly relies on moral suasion in its oversight and liquidity supervision to induce changes or enforce corrective actions.
- While available tools have been effective in the past, BCL’s enforcement power could be further strengthened with a legal sanctioning power.

Recommendations and comments
- Consider strengthening BCL’s enforcement powers by providing legal sanctioning power.

### Responsibility C — Disclosure of policies with respect to FMIs
Key Consideration 1: Define policies
- Authorities should clearly define policies with respect to FMIs, including objectives, roles, and regulations.

BCL — oversight and liquidity supervision
- The BCL Law and the BCL Oversight Regulation (contain BCL’s oversight role, policies and objectives) are publicly available.
- The BCL Law and BCL Liquidity Regulation (contain BCL’s supervisory role in relation to liquidity supervision, its policies and objectives) are publicly available.

CSSF — supervision of CSDs (as credit institution and professional depositories of financial instruments)
- Article 43 of the 1993 Law defines the purpose of supervision (objectives).
- CSSF’s mission and competences are published on its internet site.
- There are no specific policies in place in relation to the supervision of CBL; supervision of CBL is carried out using policies and procedures in place for general banking supervision, customized to CBL’s business model on the basis of expert judgment.

Key Consideration 2: Public disclosure
- BCL Law, BCL Oversight Regulation, and BCL Liquidity Regulation are publicly disclosed and BCL reports on oversight activities in its Annual Report.
- CSSF publishes the complete framework for prudential supervision and CSSF’s mission and competences on its internet site and reports in yearly annual reports.

Key conclusions for Responsibility C
- BCL’s policies are reflected in regulations, which are publicly disclosed.
- Authorities’ objectives and roles are defined in the BCL and CSSF laws.
- BCL Oversight Regulation and BCL Liquidity Regulation specify BCL’s approach.
- The CSSF has no specific policies dedicated to SSS but relies on expert judgement.
- The implementation of the CSDR, in particular the regulatory technical standards, will provide for dedicated requirements for CSDs.

Assessment of Responsibility C
- Observed

### Responsibility D — Application of the Principles for Financial Market Infrastructures (PFMI)
Key Consideration 1: Adopt the PFMI
- BCL applies decisions taken by the ECB Governing Council relating to recommendations, principles and standards, including assessment methodologies.
- The Governing Council adopted the CPMI-IOSCO Principles for financial market infrastructures (PFMIs) in June 2013 for Eurosystem oversight.
- As an ordinary IOSCO member, CSSF implicitly adopted the CPMI-IOSCO principles; in practice CSSF considers the CPMI-IOSCO principles for prudential supervision of CBL but has not explicitly adopted the PFMI.

Key Consideration 2: Apply PFMIs to systemically important FMIs
- BCL applies the PFMIs to systemically important payment systems (i.e. TARGET2-LU) and to all SSS in Luxembourg.
- The ECB implemented PFMIs for TARGET2 via ECB Regulation No 795/2014 of 3 July 2014; this is referenced in BCL Oversight Regulation.
- CSSF considers CBL to be the only systemically important entity among the four entities with SSS/CSD activities under its prudential supervision.
- Assessments of other SSSs/PDFIs against PFMIs are conducted by the BCL and submitted for comments to the CSSF.

Key Consideration 3: Apply PFMIs consistently across jurisdictions
- PFMIs are consistently applied by the BCL to all four SSSs operating in Luxembourg, including LuxCSD SA (owned 50% by Clearstream International S.A. and 50% by the BCL).
- CSSF currently supervises the four entities on a solo basis and is not in charge of consolidated supervision across jurisdictions.
- CSDR and related Technical Standards (once in force) should follow the PFMI and aim for a harmonized supervisory framework across Europe.

Chinese Walls and conflict mitigation
- BCL Law and BCL Oversight Regulation make no distinction between central bank and private payment and securities settlement systems; same oversight policies apply irrespective of owner/operator.
- For TARGET2-LU, operational and oversight activities are handled in different departments; both report to the same Management Board member who addresses conflicts of interest.
- BCL jointly owns LuxCSD S.A. (50 percent) with Clearstream International S.A. but BCL is not involved in LuxCSD S.A.’s operations or board; oversight section is not involved in BCL’s shareholder preparation or decision making.
- Access to confidential oversight information is restricted to and controlled by the Oversight section.

