## 1belea2023012 ## Source details **Canonical URL:** [1belea2023012](https://www.imf.org/-/media/files/publications/cr/2023/english/1belea2023012.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1belea2023012.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1belea2023012.pdf.json) --- ### Overview and role of Euroclear Bank (EB) - EB is an international central securities depository (ICSD) domiciled in Belgium that issues and provides custody and settlement services for international bonds (Eurobonds) and settles/holds a wide range of domestic and internationally traded securities. - Key statistics: - Value of securities held on EB’s books in 2021: EUR 17.1 trillion - Settlement turnover in 2021: 147 million transactions - Settlement turnover value in 2021: EUR 653 trillion - Number of participants: over 1700 - Participants include: over 100 central banks, 31 CSDs, and 16 CCPs - Currencies eligible in the system: over 100; of these, 47 are available for settling securities against payment - EB provides intraday fully collateralized uncommitted credit facilities to participants. - EB shares the ICSD role primarily with Clearstream Banking Luxembourg (CBL). ### Group structure and service provision - Ownership chain and group entities: - EB ← ESA ← Euroclear Investments SA ← Euroclear AG ← Euroclear Holding SA/NV. - Euroclear Group includes six national CSDs: Euroclear Finland, Euroclear Sweden, Euroclear UK & International, Euroclear Belgium, Euroclear France, and Euroclear Nederland. - ESA functions: - Provides critical services (including risk management and information technology) and sets group-level strategic objectives; CSDs set entity-specific objectives aligned with group-level objectives. - ESA designated as a support institution under Belgian law; approved as a financial holding company in 2022. - Global footprint and connectivity: - EB maintains three branches (Hong Kong, Krakow, Tokyo) and five representative offices (Beijing, Dubai, Frankfurt, New York, Singapore); Singapore representative office envisaged to become a branch. - Via links, EB connected to more than 50 foreign CSDs. - Euroclear Group totals: holds EUR 37.6 trillion in assets, 1.7 million securities in its books, conducts 295 million transactions per year with a value of EUR 1 quadrillion; over 2,000 clients. ### Assessment against PFMI and ratings - PFMI assessment (relevant to a CSD and SSS): - Observed: 18 principles (Principles 1, 2, 4, 5, 7, 8, 9, 10, 11, 12, 13, 15, 16, 18, 20, 21, 22, 23) - Broadly observed: 3 principles — Principles 3, 17, and 19 - Not applicable: Principles 6, 14 and 24 - Responsibilities of authorities: - Authorities observe all five Responsibilities (A–E): Assessment Category: Observed for Responsibilities A, B, C, D, E. ### Key findings and deficiencies (operational, risk, governance) - Operational risk and cyber security: - Improvements made since onboarding of current CISO, but critical deficiencies remain in key operational risk elements. - Priority areas: effectiveness of embedded security controls, asset management, and identity and access management (IAM). - Boards of EB and ESA need to provide sufficient drive and steer to fill IT and information asset management gaps and fully implement the CISO roadmap. - Need for improved cooperation and communication between the risk management function and relevant management and governance bodies of EB and ESA. - Participant client transparency and AML/KYC (Principle 19): - EB collects additional information and performs enhanced due diligence only for underlying clients of large direct participants (Key Participants and Large accounts), not systematically for smaller direct participants. - EB lacks basic information on underlying clients of smaller direct participants that could drive significant activity and create risks in case of participant default. - EB is overly reliant on participant disclosure to manage risks from tiered participation arrangements. - Business continuity and default management: - Well-defined rules and procedures, but testing is weak. - Shortcomings: no simulation exercises in testing; no joint testing with linked FMIs and relevant intermediaries; several participants noted lack of rigor in testing. - Recommendations include conducting simulation exercises, developing a wide range of potential scenarios, involving more stakeholders, sharing test summaries with entire customer base, and involving participants in regular review of participant default procedures. - Interoperability with CBL: - EB and CBL secure mutual credit risk exposure via a Letter of Credit (LoC). - The LoC is not sufficient to cover settlement transactions and income/redemption payments effected over the link. - EB and CBL use automated and manual intraday interim payment processes; further automation is recommended to prevent settlement blockages and ensure smooth processing. ### Regulatory, supervisory, and oversight assessment - Legal and institutional framework: - EB licensed by the NBB as a CSD under the Central Securities Depository Regulation (CSDR) in December 2019. - EB licensed as a Belgian credit institution since July 2000 under the Belgian Banking Act (transposes CRD and BRRD). - EB subject to Commission Delegated Regulations, ESMA and EBA RTS/ITS, Settlement Finality Directive (SFD), Financial Collateral Directive, and Belgian Royal Decrees (e.g., Royal Decree of 26 September 2005). - National authorities and resources: - NBB designated as sole national competent authority (NCA) for EB under Article 11 of the CSDR; NBB responsible for authorization/supervision and oversight. - NBB Post-trade Group staff: 13 FTE. - In 2022, about 75% of Post-trade Group resources allocated to Euroclear entities. - FSMA Markets and Post-Trading division staff as of February 2023: 4 FTE. - Cooperation and oversight: - Multilateral Oversight Group (MOG) includes: United States Federal Reserve Board of Governors; Federal Reserve Bank of New York; Bank of England; Bank of Japan; Reserve Bank of Australia; ECB (observer). - EB MOG uses the CPSS-IOSCO PFMI for oversight. - Authorities’ ratings and recommendations: - Authorities observe all five Responsibilities. - NBB recommended to formalize process for approving and assessing action plans, and consider onboarding additional staff given large oversight scope. ### Resolution, sanctions, frozen assets, and contingency planning - Resolution planning: - Resolution plan for EB finalized but not yet fully operational; preferred resolution strategy decided. - It is envisaged that EB will be resolvable by 2024. - Recommendation: NBB as NRA should ensure resolution plan is fully operationalized with appropriate FMI contingency and operational continuity plans that consider interrelated nature of Euroclear Group CSDs and ESA. - Sanctions and frozen assets: - EB implemented applicable international sanctions following the Russian invasion of Ukraine, resulting in freezing significant amounts of securities and cash balances. - Cash proceeds from income and redemption payments on securities held for sanctioned entities are blocked by EB but appear on its balance sheet. - Given the high interest rate environment, Euroclear earns significant revenues from investment of frozen cash balances, creating increased operational and litigation risks. - Potential consequences of seizure actions include: financial stability implications; disruption to financial markets; reputational risk for EB; risk to EB’s solvency if legal actions to collect frozen assets create financial obligations that cannot be met due to asset seizure. - Recommendation: any contemplated seizure actions should consider these implications and financial stability risks. ### Priority recommendations (summary) - Strengthen operational risk management and cyber resilience by: - Fully implementing the CISO roadmap and embedding effective security controls. - Improving asset management and identity and access management. - Enhancing cooperation between risk management and governance bodies at EB and ESA. - Improve transparency on direct participants’ underlying clients by establishing a mechanism to gather basic client information beyond large direct participants; consider explicit participant-level thresholds to trigger enhanced data collection. - Enhance business continuity and default management testing by: - Conducting simulation exercises and joint testing with linked FMIs and intermediaries. - Developing diverse testing scenarios and sharing test summaries with the customer base. - Involving participants in regular reviews of default procedures. - Automate intraday interim payment processes with CBL to reduce settlement blockage risk and address limitations of existing Letter of Credit coverage. - Operationalize EB’s resolution plan with full consideration of group interdependencies to ensure continuity of Euroclear Group CSDs; achieve resolvability by 2024. ### Assessment methodology and overview of the payment, clearing, and settlement landscape - Information sources: - EB self-assessment reports against 21 PFMI Principles; authorities’ self-assessment against 5 Responsibilities. - Additional documentation: EB and authorities’ websites, national laws, regulations, rules and procedures; detailed discussions with NBB, FSMA, ECB, EB representatives and market participants (majority in-person in Brussels during March 2023). - Ratings framework: - Based on CPSS-IOSCO Disclosure Framework and Assessment Methodology; ratings reflect gravity and urgency of remedial needs and assessor judgment. - Market infrastructure context: - Belgium hosts several FMIs and CSPs including EB, Mastercard Europe, and SWIFT. - TARGET2-Securities (T2S) settled just over 187 million transactions with a value of EUR 178 trillion in 2021. - EB operates its own SSS and signed the T2S Framework Agreement in December 2021; connection envisaged to be live in 2025. - EB currently settles in commercial bank money and plans to offer EUR central bank money settlement once T2S connection operational. ### Liquidity risk, settlement finality, securities safekeeping, and default management - Liquidity risk measurement and resources: - EB maintains sufficient qualifying liquid resources (QLR) in EUR, DKK, NOK, RON, USD, and GBP, with diversified high-quality counterparties and central bank deposits where applicable. - QLR sizing via rigorous stress testing with intraday and multi-day horizons and regular backtests. - Pre-Arranged and highly reliable Funding Arrangements (PAFA) include committed swap lines for all currencies with exposure, and committed and uncommitted repo. - EB maintains own QLR in the form of committed unsecured facilities for EUR, GBP, USD, and JPY. - Contingency Funding Plan in place. - Settlement finality and money settlement: - Finality governed by Settlement Finality Directive and Belgian Settlement Finality Law; finality rules set in EB’s T&Cs and OPs. - EB conducts money settlement in commercial bank money and acts as its own settlement bank for the SSS it operates. - For EUR, central bank money settlement within Euroclear Bank can currently only be theoretically offered to participants with accounts at the NBB; necessary IT system not in place. - EB signed T2S Framework Agreement in 2021; connection to be envisaged in 2025 with ECMS first step launching April 2024. - Securities safekeeping and DvP: - EB’s settlement services based on immobilized or dematerialized securities; physical securities represent less than one percent of total settlement activity. - Securities settlement within the Euroclear System takes place on a DvP Model 1 basis. - Default management: - EB has effective and well-defined rules and procedures for managing participant default; processes and procedures reviewed and tested at least annually. - Shortcomings: insufficient participant involvement in reviews; testing perfunctory and lacking simulation exercises; test summaries shared only with User Committee members. ### Credit risk framework, collateral and investment strategy - Credit risk sources: - From participants, issuers, cash correspondent banks, treasury counterparties, and settlement banks. - Participant credit facilities: - Intraday, uncommitted, fully collateralized; collateral pledged and held in the Euroclear System. - Facilities are communicated in USD; no facility for currencies where EB has no liquidity capacity. - Collateral valuation and haircuts: - Internally-developed model protects EB against a drop in prices with a confidence level of 99% over a 10 days period (Value-at-Risk). - Currency margin: 10-days VaR based on FX volatilities; minimum currency margin currently set at 5% (e.g., for EUR and USD). - Daily back-testing and model reviews; Model Validation team reviews at least annually. - Collateral and credit controls: - Concentration limits, family and entity credit limits, sanctioning rates, right to appropriate pledged securities, general pledge (with discretionary waivers), statutory lien under Belgian law. - Collateral stress tests include scenarios such as default of several issuers, country distress, currency depreciation, interest rate shock, stock indices shock. - Investment and capital for RRW: - EB holds high-quality assets to cover general business risk and maintains an RRW Plan estimating orderly wind-down would take no more than six months. - CSDR minimum requirement corresponding to “three months of operating expenses” used to floor business risk capital charge; EB holds “six months of operating expenses” in liquid net assets funded by equity for wind-down, added on top of Pillar 2 requirements. - Assessment of Principle 4 and Principle 15: Observed. ### Operational risk management and cyber resilience - Framework and architecture: - Operational risk taxonomy comprehensive; Information Security Management System aligned with ISO27001:2013 and ISO27002 controls; cyber resilience approach follows NIST CSF. - IT resilience supported by three