Compliance and assessments
- Luxembourg authorities provide FMIs with formal outcomes covering principles not fully observed and require action plans with deadlines.
- Authorities monitor implementation of action plans and assess whether compliance levels are enhanced.
- Frequency of comprehensive assessments of SSSs against PFMIs is not predefined; determined by developments or changes. The first assessment of CBL against the PFMI was conducted in 2015/2016.

Key conclusions for Responsibility D
- BCL has adopted the PFMI and leads assessments of FMIs against PFMI; CSSF contributes for supervised entities with CSD activities.
- Authorities may integrate PFMI in day-to-day supervision, including additional CPMI-IOSCO guidance (e.g., recovery planning, critical service providers, cyber resilience).

Assessment of Responsibility D
- Observed

Recommendations and comments
- It is recommended to apply a two-year assessment cycle of FMIs against the PFMI as suggested in the CPMI-IOSCO Disclosure Framework and Assessment Methodology report of December 2012.
- It is recommended that authorities integrate the PFMI in day-to-day supervision of FMIs.
- The planned implementation of the CSDR, which generally reflects the PFMI, may facilitate integration through regulatory technical standards.

### Responsibility E — Cooperation with other authorities
Key Consideration 1: Domestic and international cooperation
National cooperation
- Good cooperative relationship exists between BCL’s oversight team (responsible for the SSS operated by CBL) and CSSF’s banking supervision team responsible for CBL.
- Cooperation is ongoing and includes coordination of supervisory/oversight activities, regular and ad-hoc exchanges of information and reports, joint or coordinated meetings with CSDs, onsite inspections, PFMI assessments, and consultations.
- There is no formal cooperation agreement (e.g., MoU) between the two authorities.

International cooperation (selected arrangements)
Payment systems and TARGET2
- Oversight of TARGET2 (including TARGET2-LU) is coordinated by the ECB as lead overseer and performed with Eurosystem members including BCL.

CBL and ICSDs
- BCL and CSSF participate in the College of supervisors for the Clearstream Group; home supervisors are BaFin and Deutsche Bundesbank (BuBa); other members include CSSF, BCL (liquidity authority), and the EBA. BCL – Oversight and BuBa oversight team participate as observers.
- CSSF and BCL participate in onsite visits of Clearstream entities conducted by BaFin and Bundesbank; Singapore visits subject to a letter of undertaking.
- College is formalized through a written coordination and cooperative arrangement in line with EBA standards.
- Within the SSM, CSSF and BCL (for liquidity supervision) cooperate with ECB regarding supervision of CBL as LSI; an FMI Network exists where CSSF and BCL participate.
- Due to the interoperable link between CBL and Euroclear Bank SA/NV (the Bridge), Luxembourg authorities cooperate with Belgian authorities (BCL, CSSF, National Bank of Belgium); meetings occur at least once a year; a crisis contact list exists; formalization of cooperation under an MoU (with ECB as observer) is planned to be signed within the next months.
- BCL signed an MoU with the Czech National Bank in 2009 concerning oversight of Clearstream Operations Prague s.r.o.
- BCL signed an MoU in 2009 with the Monetary Authority of Singapore for surveillance of CBL and CBL Singapore branch.
- BCL cooperates with ECB Market Infrastructure department in assessment of CBL as SSS used by the ECB for credit operations (user assessment).

Other SSS
- BCL signed a bilateral MoU with Danmarks Nationalbank in 2008 concerning oversight of VP LUX S.à.r.l. and VP SECURITIES.

Other arrangements
- As a Eurosystem member, BCL cooperates with other EU authorities and international bodies.
- CSSF has signed cooperation agreements with other banking supervisors and participates in several CCP EMIR Colleges with signed standard CCP EMIR College cooperation agreements.

Future CSDR impacts
- Cooperation arrangements regarding entities with CSD activities established in Luxembourg will change following planned implementation of the CSDR.

Crisis cooperation and preparedness
- BCL has internal crisis committees and a crisis manual containing contact details of relevant authorities and supervised entities including CBL.
- BCL has an internal group for horizontal coordination on topics relating to CBL that reports to the BCL Management Board.
- CSSF maintains contact lists with key employees.
- There is no national crisis management arrangement between BCL and CSSF.
- Bilateral MoUs with foreign authorities include provisions for information exchange in crisis situations.
- Eurosystem-level crisis communication framework covering all FMIs has been set up.
- Clearstream banking supervisory college contains a framework for planning and coordination during emergency situations.
- For the Bridge, a crisis contact list exists between Belgian and Luxembourg supervisors/overseers.