data centers: two synchronously mirrored in real-time; the third receives data asynchronously; business resumption target RTO for critical activities: 2 hours. - Operational reliability remains well above 99 percent. - Deficiencies and testing: - Critical deficiencies remain in management of key operational risk elements; focus areas are embedded security controls, asset management, and identity and access management. - Testing of non-IT business continuity plans could be more robust and should include simulation exercises and testing with linked FMIs and settlement agents. - Recommendations: - CISO to focus on fully-embedded security controls; Boards of EB and ESA to prioritize IT and information asset management; enhance sharing of test results beyond User Committee. ### Access, links, interoperability and contingency for indirect links - Access and participation: - Participation requirements are fair, open, publicly disclosed; pre-admission criteria and ongoing risk-based monitoring in place. - EB does not currently gather basic information on all underlying clients that account for a significant proportion of activity with respect to the direct participants through which they access the FMI. - EB collects enhanced information for Key Participants and Large accounts, but lacks participant-level thresholds for smaller direct participants. - Links and intermediaries: - EB maintains almost 30 direct links, over 20 indirect links, and one interoperable link (Bridge) with Clearstream Banking SA — LU. - Currently, 85 percent of EB’s assets are held in a direct CSD account. - For indirect CSD links, majority use a single settlement agent by number; most indirect settlement turnover activity is secured via two settlement agents by activity volume. - Recommendation: ensure indirect CSD links are secured using at least two intermediaries where practical and available; automate interim intraday payments across EB–CBL Bridge. - Appendix: extensive list of EB links and FMIs participating in the Euroclear System (selected entries retained in source). ### Efficiency, communication standards and disclosure - Communication and participant support: - EB publishes T&Cs, Operating Procedures, CPMI‑IOSCO Disclosure Framework, ISAE 3402, Pillar III reports and other materials; disclosure predominantly in English. - User Committee established; EB conducts annual client surveys and offers training (in-person and online). - Participants requested improvements to EasyWay; recommendation to offer API access to EasyWay functions. - Standards: - Uses SWIFT/ISO standards for messaging; ISIN for securities identification; BIC for counterparties. - Publication frequency and tariffs: - Statistical publication frequency: quarterly. - Advance publication target for tariff changes: at least 10 business days. ### Authorities’ responsibilities, cooperation and priorities - Legal and supervisory basis: - NBB Organic Law of 22 February 1998; Law of 2 August 2002; Royal Decree of 26 September 2005; Belgian Banking Act of 25 April 2014. - NBB designated as financial sector authority for critical infrastructure protection under Law of 1 July 2011. - Cooperation arrangements: - NBB chairs EB MOG; bilateral MoUs with BoE, BCL, CSSF, BOJ, SEC, HKMA and others; EB MOG currently meets twice a year. - Prioritized recommendations to authorities: - NBB to continue operationalizing resolution plans and consider onboarding additional staff (NT/MT timeframes). - NBB to formalize process for approving action plans following inspections and evaluations (NT). - FSMA to enhance disclosure of FMI activities in annual report and provide timelier English translations (MT/LT). - Authorities’ responses (selected): - NBB notes cyber resilience roadmap progress (2021–2022) and stresses need to maintain cyber resilience as top-of-mind across boards; NBB welcomes further guidance on simulation exercises for business continuity testing. *Source: IMF assessment of Euroclear Bank (excerpts from 1belea2023012).* ### EXECUTIVE SUMMARY __________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Overview and role of Euroclear Bank (EB) - EB is an international central securities depository (ICSD) domiciled in Belgium that issues and provides custody and settlement services for international bonds (Eurobonds) and settles/holds a wide range of domestic and internationally traded securities. - Key statistics: - Value of securities held on EB’s books in 2021: EUR 17.1 trillion - Settlement turnover in 2021: 147 million transactions - Settlement turnover value in 2021: EUR 653 trillion - Number of participants: over 1700 - Participants include: over 100 central banks, 31 CSDs, and 16 CCPs - Currencies eligible in the system: over 100; of these, 47 are available for settling securities against payment - EB provides intraday fully collateralized uncommitted credit facilities to participants. - EB shares the ICSD role primarily with Clearstream Banking Luxembourg (CBL). ### Group structure and service provision - EB is directly owned by Euroclear SA/NV (ESA), a financial holding company that directly owns all CSDs in the Euroclear Group. - The Euroclear Group includes six national CSDs: Euroclear Finland, Euroclear Sweden, Euroclear UK & International, Euroclear Belgium, Euroclear France, and Euroclear Nederland. - ESA provides critical services (including risk management and information technology) and sets group-level strategic objectives; CSDs set entity-specific objectives aligned with group-level objectives. - Ownership chain: EB ← ESA ← Euroclear Investments SA ← Euroclear AG ← Euroclear Holding SA/NV. ### Assessment against PFMI - EB was assessed against the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) relevant to a CSD and SSS. - Overall observance: - In observance of 18 principles - In broad observance of 3 principles: Principles 3, 17, and 19 - Strengths noted: - Experienced FMI with professional staff - Strong legal basis; clear and transparent rules and procedures - Transparent operations with abundant public information and secure portal access for participants and stakeholders ### Key findings and deficiencies (operational, risk, governance) - Operational risk and cyber security: - Improvements made since onboarding of current CISO, but critical deficiencies remain in key operational risk elements. - Priority areas: effectiveness of embedded security controls, asset management, and identity and access management (IAM). - Boards of EB and ESA need to provide sufficient drive and steer to fill IT and information asset management gaps and fully implement the CISO roadmap. - Need for improved cooperation and communication between the risk management function and relevant management and governance bodies of EB and ESA. - Participant client transparency and AML/KYC: - EB currently collects additional information and performs enhanced due diligence only for underlying clients of large direct participants (not systematically for smaller direct participants). - EB lacks basic information on underlying clients of smaller direct participants that could drive significant activity and create risks in case of participant default. - Recommendation: develop a mechanism to gather basic information on such underlying clients that does not rely solely on periodic direct participant disclosures. - Business continuity and default management testing: - EB has well-defined rules and procedures, but testing is weak. - EB does not employ simulation exercises in testing, nor does it conduct joint testing with linked FMIs and relevant intermediaries facilitating indirect linkages. - Several participants noted lack of rigor in testing. - Recommendations: - Conduct simulation exercises based on well-defined scenarios. - Develop a wide range of potential scenarios and involve a greater number of key stakeholders. - Share a summary of test results among the entire customer base. - Involve participants in regular review of participant default procedures. - Interoperability with CBL: - EB and CBL secure mutual credit risk exposure via a Letter of Credit (LoC). - The LoC is not sufficient to cover settlement transactions and income/redemption payments effected over the link. - EB and CBL use automated and manual intraday interim payment processes; further automation is recommended to prevent settlement blockages and ensure smooth processing. ### Regulatory, supervisory, and oversight assessment - EB is subject to effective regulation, supervision, and oversight. - The assessment includes the responsibilities of the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA). - Findings: - The activities and powers of the NBB (as EB’s sole national competent authority under CSDR) and the FSMA are well-defined in national laws, Belgian Royal Decrees, and EU regulation. - Authorities are deemed to have sufficient knowledge and expertise to carry out regulatory, supervisory, and oversight activities. - The NBB and FSMA observe all five Responsibilities of authorities. ### Resolution and contingency planning - Resolution planning: - The resolution plan for EB has been finalized but is not yet fully operational. - The preferred resolution strategy has been decided. - Recommendation: The NBB, as the National Resolution Authority (NRA), should ensure the resolution plan is fully operationalized with appropriate FMI contingency and operational continuity plans that consider the interrelated nature of the Euroclear Group CSDs and ESA. - It is envisaged that EB will be resolvable by 2024. - Sanctions, frozen assets, and potential seizure risks: - EB implemented applicable international sanctions following the Russian invasion of Ukraine, resulting in freezing significant amounts of securities and cash balances. - Cash proceeds from income and redemption payments on securities held for sanctioned entities are blocked by EB but appear on its balance sheet. - Given the high interest rate environment, Euroclear earns significant revenues from investment of frozen cash balances, creating increased operational and litigation risks. - Any action to confiscate funds sitting at Euroclear could have unintended consequences: - Financial stability implications - Disruption to the smooth functioning of financial markets - Reputational risk for EB - Risk to EB’s solvency if legal actions to collect frozen assets create financial obligations that cannot be met due to asset seizure - Recommendation: Any contemplated seizure actions should consider these implications. ### Priority recommendations (summary) - Strengthen operational risk management and cyber resilience by: - Fully implementing the CISO roadmap and embedding effective security controls - Improving asset management and identity and access management - Enhancing cooperation between risk management and governance bodies at EB and ESA - Improve transparency on direct participants’ underlying clients by establishing a mechanism to gather basic client information beyond large direct participants - Enhance business continuity and default management testing by: - Conducting simulation exercises and joint testing with linked FMIs and intermediaries - Developing diverse testing scenarios and sharing test summaries with the customer base - Involving participants in regular reviews of default procedures - Automate intraday interim payment processes with CBL to reduce settlement blockage risk and address limitations of the existing Letter of Credit coverage - Operationalize EB’s resolution plan with full consideration of group interdependencies to ensure continuity of Euroclear Group CSDs; achieve resolvability by 2024 *Source: IMF assessment of Euroclear Bank (EXECUTIVE SUMMARY).* ### 15. This assessment is based on various sources of information. EB provided the assessor ### Assessment Methodology and Overview of the Payment, Clearing, and Settlement Landscape ### Assessment methodology and information sources - Assessment based on self-assessment reports and responses: - EB provided the assessor with a self-assessment report against the 21 relevant Principles of the PFMI and responses to related questions and data requests. - EB’s authorities provided a self-assessment report against the 5 Responsibilities of authorities. - Additional information reviewed: - Relevant documentation, including information available on the websites of EB and its authorities, national laws, regulations, rules and procedures governing EB’s systems and operations, and other available material. - Detailed discussions with authorities (NBB, FSMA, and ECB), representatives from EB, and relevant market participants; the vast majority of discussions took place in person in Brussels during March 2023, with several virtual meetings during this time. - Ratings framework: - Ratings based on the CPSS-IOSCO Disclosure Framework and Assessment Methodology. - Ratings reflect gravity and urgency of remedial needs, assessor judgment on type and material impact of risks/shortcomings, and conditions at the time of the assessment. - A positive assessment does not imply absence of relevant risks related to the PFMI Principles and Responsibilities. ### Institutional and market structure — key entities and platforms - Belgium hosts several FMIs, custodians, payment service providers (PSPs), and critical service providers (CSPs), including internationally systemically important entities: - Euroclear Bank (EB), Mastercard Europe, and SWIFT. - Euroclear Group composition: - Euroclear Holding SA/NV (ultimate parent) and the Euroclear Group CSDs: the ICSD (Euroclear Bank) and six national CSDs — Euroclear Finland, Euroclear Sweden, Euroclear UK & International, Euroclear Belgium, Euroclear France, and Euroclear Nederland. - Euroclear Belgium, France, and the Netherlands operate under the single settlement platform ESES (Euroclear Settlement of Euronext-zone Securities). - CSDs operating in Belgium: - Euroclear Bank (ICSD) — international bonds (Eurobonds) and a range of foreign securities. - Euroclear