Key Consideration 2: Notification of cross-border/multicurrency FMI operations
- CBL, as an ICSD, provides cross-border and multicurrency services; other SSSs/entities offer limited cross-border/multicurrency activities.
- More than 60 central banks have opened an account with CBL.
- BCL and CSSF do not actively notify other relevant authorities on cross-border or multicurrency services provided by CBL; when approached they stand ready to cooperate and respond to information requests.

Key Consideration 3: Forms and intensity of cooperation
- Legal framework provides basis for BCL and CSSF cooperation; in practice they closely cooperate in oversight/supervision activities.
- No formal cooperation agreement between BCL – Oversight, BCL – Liquidity supervision and CSSF for oversight/supervision of the four SSS in Luxembourg, but liquidity supervision for banking-license FMIs is based on a working-level agreement.

Key Consideration 4: Lead authority responsibility
- In general, a lead authority coordinates cooperation and centralizes meeting preparation.
- Bilateral MoUs by BCL with Czech National Bank, MAS, and Danmarks Nationalbank were initiated by BCL based on oversight responsibility.
- Cooperation between BCL and CSSF is based on legal provisions in their organic laws; responsibility for establishing cooperation lies with both authorities.
- For the cooperation with German authorities the German authorities have the lead (in line with EBA framework for Supervisory Colleges).
- For the Bridge, responsibilities are shared; meetings rotate between Luxembourg and Belgium; draft cooperation agreement does not foresee one lead authority.
- For CCP Colleges the authority with primary responsibility in the CCP home jurisdiction has the lead.
- For TARGET2, the ECB acts as lead overseer.

Key Consideration 5: Periodic assessments and consultation
- BCL and CSSF jointly assess relevant entities against the PFMI, with BCL taking the lead in practice.
- Luxembourg authorities generally do not consult other relevant authorities during assessment work unless cooperation agreements include sharing; sharing otherwise decided case by case.
- Relevant outcomes are shared with selected authorities (e.g., National Bank of Belgium for the Bridge; ECB/Eurosystem central banks for SSS eligibility for Eurosystem credit operations).

Key Consideration 6: Consider views of central banks of issue
- BCL – Oversight, in cooperation with CSSF, assess payment and settlement arrangements and related liquidity risk-management procedures for SSSs operating in Luxembourg.
- Analysis covers any settled currencies; BCL liquidity supervision focuses on EUR, USD and GBP as significant currencies.
- Central banks of issue are currently not consulted by Luxembourg authorities when assessing payment arrangements.
- CSDR foresees central banks issuing the most relevant currencies will be involved in authorization and supervision of CSDs and banking-type ancillary services; regulatory technical standards and delegated acts not finalised.
- At Eurosystem level, discussions continue to define internal framework for central bank of issue contributions under CSDR; current assumption for ICSDs is local central bank will contribute in cooperation with the ECB.

Key Consideration 7: Advance notification of material regulatory changes and adverse events
- BCL and CSSF inform each other of pending material regulatory changes and adverse events affecting the other authority’s interests.
- At Eurosystem level BCL - Oversight and other national central banks may inform Eurosystem members of pending material regulatory changes.
- Bilateral MoUs foresee authorities inform each other of events with material adverse impact.
- For the Bridge, Luxembourg authorities would inform Belgian authorities of material adverse events.
- Clearstream college specifies notification procedures in emergencies; CSSF and BCL share pending material regulatory changes and adverse events with German authorities.
- SSM notification procedures exist regarding LSIs.

Key Consideration 8: Access to trade data in TR
- NA

Key Consideration 9: Authorities’ discretion to discourage use of FMIs
- BCL has not exercised discretion to discourage use of any FMI operated in Luxembourg or elsewhere.
- CSSF considers discouraging use of a licensed supervised entity inappropriate or impossible; would take action if entity not prudently designed or managed, but would discourage use only where an entity acts as FMI without required license(s).

Key Consideration 10: Legal powers unaffected by cooperation
- Formal arrangements in place do not prejudice or constrain statutory powers or discretion of participating authorities.