Belgium — primarily Belgian equities: - In 2021, held EUR 219 billion in assets and settled 2.7 million transactions with a value of EUR 722 billion. - NBB-SSS (owned/operated by the NBB) — public sector debt and private sector debt: - In 2021, held approximately EUR 727 billion in assets and settled 600,000 transactions with a total value of EUR 11.5 trillion. - Other notable domiciled entities: - Bank of New York Mellon (European banking entity) — in 2021 held EUR 3.3 trillion in assets. - Mastercard Europe — designated by the ECB in 2020 as a systemically important payment system (SIPS); operates the Mastercard Clearing Management System; one of five systems designated SIPS alongside T2, EURO1, STEP2, and CORE-FR. - SWIFT (headquartered in Belgium) — over 200 countries and 11,000 institutions connected; in 2021 facilitated transmission of 10.6 million financial messages. ### Common infrastructures and volumes - TARGET2-Securities (T2S): - T2S is a common securities settlement platform owned, operated, and overseen by the Eurosystem (NBB part of Eurosystem). - Facilitates cross-border transfer of cash and securities; money settlement in T2S takes place in central bank money; euro and Danish krone available for settlement. - Currently, 20 countries and 19 CSDs are connected to T2S. - In 2021, T2S settled just over 187 million transactions with a value of EUR 178 trillion. - Euroclear Bank currently operates its own SSS and does not currently outsource settlement to T2S (forthcoming connection referenced). - Payment systems underpinning Belgian payments infrastructure: - T2 (successor of TARGET2 as of March 2023) — Eurosystem’s new wholesale payment system with an RTGS and collateral management tool; settles monetary policy and interbank payments. - Centre for Exchange and Clearing (CEC) — Belgium’s retail payment system processing domestic payments (credit transfers, instant payments, direct debits, card payments, checks): - In 2021, the CEC processed 1.6 million payments with a value of EUR 1.4 trillion. - Domestic debit card scheme: Bancontact. - Global PSP Worldline domiciled in Belgium. ### Overview of Euroclear Bank (EB) — services, scale, and connectivity - Core services: - ICSD and operator of an SSS; provides notary and central maintenance services. - Settlement services for internationally traded securities (debt instruments, equities, convertibles, warrants, investment funds, ETFs, MMIs, depositary receipts). - Securities settlement offered on a delivery versus payment (DvP) model 1 basis and free of payment (FoP). - EB settles in commercial bank money and in its own books. - Central maintenance services: securities accounts, corporate actions processing. - Interconnectivity and market role: - Highly interconnected global FMI with direct connections to exchanges, MTFs, and other FMIs (including CBL, LCH Ltd, and Eurex Clearing). - Over 1,700 entities are participants of EB and around 100 currencies are eligible in the system: - Of approximately 100 eligible currencies, 47 are available for settling securities against payment. - Majority of securities deposits and settlements denominated in EUR, USD, and GBP (in decreasing order). - EB considered one of the largest CSDs globally: - In 2021, EB held EUR 17.1 trillion in value of securities deposits on behalf of customers: - Approximately 50 percent in EUR, 28 percent in USD, and 10 percent in GBP. - International bonds accounted for 51 percent of the value of held securities. - Settlement turnover in 2021: 147 million transactions with a value of EUR 653 trillion: - By turnover value, EUR accounted for 65 percent, USD for 15 percent, and GBP for 10 percent. - Settlement service types and links: - Internal settlement among (direct and indirect) participants within EB’s SSS. - External settlement in local markets at foreign CSDs via direct links (EB as direct participant) or indirect links (through a settlement agent), settling using central bank money or commercial bank money via cash correspondents. - Interoperable link with Clearstream Banking Luxembourg (CBL) to facilitate settlement between EB and CBL participants. - Participant composition and ancillary services: - Participants include over 100 central banks, 31 CSDs, 16 CCPs, commercial banks, broker-dealers, and investment banks. - EB provides banking-type ancillary services (as a licensed credit institution): money transfer services, uncommitted and fully collateralized credit for smooth settlement, treasury services, liquidity management, general collateral access; maintains relationships with cash correspondent banks. - Non-banking services include new issues, asset servicing (corporate events, proxy voting, market claims, tax services, interest/dividend/redemption payments), securities lending and borrowing, and funds-order processing. - Global footprint: - EB maintains three branches (Hong Kong, Krakow, Tokyo) and five representative offices (Beijing, Dubai, Frankfurt, New York, Singapore); Singapore representative office envisaged to become a branch. - Via links, EB connected to more than 50 foreign CSDs. - EB activity and group totals: - EB is described as the most active CSD globally by deliveries value. - Euroclear Group overall: - Over 2,000 clients, holds EUR 37.6 trillion in assets, 1.7 million securities in its books, and conducts 295 million transactions per year with a value of EUR 1 quadrillion. - EB participants: over 1,700; approx. 100 eligible currencies; 47 available for settlement. ### Governance, group structure, and group services - Ownership and group structure: - Ultimate parent: Euroclear Holding SA/NV (Belgium). - Euroclear AG (Switzerland) wholly owned by Euroclear Holding SA/NV. - Euroclear Investments SA (Belgium) wholly owned by Euroclear AG; provides certain services to the Euroclear Group related to reinsurance and real estate management, issues bonds on behalf of the EG, and indirectly holds investments of the ultimate parent. - Euroclear SA/NV (ESA) directly owned by Euroclear Investments SA; ESA is the direct parent of the seven EG CSDs. - ESA role and supervision: - ESA provides critical services to the Euroclear Group CSDs and sets group objectives and monitors performance; services include risk management, internal audit, human resources, information technology, communication, and compliance. - ESA is designated as a support institution under Belgian law and is subject to authorization and prudential supervision by Belgian authorities. - ESA operates three branches in London, Paris, and Amsterdam and provides services via service level agreements with subsidiaries. - EB monitors ESA performance using quantitative and qualitative KPIs on an annual basis. - Recent acquisition: - In 2021, the Euroclear Group acquired MFEX (a platform for trading and distribution of funds); ESA directly owns MFEX Holding AB (Sweden) which owns MFEX Mutual Funds Exchange AB and its subsidiaries/branches/representative office. ### Regulatory, supervisory, and oversight framework - EU and Belgian licensing and regulatory framework: - EB licensed by the NBB as a CSD under the Central Securities Depository Regulation (CSDR) in December 2019. - Pursuant to Article 16 of the CSDR and procedure in Article 17, the NBB authorized EB to provide core CSD services (initial recording/notary service, providing/maintaining securities accounts, operating a securities settlement system — Section A of CSDR Annex) and other non-banking-type and banking-type ancillary services (Sections B and C of CSDR Annex). - EB subject to Commission Delegated Regulations, regulatory technical standards by ESMA and EBA, the Settlement Finality Directive (SFD), the Financial Collateral Directive, and related Belgian Royal Decrees. - EB has been a licensed credit institution in Belgium since July 2000 under the Belgian Banking Act (transposes CRD and BRRD of the EU). - National authorities and responsibilities: - The NBB and, to a lesser extent, the FSMA are the designated national authorities for EB; they cooperate and consult in authorization and supervision of CSDs in Belgium, supported by a 2017 protocol. - NBB is the competent authority for authorization and supervision of CSDs in Belgium and oversight of SSSs: - NBB Organic Law of 22 February 1998 grants NBB authorization/supervisory powers (Article 36/26/1) and oversight of SSSs (Article 8). - NBB designated as the sole national competent authority (NCA) for EB under Article 11 of the CSDR, responsible for EB’s compliance with the CSDR and related regulatory/implementing technical standards, including obligation to conduct regular review and evaluation of EB per Article 22. - NBB also responsible for authorizing and supervising CSD support institutions (such as ESA) per NBB Organic Law and Belgian Royal Decree of 26 September 2005. *Content unit: 1belea2023012 - 15* ### 42. As a licensed credit institution, EB is also subject to the prudential supervision of the ### 1belea2023012 - 42. As a licensed credit institution, EB is also subject to the prudential supervision of the ### Prudential supervision and oversight of EB - EB is licensed as a credit institution and a CSD; it is subject to prudential supervision by the NBB. - The NBB and ECB supervise credit institutions in Belgium under the Belgian Banking Act and the Single Supervisory Mechanism (SSM) Regulation of the EU (EU Regulation 1024/2013). - EB has been designated as a Less Significant Institution (LSI) by the ECB and is under the direct supervision of the NBB. - The NBB is also the National Resolution Authority (NRA) for EB and all other LSIs in Belgium. - The FSMA’s supervisory powers focus on investor protection and the proper functioning, integrity, and transparency of financial markets, with powers in relation to Belgian CSDs set out in the Law of 2 August 2002 (see Article 23bis and Article 23ter). ### Authorities involved, cooperation arrangements, and international oversight - Relevant authorities consulted under the CSDR review processes for EB include: - The Eurosystem (represented by the NBB) - Central banks of Denmark, Norway, and Romania - Other authorities involved and/or informed include ESMA, the EBA, authorities in Luxembourg (notably regarding the interoperable link between EB and CBL), Ireland, and competent authorities of EU Member States for which EB is considered of substantial importance under the CSDR. - Due to EB’s global systemic relevance—and in accordance with PFMI Responsibility E—additional authorities are consulted. The principal multilateral arrangement is the Multilateral Oversight Group (MOG), whose members include: - United States Federal Reserve Board of Governors - Federal Reserve Bank of New York - Bank of England - Bank of Japan - Reserve Bank of Australia - ECB (as observer) - The MOG uses the CPSS-IOSCO PFMI as the basis for oversight assessment of EB. ### Sanctions, frozen assets, and associated risks - Sanctions and countersanctions from the Russian invasion of Ukraine have resulted in large amounts of frozen assets on EB’s books. - EB states it has implemented all applicable international sanctions, resulting in the freezing of significant amounts of securities and cash balances. - Cash proceeds from income and redemption payments on securities held by sanctioned entities are blocked by EB and appear on its balance sheet. - Consequences noted: - EB’s related growing balance sheet, combined with the current high interest rate environment, have led to large profits for EB to date. - EB is exposed to increased operational and litigation risks. - Any confiscation or misuse of these assets—or revenues therefrom—could pose a serious risk to EB’s functioning as an FMI and impact global financial stability and market functioning. - Legal action to retrieve frozen assets and related interest earnings could create financial obligations not able to be met by EB in case of seizure of interest earnings or underlying assets. - Actions beyond standard sanction measures should consider potential responses from Russia that might impact EB, potentially affecting EB’s credit rating or disrupting services to participants and linked FMIs. - Critical services at risk include custody, settlement, central maintenance for international bonds and foreign securities, provision of links to CSDs worldwide, and custody services for other FMIs (including collateral held by CCPs). - Policy implication: Any actions affecting frozen assets and interest earnings should carefully consider financial stability implications and ensure EB can continue to provide critical services. ### Major changes, reforms, and initiatives (selected) - T2S and ECMS: - December 2021: EB signed the T2S Framework Agreement to become a T2S CSD. - Connection to T2S is envisaged to be live in 2025. - First step: connect EB to the Eurosystem Collateral Management System (ECMS), which will launch in April 2024. - The ECMS will replace national systems and the TARGET2-T2S consolidation went live in March 2023. - CSDR Refit initiative: - Ongoing review through 2023; potential changes include the settlement discipline regime, thresholds for banking-type ancillary services, the review and evaluation process, and establishment of CSD supervisory colleges. - Most of the CSDR’s settlement discipline regime provisions came into force in February 2022. - UK recognition: - NBB and Bank of England agreed on a new MoU to facilitate EB’s recognition as a non-UK CSD under the UK CSDR. - Article 25 of the UK CSDR requires a cooperation arrangement with the home authority prior to recognition; a new MoU reflects BoE’s responsibilities for recognition and monitoring. - As of May 2023, EB is a recognized third country CSD under the UK CSDR. - Belgian Banking Act and CRD/CRR: - Revisions to the Belgian Banking Act in 2021 reflect revised Capital Requirements Directive and Regulation of the EU. - New requirement for approval and supervision of financial holding companies led to ESA—the direct parent of EB—being approved as a financial holding company in 2022. - The sixth revision of the Capital Requirements Directive (and third revision of the Capital Requirements Regulation) is ongoing and expected to come into force by the beginning of 2025. ### Fintech, DLT, and Euroclear Group digital initiatives - EU DLT Pilot Regime: - Implemented in March 2023 as a regulatory sandbox for DLT in FMIs. - ESMA published guidelines in December 2022 for authorization to operate market infrastructure based on DLT; temporary exemptions up to six years may be granted. - Belgian law of 2021 permits CSDs and authorized account holders to hold securities using secure electronic registration mechanisms, including DLT. - EB has launched a DLT project (not within the EU DLT Pilot Regime). - Euroclear Group ambitions and investments: - Plans for an open, shared platform to provide data-enabled services to issuers, issuer agents, broker-dealers, CSDs, custodians, and investors to reduce bilateral fragmentation. - ESA has taken majority stakes in Taskize, Greenomy, Quantessence, and Acadiasoft (majority stake pending); ESA has also granted loans to ImpactCube, Goji, Fnality, and Scorpeo. - Emerging technology initiatives: - Euroclear France participated in a BdF CBDC experiment launched in March 2020 (settlement of French sovereign debt securities against a CBDC on DLT). - EB, in partnership with R3 Corda, has launched an internal project to develop a new DLT platform for issuing native digital Eurobonds. ### Summary assessment — Organization, governance, and risk management (Principles 1-3, 4, 5, 7) - Legal and licensing framework: - EB is licensed as a CSD under the EU CSDR and as a Belgian credit institution under the Belgian Banking Act; subject to CRR and CRD. - CSDR underpins EB’s core services and authorizes non-banking-type and banking-type ancillary services. - Rules, procedures, and enforceability: - EB’s main documentation (Terms and Conditions and Operating Procedures) governed by Belgian law set participation requirements and rules for collateral, credit facility, default procedures, asset protection, settlement finality, dematerialization and immobilization. - EB carries out legal analyses before providing services in outside jurisdictions to ensure enforceability and mitigate conflict of laws risks. - Governance: - EB Board defines and supervises general policy and strategy and is supported by advisory committees (audit, risk, remunerations and nominations, governance). - Management Committee is responsible for general management of the (I)CSD. - A User Committee has been established as required by CSDR. - Board members have appropriate skills, are subject to supervisory approval, and their performance is regularly assessed. - Deficiency: Insufficient steering and definition of IT and information asset management at Board level; EB and ESA must prioritize management of IT-related risks. - Risk management framework: - Largely comprehensive with tools, policies, procedures, and systems to identify, measure, monitor, and manage credit, liquidity, market, legal and compliance, fraud, business, operational, and ICT security risks. - EB maintains a Recovery, Restructuring, and Orderly Wind-Down (RRW) Plan annually; resolvability remains a work stream with the NBB. - Improvements in Board involvement: - Recent initiatives include an updated cyber and IT risk appetite (July 2023), new IT and cyber dashboards and indicators, and regular Board review of technology strategy and roadmap delivery. - Substantial additional work remains to strengthen IT risk management controls and elevate IT risk management as a top Board and Management Committee priority. ### Credit and liquidity risk specifics - Credit risk framework: - EB is exposed to credit risk from participants, issuers, cash correspondent banks, treasury counterparties, and settlement banks. - Credit facilities are uncommitted and fully collateralized; credit is granted only for currencies with adequate liquidity capacity. - Exposures to cash correspondents and settlement banks are mitigated through central bank accounts and managed to remain within EB’s risk appetite. - End-of-day participant cash positions are invested in short-term, high-quality securities or placed with suitable counterparties. - Controls include credit limits (including entity group-level), credit reduction initiatives, sanctioning rates, and explicit rules for allocating covered credit losses (participant cash usage, appropriation and liquidation of collateral). - Interoperable link with CBL: - Credit exposure arising from the EB–CBL link is secured by a Letter of Credit (LoC), which is not sufficient to meet redirected transfers of income and redemption payments and settlement activity between the two entities. - Increasing the LoC is not viable; EB and CBL transmit interim, intraday payments to prevent settlement blockages. - Management of interim payments involves manual processes and could be improved via further automation requiring joint EB–CBL effort. - Collateral framework: - EB enforces strict rules on quality and quantity of securities accepted as collateral. - Collateral valuation uses an internally-developed model to set conservative haircuts based on market, country, credit and liquidity risks, aiming to limit procyclicality. - Adequacy of haircuts is assessed using stress testing and backtesting; valuation and haircut models are subject to annual review. - A fully-automated collateral management system includes ex ante measures to prevent breaches of collateral concentration limits in the Financial Risk Policy Handbook. *INTERNATIONAL MONETARY FUND excerpt.* ### 63. EB has tools in place to effectively measure, monitor, and manage its liquidity risk, and ### 1belea2023012 - 63. EB has tools in place to effectively measure, monitor, and manage its liquidity risk, and ### Liquidity risk measurement, monitoring, and management - EB is able to identify, monitor, and manage its liquidity risk in real-time using a range of analytical and operational tools and dashboards. - EB maintains sufficient qualifying liquid resources (QLR) in the relevant currencies for its business—namely EUR, DKK, NOK, RON, USD, and GBP—with a diversified set of high-quality counterparties (including via deposits at a central bank of issue). - EB sizes QLR through rigorous stress testing with intraday and multi-day horizons, as well as regular backtests. - To monetize QLR, EB maintains Pre-Arranged and highly reliable Funding Arrangements (PAFA) through a wide range of facilities, including committed swap lines for all currencies to which it has liquidity exposure, as well as committed and uncommitted repo. - EB maintains own QLR in the form of committed unsecured facilities for the following target currencies: EUR, GBP, USD, and JPY. - These facilities are regularly tested and EB has well-documented procedures for managing the relationship with its liquidity providers. - A Contingency Funding Plan is in place in case of a stress event that threatens EB’s liquidity position. ### Settlement finality and money settlement - Settlement finality is governed by the Settlement Finality Directive of the EU, implemented in Belgium as the Belgian Settlement Finality Law; relevant finality rules for the Euroclear System are laid out in EB’s T&Cs and OPs. - Settlement can take place in real-time, intraday, or overnight within the Euroclear System or across the interoperable link with CBL; external settlement is subject to local rules on settlement and finality. - EB conducts its money settlement in commercial bank money and acts as its own settlement bank for the SSS it operates. - EB determined central bank money settlement is not practical for current operations because of the international nature of its business and its settlement of almost 50 currencies; participants settle directly in the books of EB in commercial bank money, also for EUR. - For EUR, central bank money settlement within Euroclear Bank can only currently be theoretically offered to participants with accounts at the NBB, although the necessary IT system to facilitate the DvP mechanism is not in place. - EB signed the T2S framework agreement in 2021 to become a T2S CSD, currently envisaged for 2025; once operationalized, EB plans to offer participants with accounts at any euro area central bank connected to T2S the option to settle in EUR central bank money. - EB should, to the extent possible, encourage settlement in central bank money for connected participants. - For settlement via links, EB conducts money settlement using central banks and/or a diversified set of cash correspondent banks for risk mitigation purposes. ### Securities safekeeping, settlement arrangements, and DvP - EB’s settlement services are based on immobilized or dematerialized securities; it does not offer settlement of commodities. - EB holds physical securities in a network of depositories in immobilized form; physical securities represent less than one percent of its total settlement activity. - EB applies Belgian and European accounting principles and has intraday controls for cross-border settlement risks. - EB separates its own assets from those of its participants and their underlying clients, and conducts securities movement and securities balance reconciliation on a daily basis. - EB explicitly prohibits overdrafts and debit balances in securities accounts. - EB provides book entry settlement exclusively for securities in immobilized or dematerialized form; protection of participant assets is ensured under Belgian law and relevant European regulation. - Securities settlement within the Euroclear System takes place on a DvP Model 1 basis; the DvP arrangement ensures delivery of securities conditionally upon receipt of cash. The interoperable link between EB and CBL also operates on a DvP basis. ### Default management - EB has effective and well-defined rules and procedures for managing participant default, documented in EB’s T&Cs and OPs, differentiating contractual and financial participant default. - Supplementary documentation includes collateral agreements, conditions governing extension of credit to participants, EB’s insolvency policy, and internal handbooks and playbooks. - All processes and procedures related to default management are reviewed and tested at least annually. - Shortcomings and recommended improvements: - Participants are not sufficiently involved in the review of default management procedures. - Testing of procedures is perfunctory and does not include relevant simulation exercises. - Testing should include simulation of participant resolution, e.g., transfer of underlying client assets to another participant upon instruction. - Test result summaries are currently shared only with members of EB’s User Committee and could be shared more broadly across EB’s client base. ### General business risk, recovery, and orderly wind-down - EB’s Enterprise Risk Management framework covers identification, monitoring, and management of general business risk. - EB’s Positive Assurance Report (PAR) is a primary means to identify, assess and monitor business and strategic risks. - EB holds high-quality assets to cover general business risk; amounts are determined using outputs from statistical modeling and consideration of potential future profit decreases. - EB has a recovery and orderly wind-down plan (RRW) and estimates that executing the plan would take no more than six months. - EB’s dedicated liquid assets, related to the CSDR’s imposed wind-down charge and separate from Pillar 2 requirements, are sufficient to cover current operating expenses for these six months. - The RRW plan is reviewed and updated annually. - If additional capital is required, EB’s Contingency Funding Plan details measures including group-level capital injection and asset restructuring. ### Custody risk, network management, and asset protection - EB conducts due diligence when holding assets with another counterpart to ensure assets are protected and accessible; procedures are outlined in the Network Management Policy Handbook. - Procedures include analysis and continuous monitoring of local legal frameworks, determination of counterpart creditworthiness, evaluation of accounting and risk management practices, and obtaining external legal opinions regarding asset protection and insolvency proceedings. - In business as usual, EB ensures prompt access to securities for all links it operates through straight through processing (STP) channels. - For assets held by EB itself, EB segregates its own assets from those of its participants and their underlying clients; cash deposited with EB is reimbursable upon request. - EB’s investment strategy is subject to stringent criteria, is publicly disclosed, and is in line with CSDR requirements. ### Operational risk and cyber resilience - EB has an operational risk management framework supported by handbooks that define roles and responsibilities; operational reliability remains well above 99 percent. - Cyber resilience approach follows guidelines set out in the U.S. National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). - In 2021, EB participated in the European System of Central Banks (ESCB) Cyber Assessment Survey based on the CPMI-IOSCO Guidance on Cyber Resilience for Financial Market Infrastructures. - IT resilience is supported by three data centers: two synchronously mirrored in real-time; the third receives data asynchronously to ensure continued operations in case of a regional disaster. The effectiveness of this set-up is regularly validated. - Business Resilience Management Policy Handbook details procedures for resumption of critical activities within the two-hour recovery time objective (RTO). - Risk policies and procedures are regularly reviewed and tested. - Identified deficiencies and recommended actions: - Critical deficiencies remain in management of key operational risk elements; substantial