Key conclusions for Responsibility E
- Luxembourg authorities cooperate and coordinate with other supervisory authorities domestically and internationally.
- Recommended actions for BCL and CSSF:
  - Conclude a MoU for national supervision and oversight of CSDs to support transparency and accountability by specifying cooperation level, information sharing, and coordination in normal and crisis circumstances.
  - Include relevant foreign authorities and central banks in assessment procedures; consult foreign authorities and central banks as part of assessments of CBL against the PFMI and formalize an approach for information sharing (as required in KC5 and KC6).
  - Conclude, as planned, the MoU with the Belgian authorities, and the ECB as observer.
- Recommendation: Both ICSDs (CBL and Euroclear Bank) should be included in SSM supervision as SI rather than remain LSIs; they should also be under the remit of the SRB to harmonize supervisory approach and ensure level playing field.

Assessment of Responsibility E
- Broadly Observed

Recommendations and comments (summary)
- Conclude a national MoU between the BCL and CSSF covering cooperation and coordination arrangements in normal and crisis times.
- Improve cooperation with foreign authorities through formal consultations during PFMI assessments.
- Finalize and sign the planned MoU with Belgian authorities and ECB as observer.
- Recognize the two ICSDs as SI by the SSM and place them on the SRB list.

### Authorities' response
- The Banque centrale du Luxembourg (BCL) and the Commission de surveillance du secteur financier (CSSF) welcome the IMF assessment of Clearstream Banking SA against the CPMI/IOSCO Principles for Financial Market Infrastructures and appreciate the detailed assessment of Luxembourg authorities against the CPMI/IOSCO Responsibilities for authorities.
- BCL and CSSF take note of observations and conclusions and will thoroughly consider recommended actions suggested by the IMF, as well as observations regarding Responsibilities for authorities.
- BCL and CSSF consider the IMF has performed a thorough and comprehensive assessment and thanked the IMF assessor for the constructive and interactive approach.

*Source: IMF assessment text supplied in the content unit.*

### Appendix I. Systemic Interdependenc

### Appendix I. Systemic Interdependenc
ies CBL in Global Financial System

### I. Exposure of CBL to various types of stakeholders
- Participants - direct
  - Description: Failure of a participant with credit facility may cause credit and liquidity risks. If a direct participant fails without credit facility there is no credit or liquidity risk. Operational risk in both cases is limited.
  - Systemic impact: Limited. Only if more than the two largest participants with a credit facility fail there may be a liquidity risk for CBL.
  - Mitigation tools: Credit risk framework described in Principle 4 (credit limits, collateralization, haircuts). Liquidity risk framework described in Principle 7 (credit limits, stress testing, sufficient high quality liquid resources).

- Participant - indirect
  - Description: Failure of an indirect participant typically has no impact on CBL. However, failure of a large indirect participant, using 1 or multiple direct participants may cause failure of direct participant and thus expose CBL to credit and liquidity risks.
  - Systemic impact: Limited. No data on indirect participants.
  - Mitigation tools: Credit risk framework described in Principle 4. Liquidity risk framework described in Principle 7. Tiered participation approach described in Principle 19.

- Users of the ASLplus facilities
  - Description: Failure of a lender or borrower of the ASLplus exposes CBL to credit (and liquidity) risk as CBL guarantees the arrangement.
  - Systemic impact: Substantial as the ASLplus service is heavily used, which may increase if interest rates increase
  - Mitigation tools: Credit risk framework described in Principle 4. Liquidity risk framework described in Principle 7.

- Euroclear Bank
  - Description: Failure of Euroclear Bank would disrupt bridge settlements. CBL is exposed to EB and may face credit and liquidity exposures.
  - Systemic impact: Substantial  (bridge settlements daily average of 115 billion EUR)
  - Mitigation tools: Credit risk framework described in Principle 4. Liquidity risk framework described in Principle 7. Links described in Principle 20.

- Depository banks – domestic agent (for the account of Clearstream with the local CSD)
  - Description: Failure of a domestic agent exposes CBL to operational and reputational risk.
  - Systemic impact: Limited, unless bank services multiple markets or if there is only one bank in large market.
  - Mitigation tools: Principle 3 interdependencies.

- Depository banks – local custodian
  - Description: Failure of a local custodian exposes CBL to operational and reputational risk. Any credit risk through advanced payments?
  - Systemic impact: Limited, unless bank services multiple markets or if there is only one bank in large market.
  - Mitigation tools: Principle 3 interdependencies.

- Depository banks – international agent that hold and service international securities
  - Description: Failure of a local custodian exposes CBL to operational and reputational risk. Any credit risk through advanced payments?
  - Systemic impact: Limited, unless bank services multiple markets or if there is only one bank in large market.
  - Mitigation tools: Principle 3 interdependencies.

- Depository banks – international agent that (only) service international securities
  - Description: Failure of a domestic agent exposes CBL to operational and reputational risk.
  - Systemic impact: Limited, unless bank services multiple markets or if there is only one bank in large market.
  - Mitigation tools: Principle 3 interdependencies.

- Linked CSD
  - Description: Failure of a local custodian exposes CBL to operational and reputational risk.
  - Systemic impact: Limited
  - Mitigation tools: Principle 20 on links

- Cash Correspondent Banks
  - Description: Failure of a CCB exposes CBL to credit, liquidity and operational risks
  - Systemic impact: Substantial

- National Central Banks
  - Description: Failure of a central bank does not allow CBL to conduct cash settlements in the specific currency and exposes CBL to operational and liquidity risks
  - Systemic impact: Substantial
  - Mitigation tools: Risk is considered low. Reliance on overseers and operators of central bank systems.

- SWIFT
  - Description: Failure of SWIFT exposes CBL to operational risk
  - Systemic impact: Substantial
  - Mitigation tools: Assessment as Critical Service Provider.

- Telecommunications
  - Description: Failure of SWIFT exposes CBL to operational risk
  - Systemic impact: Substantial
  - Mitigation tools: BCP described in Principle 17. Plus assessment as Critical Service Providers.

- Deutsche Börse
  - Description: Failure of parents may expose CBL to reduced set of recovery options. CBL currently considers a capital injection by its parent company DBAG as the key recovery option. Shared services with the broader DBAG group are: Human Resources, Risk Management, Accounting, Audit, Compliance and certain IT services, such as office automation.
  - Systemic impact: Substantial
  - Mitigation tools: CBL should have a recovery scenario and strategy to manage loss of access to parent. Service requirements are defined in SLAs.

- Clearstream Group entities
  - Description: Services provided by Clearstream Services are IT. Services provided by Clearstream International are IT, the credit function, and the risk management function.
  - Systemic impact: Substantial
  - Mitigation tools: Service requirements are defined in SLAs.

### II. Stakeholders’ interdependencies towards CBL
- Participants
  - Description: If CBL fails participants will be unable to settle their transactions. Participants may lose cash deposited at cash accounts in CBL and face credit and liquidity risk. Although participants’ securities accounts are protected they may face a delay in accessing the securities. This includes collateral kept by central banks and main CCPs to cover their risks. This may impact global financial markets.
  - Systemic impact: Significant. Value of assets kept in CBL is 6 trillion EUR of which on average 480 billion for collateral management purposes per month.
  - Mitigation tools: Participants may use other CSDs to settle and other financing tools outside CBL. They may however not be able to access their securities in CBL. In recovery and resolution plans for CBL could add the portability of securities accounts to Euroclear Bank.

- Euroclear Bank
  - Description: Failure of CBL would disrupt bridge settlements. EB is exposed to CBL and may face credit and liquidity exposures.
  - Systemic impact: Substantial
  - Mitigation tools: Principle 20 in links and other relevant PFMI principles.

- Depository banks
  - Description: Failure of CBL would disrupt the business of depository banks and may impact their income stream.
  - Systemic impact: Limited

- Local CSDs
  - Description: Failure of CBL would disrupt services of local CSDs to their clients
  - Systemic impact: Limited

- CCBs
  - Description: Failure of CBL would disrupt the business of CCBs and may impact their income stream.
  - Systemic impact: Limited

- Central banks
  - Description: Failure of CBL would limit central banks in execution of credit operations. Central bank will be unable to use collateral services of CBL as their securities are stuck in their accounts. This may impact global financial markets. Central banks also represent 75 percent of lenders in ASL+ service.
  - Systemic impact: Significant. Credit operations amount to billions EUR on a daily basis.
  - Mitigation tools: Use of alternative settlement systems.

*Source: cr17260 - Appendix I. Systemic Interdependenc*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17260.pdf_