efforts are required to address them. - CISO should focus on effectiveness of fully-embedded security controls, asset management, and identity and access management. - Boards of EB and ESA should provide sufficient drive and steer to address critical operational risks. - EB and ESA should prioritize filling gaps in IT and information asset management and continue to implement the CISO roadmap. - Testing of non-IT-related business continuity plans could be more robust and involve a wider range of stakeholders; EB does not conduct continuity testing with linked FMIs nor with settlement agents used for indirect CSD links. - Simulation exercises should be developed for business continuity testing, including scenarios involving unavailability of linked FMIs and insolvency or operational unavailability of settlement agents; test result summaries should be shared more broadly beyond the User Committee. ### Access and links - Access and participation requirements to the Euroclear System are fair, open, publicly disclosed, and subject to continuous compliance monitoring. - Pre-admission criteria include adequate financial resources, operational and technological capacity, legal capacity, internal controls, risk management, and ethical standards; a risk-based approach ensures ongoing compliance. - EB does not currently gather basic information on all underlying clients that account for a significant proportion of activity with respect to all direct participants through which they access the FMI. - EB’s T&Cs allow gathering basic information on indirect participants; EB currently collects additional information and performs enhanced due diligence on underlying clients that have segregated accounts or concentrated activity in an omnibus account and are under large direct participants (Key Participants and those with Large Accounts). - EB does not have participant-level thresholds for triggering basic information gathering for underlying clients of smaller direct participants. - EB is overly reliant on participant disclosure to manage risks from tiered participation arrangements. - EB could develop capacity to increase transparency regarding direct participants’ clients and consider encouraging large underlying clients to have segregated accounts or be subject to enhanced data collection and due diligence. - Links and intermediaries: - EB maintains almost 30 direct links, over 20 indirect links, and one interoperable link. - Currently, 85 percent of EB’s assets are held in a direct CSD account. - For indirect CSD links, EB maintains relationships with one or two settlement agents; by number, the majority of indirect CSD links employ only a single settlement agent, but most indirect settlement turnover activity is secured via two settlement agents. - EB should take steps to ensure all indirect CSD links are secured using at least two intermediaries where practical and available. - The single interoperable link is with CBL; there is scope to improve smoothness of settlement activity and management of LoC consumption across the interoperable link by automating interim intraday payments. - All link arrangements are subject to continuous monitoring and targeted annual reviews and recertification of contractual arrangements. ### Efficiency and communication - EB is effective at meeting participant and market needs, though access to services could be improved. - EB established a User Committee per CSDR requirements as an effective means for participants, issuers, and other FMIs to voice concerns. - Non-User Committee participants generally consider relationship managers and existing communication channels adequate and effective. - EB collects feedback annually via surveys open to its entire client base. - Several participants requested improvements to the web-based tool EasyWay (used alongside SWIFT messaging) for sending settlement instructions and viewing activities and account balances; suggested improvement includes allowing access to tool functionalities via an Application Programming Interface (API). - International standards used: ISO standards via SWIFT for asset servicing and settlement; Bank Identifier Code (BIC) for counterparty identification; International Security Identifier Number (ISIN) for financial instrument identification. *Source: 1belea2023012 - 63. EB has tools in place to effectively measure, monitor, and manage its liquidity risk, and* ### 80. EB has in place clear and comprehensive rules and procedures that promote ### 1belea2023012 - 80. EB has in place clear and comprehensive rules and procedures that promote ### EB transparency, rules, and participant support - The rules of the Euroclear System are laid out in EB’s T&Cs and OPs, which are made available to its participants. - Key information and documents are made public, including the CPMI-IOSCO Disclosure Framework, which is updated every two years. - EB publishes a general description of its business, operations, services, and fees. - EB provides a wide range of training options to its client base, including in-person and online courses, which are continuously expanded. ### Rating summary for Principles - Assessment Category: Observed — Principles 1, 2, 4, 5, 7, 8, 9, 10, 11, 12, 13, 15, 16, 18, 20, 21, 22, and 23 - Assessment Category: Broadly observed — Principles 3, 17, and 19 - Assessment Category: Partly observed — - - Assessment Category: Not observed — - - Assessment Category: Not applicable — Principles 6, 14 and 24 ### Prioritized recommendations for Euroclear Bank (selected items) - Principle(s) 3, 17 - Issue: EB’s IT and information security risk management needs improvement to deal with emerging risks, e.g., cyber threats. - Recommended action: Undertake substantial efforts to improve the comprehensiveness and sufficiency of IT and information security risk management by focusing on effective security controls, and on improving asset management and identity and access management. - Relevant parties: EB, ESA - Timeframe: NT - Principle(s) 2, 3, 17 - Issue: Management of IT and information security risk can be improved at the level of EB management. - Recommended action: EB Board and Management Committee should actively and proactively continue efforts to clearly define and steer the management of IT and information security risk, and ensure that management of these risks remains a priority. - Relevant parties: EB, ESA - Timeframe: (not explicitly stated) - Principle 19 - Issue: EB is too reliant on participant disclosures to properly identify, monitor and manage risks posed by underlying client activity. - Recommended action: Develop capacity to increase transparency regarding the business of direct participants’ clients (e.g., via enhanced information collection of underlying client activity). - Relevant parties: EB - Timeframe: NT - Principle 19 - Issue: EB does not identify, monitor, and manage the risk posed by all underlying clients with significant activity in relation to the direct participants through which they access EB’s services. - Recommended action: Consider explicit participant-level thresholds to trigger enhanced data collection of the activity of underlying clients. - Relevant parties: EB - Timeframe: NT - Principle(s) 13, 17 - Issue: EB does not have robust testing of participant default and business continuity procedures. - Recommended action: Put in place more robust testing of procedures related to business continuity and participant default procedures, including through simulation exercises. - Relevant parties: EB - Timeframe: NT - Principle(s) 4, 20 - Issue: Interim payments between EB and CBL are used regularly to manage consumption of the Letter of Credit and prevent settlement interruptions. - Recommended action: Consider more robust automated processes to facilitate management of interim payments necessary to prevent settlement blockages across the EB-CBL interoperable link. - Relevant parties: EB, CBL - Timeframe: NT - Principle 21 - Issue: Participants find EB’s web-based interface tool, EasyWay, inefficient for monitoring activity and managing interactions. - Recommended action: Improve EasyWay by offering API access to its functions to reduce reliance on a web-based interface. - Relevant parties: EB - Timeframe: MT - Principle 9 - Issue: EB settles in commercial bank money. - Recommended action: Once EB successfully connects to T2S, encourage eligible participants to settle transactions in EUR central bank money and provide an option for and encourage EUR central bank money settlement for CSD links as they become eligible for T2S settlement. - Relevant parties: EB - Timeframe: MT/LT - Principle 20 - Issue: For many indirect CSD links for accessing local markets, EB uses only a single settlement agent. - Recommended action: Investigate having two settlement agents for contingency purposes—either both active or one as backup—where practical and available. - Relevant parties: EB - Timeframe: MT/LT - Principle 3 - Issue: Resolution plans for EB are not yet fully operational. - Recommended action: Continue working on resolvability with the NBB as the National Resolution Authority to fully operationalize resolution strategy plans, including FMI contingency plans and operational continuity. - Relevant parties: EB, NBB - Timeframe: NT - Principle(s) 13, 17 - Issue: EB only shares a summary of participant default and business continuity testing results with members of its User Committee. - Recommended action: Share a summary of participant default and business continuity testing with all participants, not only User Committee members. - Relevant parties: EB - Timeframe: MT - Principle 13 - Issue: EB does not involve its participants in the regular review of its default procedures. - Recommended action: Involve participants in the regular review of default procedures. - Relevant parties: EB - Timeframe: MT ### Summary assessment for authorities (Responsibilities A–E) - EB is subject to effective supervision, regulation, and oversight by the NBB and the FSMA. - Legal and institutional basis: Activities and powers of the NBB and FSMA are well-defined in national laws, Royal Decrees, and EU Regulation (e.g., the CSDR). - Belgian authorities adopted the PFMI as a basis for oversight and supervisory activities in 2012 via a circular. - Staffing: - FSMA increased relevant full-time staff from 1 to 4 since the previous assessment. - The NBB currently has 13 full-time staff in its post-trade group. - NBB has comprehensive bilateral and multilateral cooperative arrangements for oversight of EB, including the Multilateral Oversight Group (MOG) and bilateral agreements with the United States, Japan, Ireland, and the United Kingdom. - Euroclear Bank was recognized in May 2023 as a third country CSD under Article 25 of the UK CSDR. - The NBB could consider onboarding additional staff given the large scope of oversight responsibilities across multiple systems (several Euroclear Group entities, NBB-SSS, CCPs domiciled in the EU, TARGET2-Securities, and CLS), and management of bilateral/multilateral agreements including interoperability with CBL. - The NBB conducts regular on-site inspections of FMIs, including assessments of resilience against cyber and ICT risks. - Recommendation: The NBB should consider formalizing the process for assessing and approving action plans put forth by overseen/supervised entities to address shortcomings from inspection reports and evaluations (currently informal, often oral discussion without formal Board approval). - Disclosure: NBB and FSMA publicly disclose scope and extent of FMI policies; FSMA disclosures could be improved by providing more information on FMI-related activities in its annual report and making an English translation available more timely. ### Rating summary for Responsibilities - Assessment Category: Observed — Responsibilities A, B, C, D, E - Broadly observed: - - Partly observed: - - Not observed: - - Not applicable: - ### Prioritized recommendations for authorities (selected items) - Responsibility B - Issue: Resolution plans for EB are not yet fully operational. - Recommended action: NBB, as NRA for EB, should continue working with counterparts and EB to fully operationalize resolution strategy plans, including FMI contingency plans and operational continuity. - Relevant parties: NBB, EB - Timeframe: NT - Responsibility C - Issue: NBB’s process for approving and assessing FMI action plans remains rather informal. - Recommended action: Formalize the process of approving and assessing action plans put forth by overseen/supervised entities. - Relevant parties: NBB - Timeframe: NT - Other recommendations: - NBB could consider onboarding additional staff given its large range of oversight responsibilities. (NBB — MT) - FSMA should more explicitly disclose FMI-related activities in its annual report. (FSMA — MT) - FSMA should more quickly make its annual report available in English on its website. (FSMA — LT) ### Authorities’ responses — selected points - National Bank of Belgium (NBB) - Cyber resilience: NBB notes a dedicated cyber resilience roadmap launched in 2021 and implemented during 2022, which resulted in good progress in Euroclear group’s cyber risk posture and IT risk management, including Board involvement and steering. - NBB emphasizes maintaining a cyber resilience top-of-mind mentality across relevant boards and close monitoring of project deliveries on risk reduction initiatives in terms of scope and timeline. - Tiered participation arrangements: - EB has over 1700 direct participants; a limited number of participants generate half of the activity. - PFMI require identifying, monitoring, and managing material risks posed by indirect participants responsible for a significant proportion of transactions, including where few direct participants but many indirect participants exist. - CSDR and related RTS require EB to carry out analysis for key participants, including identifying participants’ clients responsible for a significant proportion of transactions. - EB uses the concept of large accounts to identify underlying clients posing risks based on transaction value and number. - NBB view: If neither direct participants nor underlying clients are responsible for a significant proportion of activities, risks to the smooth functioning of the system as a whole should be limited. - NBB notes EB’s contractual relationship is only with direct participants and that EB is subject to limitations in collecting underlying client information due to applicable competition law and absence of material risks per CSDR. - Bridge Letter of Credit: - Both EB and Clearstream Banking SA benefit from a letter of credit (LoC) provided by a consortium of creditworthy financial institutions covering credit exposures across their interoperable link. - To free up LoC consumption, both ICSDs can execute interim intraday payments to meet settlement efficiency objectives; if an ICSD cannot execute interim payments, exposure would remain topped by the LoC. - From a credit risk perspective, the NBB has no concerns with interim payments. - Management of interim payments involves manual processes and could be improved by further automation requiring joint EB and CBL effort. - Central Bank Money Settlement: - NBB’s view on “practical and available”: - CeBM and commercial bank money (CoBM) can be offered in parallel where CSDR does not prohibit a combination. - EB cannot determine or control whether CeBM is practical and available for a participant; participants must decide per transaction whether CeBM is practical and available and choose to settle in CeBM or CoBM accordingly. - Business continuity: - NBB would welcome further (international) guidance on how real-time simulation exercises should be conducted, including participation of relevant stakeholders. - Authorities’ resources: - NBB recognizes the important workload of the post-trade group and burden on staff; for the immediate future there are no plans to hire extra staff although a change in workload could change this assessment. *IMF — Belgium: Selected sections from the EB assessment and authorities’ responses* ### 98. The FSMA expresses its gratitude for the opportunity to provide a written response related ### 1belea2023012 - 98. The FSMA expresses its gratitude for the opportunity to provide a written response related ### Legal basis and material legal aspects (Principle 1) - EB is supervised by the NBB as a credit institution pursuant to the Law of 25 April 2014 and the Law of 22 February 1998 (Organic Law). - EB has a CSD license under Regulation (EU) 909/2014 of 23 July 2014 and status of settlement institution under Royal Decree n°62. - EB is subject to FSMA supervision pursuant to article 45 of the Law of 2 August 2002. - NBB has designated EB as a domestic systemically important institution (O-SII) under Belgian banking law and CRD IV. - The Euroclear System is overseen by the NBB in accordance with Article 8 of its Organic Law. - Material aspects requiring high legal certainty: - asset protection (holdings in financial instruments across EB, local depositories and local CSDs); - dematerialisation and immobilisation; - finality of securities and cash transfers; - collateral framework for guarantees securing credit lines ancillary to CSDR services; - contractual framework, rules and procedures; - default procedures (see Principle 13). - Relevant jurisdictions include Belgium (place of incorporation and location of the securities settlement system), jurisdictions of linked CSDs and FundSettle holdings, participants’ jurisdictions for insolvency/resolution, jurisdictions chosen as governing law, and jurisdictions governing securities admitted in EB as Issuer CSD. - Asset protection under Belgian law: - securities held in Euroclear are held via book-entry under fungibility regimes (Royal Decree 62; laws of 2 January 1991, 22 July 1991, Belgian Companies code). - participants have co-ownership rights over pools of book-entry securities; participants retain ownership, revindication rights and voting rights. - cash deposits do not benefit from this regime: EB becomes legal owner and depositors retain unsecured contractual claims. - securities and cash held with EB are by law immune from attachment by creditors of account holders and third parties. - Cross-jurisdiction checks: - EB conducts legal opinions and periodic reviews before opening links or holding securities in other CSDs/FundSettle to ensure comparable asset protection and to address entitlement, insolvency/crisis measure impacts, segregation, finality and claiming procedures. - Dematerialisation and immobilisation: - Article 3 CSDR requires issuers in the EEA to issue dematerialised/immobilised securities. - Belgian immobilisation governed by Royal Decree 62; dematerialisation for Belgian-law securities via laws of 2 January 1991, 22 July 1991 and 14 December 2005; physical deliveries generally prohibited on Belgian territory except between professionals for immobilisation. - Finality: - Settlement finality governed by SFD 98/26/EC implemented by Belgian Settlement Finality law of 28 April 1999; Euroclear System designated as a ‘System’. - In insolvency of a participant, the law refers to System rules to determine entry, irrevocability and finality moments; finality rules set in Terms and Conditions and Operating Procedures. - For securities held through links, applicable foreign CSD laws apply to local settlement; contractual framework explains cross-border impacts. - Collateral: - Collateral governed by Belgian Law of 15 December 2004 (Financial Collateral Directive implementation) and Belgian Settlement Finality Law; these effectively ensure financial security interests by EB. - EB obtains Collateral Survey legal opinions on participant jurisdictions to confirm Belgian law governs validity/enforceability and to check against successful attachment; periodic review performed. - Contractual framework: - Main documentation: Terms and Conditions governing use of Euroclear and Operating Procedures (governed by Belgian law). - Credit facilities documented under New York law (or Belgian law in certain cases). - Securities lending partly New York law / partly Belgian law. - Collateral agreements and general pledge in Operating Procedures governed by Belgian law. - Collateral management services documented under English law. - Issuer-ICSD Agreements for NSS/NGN where EB signs specific agreements. - EB ensures clarity via document hierarchy, separation of legal/operational info, Euroclear ‘Tone-of-Voice’ principles and stakeholder feedback; documents approved via internal governance (Management Committee and/or Board). - Cross-border enforceability and conflict of laws: - Article 280 §2 of Belgian Banking Law of 25 April 2014 provides that resolution proceedings do not affect rights/obligations linked to participation in the Securities Settlement System. - Collateral Surveys assess insolvency/resolution risks and potential stays on enforcement; contractual enforceability in insolvency is assessed. - EB operates branches in Poland (Krakow), Hong Kong and Japan (Tokyo); representative offices in Beijing, Dubai, Frankfurt, Singapore and New York; EB has opinions confirming holding/transfer of securities in Euroclear remain governed by Belgian law. - Key conclusion and assessment: - Activities founded on a robust, transparent and enforceable legal basis; licensed as CSD under CSDR and as Belgian credit institution; main documentation governed by Belgian law. - Assessment of Principle 1: Observed. - Recommendations/comments for Principle 1: None. ### Governance arrangements (Principle 2) — objectives, structure, and disclosure - Company purpose: Articles of Association set object to carry out banking and securities-related activities. - Euroclear Corporate Strategy and ‘diamond strategy’ to 2026: purpose phrased as "Euroclear innovate to bring safety, efficiency and connections to financial markets for sustainable economic growth"; ESG integrated across value chain. - Board composition considerations: suitability, individual and collective skills, diversity, independence balance. - Diversity policy elements: - target of a minimum one third representation of the under-represented gender on its Board; - reference to educational/professional background, gender, age and, as necessary and permitted by law, geographical provenance; - at least annually review structure, size, composition, diversity and performance of the Board and committees. - Strategic objectives process: - Senior Management proposes strategic objectives; Board approves yearly and reviews semi-annually. - EB Board and Management Committee define a Risk Appetite Framework. - 2022 EB objectives included: - Being a Great Place to work; - Growing profit in a Sustainable and Responsible way; - Being a Preferred Business Partner; - Being a Trusted FMI. - Outsourcing and shared services: - EB outsources services to Euroclear SA/NV (ESA) via the Shared Services Agreement (SSA); ESA provides Technology Services, Risk Management, Internal Audit, Finance, Legal, Corporate Secretariat, IT, Commercial, Group Strategy and Expansion, HR, Communications and Sustainability Office Regulatory, Compliance and Public Affairs. - Management Committee sets qualitative/quantitative targets and KPIs annually for shared services; KPIs assessed quarterly by ROC and Management Committee, reported semi-annually to Audit Committee and Remuneration Committee. - Governance documentation: - Governance Charter, Articles of Association, Board Terms of Reference, Board committees’ Terms of Reference (Audit, Risk, Remuneration, Nominations & Governance), Management Committee Terms of Reference, User Committee Terms of Reference and SOP. - Disclosure and accountability: - EB publishes Governance Charter, annual accounts, CPMI-IOSCO Disclosure framework, ISAE 3402 and Pillar III reports on Euroclear website; media releases and corporate brochures also used. - Board roles, committees and conflicts: - Board defines/supervises general policy/strategy; advisory committees include Audit, Risk, Remuneration, Nominations & Governance. - User Committee provides independent advice to the Board; composed of participants and issuers. - Conflicts of Interest policies include EB Board Policy on Conflicts of Interest, Euroclear Policy Handbook on Conflicts of Interest and External Mandates, and Guidelines for categorisation/assessment/management measures; inventory/register maintained; disclosures reported in Board annual report and to statutory auditors. - Board composition and performance review: - Board meets at least quarterly; composition includes Management Committee members and non-executive directors; at least one third independent directors. - Independence defined from 1/1/2020 in line with Belgian Corporate Governance Code 2020 and ESMA Q&A considerations. - Board carries out annual self-assessment (questionnaire or interviews) and may request external assessment; Nominations & Governance Committee reviews results and reports to Board; shareholders assess Board via Annual General Meeting. - Management roles and suitability: - Management Committee has general management subject to Board-reserved powers; CEO chairs Management Committee and delegates day-to-day management. - Nominations & Governance Committee reviews nominations; recruitment includes interviews, external assessment where appropriate, reference checks; induction training provided. - Risk governance and control functions: - EB maintains a Risk Appetite Framework and Enterprise Risk Management (see Principle 3). - Independent Risk Management, Compliance & Ethics and Internal Audit functions with Board-approved Charters; heads appointed/removed by Board and subject to regulator approval; direct reporting lines and closed sessions to relevant Board committees. - EB Chief Technology Officer function reports to CEO; accountable to EB Board; reports to Management Committee and Audit Committee. - Key conclusions and assessment: - Governance arrangements are clear, transparent and promote safety/efficiency; roles and responsibilities documented and disclosed; Board/Management Committee should continue to improve definition and steer for IT and information security risk. - Assessment of Principle 2: Observed. - Recommendation/comment (Principle 2): - The EB Board and Management Committee should continue efforts to clearly define and steer management of IT and information security risk, and ensure these risks remain a priority. ### Framework for comprehensive risk management (Principle 3) - Risk categories (level one with material level two examples): - Strategic & Business Risk; - Change & Project Risk; - Operational Risk, including Clients/Products & business practices; Execution, delivery & process management; Fraud Risk; ICT & Data Risk; ICT Security Risk; Business Disruption Risk; Suppliers & Outsourcing Risk; - Legal & Compliance Risk; - Conduct & Culture Risk; - Credit Risk; - Liquidity Risk; - Market Risk; - Systemic Risk. - ERM framework six components: - business strategy, objectives, risk capacity and risk appetite; - risk governance; - risks in execution (identification, assessment, response, monitoring); - data & technology; - risk culture; - risk monitoring and reporting. - Risk appetite, capacity and governance: - risk appetite set by Board below risk capacity; risk capacity defined as loss absorption capacity and maximum available liquid resources without breaching regulatory requirements. - Three Lines Model operated: First Line (businesses), Second Line (Risk Management; Compliance & Ethics), Third Line (Internal Audit). - Risk management tools and processes: - Positive Assurance Reporting (PAR) identifies key risks and key controls; feeds Internal Control System (ICS) report to Board. - Issues logged/tracked in Itrack; incidents logged in Integrated Risk Management (IRM) tool with migration continuing throughout 2023. - Quarterly Corporate Risk Report produced for Management Committee and Board Risk Committee. - Model risk: - Model Risk Management framework aligned with ERM; independent model validator provides annual overview including IRB and AMA models to Board Risk Committee. - Crisis management and RRW: - RM framework includes crisis management, incident escalation and Business Continuity Management (see Principle 17). - Effectiveness and assurance: - Board Risk Committee oversees Risk Management function’s remit, effectiveness and independence. - Annual self-evaluation of Risk Management functions and ERM effectiveness; Internal Audit provides independent assurance and assesses ERM design and operation. - Systemic risk and interdependencies: - Systemic risk considered in day-to-day activities; horizon scanning and interdependency assessments used; interconnectedness considered in stress scenarios for ICLAAP and RRW activation. - Key conclusions and assessment: - EB’s risk management framework supports identification and management across risk types; RRW plan produced annually. - Deficiencies remain in critical operational risk elements: cyber security, IT and information asset management. - Assessment of Principle 3: Broadly Observed. - Recommendations/comments (Principle 3): - EB and ESA should put in substantial efforts to fill gaps in security controls, asset and identity and access management as top priority. - EB should continue to improve cyber posture and implement CISO roadmap for critical risks. - EB should continue working with NBB (NRA) to fully operationalize resolution strategy and resolvability. ### Credit risk framework and practices (start of Principle 4) - Policy framework hierarchy: - Corporate Risk Management Group Policy; - Enterprise Risk Management Framework; - Financial Risk Policy Handbook (FRPH); - Banking Implementing Procedures. - Role of EB as SSS operator with limited banking license: - EB provides uncommitted multi-currency credit facilities primarily to support settlement efficiency. - Credit risk also arises from treasury activities (re-depositing/investing participant cash, proceeds of own debt issuances or capital). - Main credit framework principles: - Credit facilities are intraday, uncommitted and may be multi-currency. - Credit facilities are communicated in USD. - No credit/collateral value for currencies where EB has no liquidity capacity. - Granting facilities is discretionary based on creditworthiness and risk profile. - Active monitoring of currency fluctuations may require adjustments to facility size. - Facility size and conditions reflect participant financial soundness, EB activity and internal/regulatory limits. - System-embedded per-currency limit at Participant family level determined by Qualifying Liquidity Resources (QLR) of EB per currency. - Credit facilities are fully secured with collateral for which strict collateralisation rules apply. - Unsecured credit exceptions: - Unsecured credit facilities only provided when allowed under CSDR (Article 23(2) of Regulation (EU) 390/2017) to exempt entities, and to central banks, multilateral development banks and international organisations where exposures are covered by EB’s eligible capital after deduction of regulatory CSDR capital requirement. - Governance and review: - Framework documents approved by EB Board or Management Committee; reviewed at least annually or upon material change; operational processes reassessed regularly to monitor/limit credit risks. - Key Consideration 2 lead-in: - EB defines credit risk as risk to earnings or capital from obligor failure to perform on time and in full. - (Content ends partway through Key Consideration 2 in supplied unit.) *Detailed assessment excerpt from the IMF staff report chapter on Euroclear Bank (Belgium), as provided in the source content.* ### 1. Credit risk arising from Participants: ### 1. Credit risk arising from Participants ### Settlement activities - Settlement credit exposure occurs when EB debits a Participants’ cash account to execute a transaction for an amount above the cash available in that currency, provided that such Participant has been granted a credit facility and has sufficient collateral. ### Securities lending and borrowing (SLB) - SLB program automatically generates a borrowing for the account of the Participants who adhered to the program, provided that: - sufficient securities are available in the lending pool (i.e., securities held by lenders that are available for lending on an automatic basis), and - the applicable risk management measures are met on the securities borrower side (respect of the credit limit and full collateralisation of the position). - Risk driver: EB provides a guarantee to the lender on the sufficiency of the collateral should the borrower fail to return the lent securities. ### GC Access (General Collateral Access) - GC Access allows Participants to borrow high-quality sovereign and supranational securities on demand (primarily for collateral management purposes). - All GC Access loans are fully collateralised. - Borrowers have an amount reserved for this activity within their global family limit. - Risk driver: EB’s guarantee to the lender on the sufficiency of the collateral should the borrower fail to return the lent securities. ### Cash services - EB provides cash services allowing Participants to transfer funds in/out. - EB may allow Participants to use their credit facility (based on currency limits) to wire out expected proceeds linked to EB services (due to different time zones and currency deadlines). ### FundSettle Non-cleared Nominee activity - EB provides a service allowing Participants to place subscription orders held through a Nominee account in the books of the issuer or the CSD. - Non-cleared funds do not require an up-front cash payment to place a valid subscription order in the fund. The settlement of the subscription usually takes place a few days later, as indicated in the fund prospectus.21 - EB holds the fund’s shares or units in the books of the issuer or the CSD in the name of Euroclear Bank SA/NV or under FundSettle EOC Nominees Ltd, a wholly owned subsidiary of EB.22 - FundSettle Nominee activity is self-collateralising due to the rights that EB holds over the subscribed Funds until payment by the Participant has been reconciled and any residual risks (potential price difference between redemption and purchase price plus incurred costs) are covered by assets the Participant holds in the Euroclear system. - Risk driver: for FundSettle, risk arises from account opening/application forms signed by EB or local laws and regulations requiring EB to assume the settlement obligation. --- ### 2. Credit risk from cash correspondents & settlement banks - Credit exposure can arise from any long cash positions that EB has throughout the day (intraday credit risk) due to income, redemption, and money transfer activity, and/or on any residual long cash position left overnight. - Treasury’s role: manage cash flows such that the end of day positions at the cash correspondent are within risk appetite and regulatory requirements. - EB further uses its central bank accounts to mitigate risks on its cash correspondents and settlement banks. - Note: Settlement Bank is considered to be an entity appointed by EB or EB itself, that supports simultaneous Delivery versus Payment (DvP) settlement and/or asset servicing activities.23 --- ### 3. Credit risk from Treasury counterparties - EB has treasury exposures resulting from Participants’ end-of-day cash positions. - Long cash positions are placed in the market with high-quality counterparties for a short duration, preferably by using reverse repurchase agreements (reverse repos) or invested in very high-quality securities with relatively short-term maturities. - Unsecured treasury credit exposure is allowed but kept limited. - Additional details referenced in Principle 16, KC 4. --- ### 4. Bridge with Clearstream Banking S.A. in Luxembourg - EB is exposed to credit risk in the context of settlement taking place over the interoperable link (i.e., the Bridge) with Clearstream Banking S.A. in Luxembourg (CBL). - The credit exposure resulting from the Bridge with CBL is secured by means of a letter of credit (LoC) issued by a consortium of creditworthy financial institutions in EB’s favour. - EB is therefore also exposed to the syndicate of banks that have issued the LoC, but only in the event of a CBL default. - No credit institution is allowed to commit to a share of the total outstanding LoC above 10%. *Source: 1belea2023012 - 1. Credit risk arising from Participants.* ### 5. Issuers: EB purchases securities for its investment, treasury ### 5. Issuers: EB purchases securities for its investment, treasury and liquidity books ### Credit exposures and identification of new credit risks - EB purchases securities for its investment, treasury and liquidity books and is exposed to the credit risk of these issuers. - New sources of credit risk may be identified through: - risk & control self-assessments - project risk assessments - new product & services risk assessments - new client admission process - new link risk assessments - scenario analysis and stress testing - Any newly identified source of credit risk follows a governance process described in the Corporate Risk Management Board Policy and relevant policy handbooks. ### Measuring and monitoring credit exposures - Facilities are only granted once an assessment of the creditworthiness has been carried out and an internal rating has been assigned by the Credit Department. - Size and conditions of facilities are determined based on risk appetite and the desired risk profile in accordance with the risk management framework. - The Credit Department performs ongoing market monitoring and regular reviews (at least annually and more frequently for lower rated Participants) of facility size. - Any request for a new or increased facility is subject to a credit review and is only granted in accordance with the defined approval process and respective credit authority levels. - Credit exposure measurement: - gross (before mitigation and protective measures) or net (residual, after consideration of all mitigation and protective measures) - For securities borrowing (SLB program and GC Access) an add-on is applied to the gross credit exposure to reflect the potential appreciate in the value of the lent security. - Exposures (gross or net) are monitored against regulatory limits, internal limits and/or thresholds; non-compliance is escalated to relevant governance bodies. - System-embedded controls: settlement instructions are blocked if credit is required above the Participant’s credit facility or collateral is insufficient. Extension beyond recorded limit requires specific approval as outlined by EB Policy. - EB monitors intraday peak exposures ex-ante, in real time, and ex-post to borrowing participants at: - legal entity, family and EB aggregated level; and - individual currency level. - Cash correspondent balances are monitored real time; end of day cash correspondent positions are controlled ex-post. ### Risk management tools to control credit risk - EB employs tools in addition to regulatory capital requirements (Article 395 of Regulation (EU) 575/2013): - Concentration limits: system-embedded family and individual credit limits; Global Family Limit (GFL) caps maximum expected loss on any single family; minimum rating criteria and concentration limits for counterparties and financial issuers in the treasury, investment and liquidity books. - Mitigation / recourse types: - Collateralisation: facilities secured with pledged collateral held in the Euroclear System; four-category collateral classification system; collateral valued conservatively in accordance with EB’s collateral valuation model. Collateral that cannot be categorised in one of the four categories is not accepted. Collateral valuation referenced to Principle 5. - Right to appropriate Participants’ pledged securities in the event of participant default (appropriation included in standard collateral agreement). - Set-off: unity of account provision and contractual right of set-off across currencies. - General pledge: to the extent permitted by law, EB may consider as collateral all securities and cash deposited in the Euroclear System; documented in Operating Procedures. EB has discretionarily waived general pledge and statutory lien for balances expressly identified as customer-only accounts, with exceptions. - Statutory lien: Belgian statutory lien on participants’ proprietary assets held in the Euroclear System securing claims arising from settlement of transactions through or in connection with the System. - Right to debit participants that have transactions settled over the bridge on a pro-rata basis, which could lead to temporary or permanent debits. - Credit reduction initiatives: e.g., DVP Model 1 settlement system; collaboration with participants to reduce credit usage; system changes. - Sanctioning rates to discourage Participant overnight credit exposures: - Overdraft rates composed of: (1) a central bank rate, (2) a currency factor, and (3) a credit factor. EB ensures overdraft rates (central bank rate and currency factor combined) are more punitive than (1) borrowing rate at the Central bank, (2) overnight market rates and (3) own funding cost. - Standard credit interest rates are set at 0% in principle but EB can apply negative standard credit interest rates considering (1) reinvestment rates, (2) cost of capital and (3) a market liquidity buffer. - Effectiveness of tools assessed via ongoing monitoring and reporting against EB’s risk appetite and limits/thresholds. ### Collateral framework and valuation (summary linking to collateral practices) - As a rule, all participant credit facilities are fully secured with collateral held and pledged in Euroclear Bank; collateral is valued conservatively and at least on a daily basis with possible real-time adjustments. Any reduction in collateral value automatically reduces credit usage capacity. - To reduce potential residual exposure EB: - manages down exposures as creditworthiness decreases - applies collateral haircuts to all securities according to a conservative collateral valuation model - applies a currency margin to all cash and securities used as collateral - applies an add-on to any borrowed securities' value - monitors collateral concentration in Participant accounts - EB performs regular back-testing and yearly collateral stress tests including scenario where collateral liquidation period takes longer than envisaged in the standard collateral valuation model (i.e., 10 days). Collateral details elaborated under Principle 5. ### Haircut and valuation model (key numeric metrics preserved) - EB’s collateral valuation system: internally developed model that: - automatically calculates haircuts taking into account credit, country, market and liquidity risks; - protects EB against a drop in prices with a confidence level of 99% over a 10 days period (Value-at-Risk). - Currency margin: 10-days VaR based on FX volatilities for settlement currencies; minimum currency margin is currently set at 5% (e.g., for EUR and USD). - Daily security/currency haircuts back-test aiming to ensure model performance within a 99% confidence level over a 10-day period. Daily back-testing and model reviews; Model Validation team reviews at least annually. - Collateral stress test scenarios include: Default of several issuers; Country in financial distress; Currency depreciation; Interest rate shock; Stock indices shock; Model risk. ### Wrong-way risk - Specific wrong-way risk: EB does not grant collateral value to securities belonging to the same family as the borrower. - General wrong-way risk: arises from decrease in market value of collateral upon borrower default; monitored via collateral concentration limits and thresholds; remedial actions may include additional haircuts, specific concentration limits and/or limiting credit facility. ### Key Considerations related to covering current and potential future exposures (KC3–KC7 highlights) - KC3: All participant credit facilities are fully secured; collateral is valued conservatively; to reduce potential future exposure EB applies haircuts, currency margins, add-ons to borrowed securities, monitors collateral concentration; back-testing and yearly collateral stress tests performed; liquidation period scenario includes 10 days. - KC4–KC6 (CCP-related): Not applicable to EB as CCP-specific key considerations. - KC7 (credit loss allocation and replenishment): - In normal cases, losses addressed on defaulter-pays basis via appropriation/liquidation of participant securities collateral and available cash balances. Bespoke loss allocation tools exist where loss relates to exposures across the Bridge. - Remote risk acknowledged: sudden failure of a cash correspondent or insufficient liquidation value of collateral may leave residual losses; after exhausting client collateral, EB would rely on own capital and ultimately on recapitalisation and recovery capacity. - EB applies risk transfer mechanisms in case of default of certain central banks or default of Euroclear’s cash correspondent in specific jurisdictions. ### Replenishment, RRW plan and loss waterfall - EB sizes capital with reference to ICLAAP and regulatory requirements; routine capital adequacy assessments are performed including under annual ICLAAP. - RRW Plan: recovery capacity identification and assessment of extreme measures to restore financial soundness; sufficiency verified through modelling of hypothetical severe stress scenarios. Options include: - recapitalisation measures (capital injection from Euroclear group, external issuance of additional capital, disposal of assets) - restructuring measures (reduction in services offered or headcount) - EB envisages a participant call on an uncommitted basis to subscribe to new equity as final measure in loss waterfall; if insufficient subscription, RRW plan would be triggered. - RRW plan documents process for transfer of assets for orderly wind-down; capital and liquidity to support wind-down are segregated from day-to-day Risk Appetite and regulatory requirements. ### Key Conclusions for Principle 4 (credit risk) - EB has a robust and effective credit risk management framework. EB is exposed to credit risk from participants, issuers, cash correspondent banks, treasury counterparties, and settlement banks. - Credit facilities to participants are uncommitted and fully collateralized; credit granted only for currencies where EB has adequate liquidity capacity. - Credit exposure to cash correspondent and settlement banks mitigated through central bank accounts where available and otherwise managed within EB’s risk appetite. End-of-day participant cash positions invested in short-term, high-quality securities or placed with suitable counterparties. - EB has tools and controls including credit limits (entity and group-level), credit reduction initiatives, and sanctioning rates. Explicit rules and procedures exist for allocating credit losses including use of participant cash and liquidation of collateral. ### Assessment, recommendations and comments (Principle 4) - Assessment: Observed. - Recommendations and comments: - The management of EB’s credit exposure to CBL could be improved: the credit risk arising from the interoperable link between EB and CBL is secured by means of Letter of Credit, which is not sufficient to meet income and redemptions payments, and settlement activity that takes place between the two entities. - The management of the redirected interim payments used to prevent settlement blockages across the interoperable link involves manual processes and should be improved via further automation requiring joint effort by EB and CBL. ### Additional procedural and governance highlights (selected) - Non-compliance with predefined limits or thresholds is escalated to relevant governance bodies as defined by EB Policy. - Monitoring and testing: daily monitoring, daily back-tests (Cover 1 and Cover 2), annual stress tests, and periodic testing of committed and uncommitted liquidity facilities. - System embedding: many credit and collateral controls are system-embedded (e.g., blocking settlement instructions, embedded family and currency limits, collateral criteria). *Source: 5. Issuers: EB purchases securities for its investment, treasury and liquidity books (excerpts) — canonical PDF content.* ### 1. a statistical approach, which models the uncertainty of ### 1belea2023012 - 1. a statistical approach, which models the uncertainty of ### Overview - 1. a statistical approach, which models the uncertainty of the pre-tax operating profit by forecasting safekeeping income, settlement income and net interest income ### Modeled components - safekeeping income - settlement income - net interest income ### Purpose - Model the uncertainty of the pre-tax operating profit through forecasting the listed income components *Source: 1belea2023012 - 1. a statistical approach, which models the uncertainty of (PDF chapter/section).* ### 2. a scenario based approach, which captures the business ### 2. a scenario based approach, which captures the business ### Recovery, Restructuring and Wind‑down (RRW) plan and business risk capital - EB’s RRW plan models multiple “extreme but plausible hypothetical scenarios” calibrated to be “sufficiently severe to threaten the financial viability of EB as a going concern if extreme measures are not taken.” - A CSDR minimum requirement, corresponding to “three months of operating expenses”, is used to floor the business risk capital charge. - To demonstrate recovery capacity, the RRW plan overlays “a potential mix of recovery and/or restructuring options” to show how EB may use recovery capacity and the time taken to restore financial viability. - EB has assessed that execution of an orderly wind‑down would take “no more than six months.” - In accordance with the CSDR, EB “holds sufficient liquid net assets funded by equity to cover six months of operating expenses.” - The “six months of current operating expenses are added on top of the Pillar 2 requirements” to keep wind‑down capital clearly separated from capital covering other Pillar 2 risks. - The RRW plan is updated annually and reviewed and approved by appropriate governance bodies. ### Key conclusions and assessment for Principle 15 (General business risk) - Key conclusions: - “The identification, monitoring, and management of general business risk is well covered by EB’s Enterprise Risk Management framework.” - EB holds high‑quality assets to cover general business risk and has a RRW plan reviewed annually. - EB “estimates that executing the plan would take no more than six months” and “has adequate resources to cover operating costs during this period.” - If additional capital is required, EB’s Contingency Funding Plan details measures (e.g., capital injection from the Euroclear group, external issuance of capital, disposal/restructuring of assets). - Assessment of Principle 15: Observed - Recommendations and Comments: None ### Investment strategy, asset quality and liquidity of own funds - Investment criteria for EB’s capital and investment book: - EUR‑denominated sovereign, supranational, agency and other sub‑sovereign or state guaranteed debt instruments. - Freely transferable, without regulatory constraint or third‑party claims that could impair same‑business‑day access on liquidation. - Issue or issuer rated “AA- or higher by at least two out of the three rating agencies (Moody’s, S&P and Fitch)” and confirmed by EB’s internal rating. - All instruments must be ECB eligible. - Remaining time‑to‑maturity of the Investment book “must not exceed five years” and the Investment book “must not bear foreign‑exchange risk.” - Liquidity conversion methods: - Outright sale, pledging to the NBB, or use in the repo market to ensure “same‑day monetisation.” - Assets’ “quality and liquidity” are assessed monthly by EB. - For reinvestment of client deposits (Treasury book) and issuance proceeds: - Eligible instruments: multiple currency‑denominated sovereign/supranational/agency debt with minimum “AA‑” rating; eligible for the High Quality Liquid Asset buffer of the Basel III LCR ratio. - Securities can have “a remaining time‑to‑maturity of maximum 6 months” for client cash reinvestment. - Strict concentration limits apply and are monitored. ### Custody, asset protection and access to assets (Principle 16) - Custody risk recognition and mitigation: - EB recognises custody risk as a key operational risk and conducts legal reviews of local legislation to ensure assets held with counterparts are eligible for settlement by book‑entry movements and benefit from asset protection comparable to the Belgian regime. - EB obtains external legal opinions on local practices (asset protection, insolvency proceedings, asset accessibility) and uses contractual provisions including audit/inspection rights, confirmation of absence of encumbrance, segregation, strong record‑keeping, daily reconciliation, and insurance coverage. - Annual due diligence and use of external auditor reports (e.g., ISAE 3402) are part of assessments. - Holding and access to EB’s own securities and cash: - EB’s portfolio of own securities consists of sovereign, supranational or agency debt instruments held with legal segregation in EB’s books. - Cash deposited with EB is reimbursable upon request; EB can instruct transfers on its cash accounts via cash correspondents. - EB ensures daily it has “sufficient cash and/ or monetizable assets to support both day‑to‑day and potential stress scenarios.” - Prompt access and contingency: - For participants’ securities, account structures and STP channels provide prompt access in normal operations. - In participant insolvency, EB relies on strict collateral criteria, central bank access, repo market access and committed facilities to ensure quick access to liquidity. - EB implemented a dual communication channel to allow direct communication/instruction to the CSD if needed; these channels are tested yearly. - Key Conclusions for Principle 16: - When holding assets with another counterpart, EB conducts due diligence and obtains legal opinions; custody risk is minimised and prompt access ensured. - Assessment of Principle 16: Observed - Recommendations and Comments: None ### Operational risk management and business resilience (Principle 17) - Operational risk framework: - Operational risk taxonomy includes Employment Practices, Client/Product/Business Practice Risk, Execution/Delivery/Process Management Risk, Fraud Risk, ICT & Data Risk, ICT Security Risk, Business Disruption Risk, Damage to Physical Assets Risk, Custody Risk, and Model Risk. - EB Board‑level Operational Risk Management Board Policy defines framework; multiple Policy Handbooks and implementing procedures exist. - Identification tools include monitoring performance and risk indicators, systematic risk assessments of new products, single point of failure identification, recording operational risk events (including Near Misses), and an annual Risk, Control and Self‑Assessment (RCSA). - Risk management tools include the Positive Assurance Report (PAR), incident databases, GRC tool, ISAE 3402 reporting and three lines of defense (1st line owners, 2nd line Compliance & Ethics and Risk Management, 3rd line Internal Audit). - Fraud, HR and change management controls: - Anti‑Fraud Framework, staff awareness, endpoint security, segregation of duties, physical security and personnel security measures. - Portfolio, Programme, Project and Change Management Policy Handbook uses MoP, MSP, Prince 2, SCRUM, KANBAN, SAFe, Prosci and SDLC methodology with project quality plans, test strategies and rollback planning. - IT, information security and cyber posture: - Information Security Management System Board Policy aligned with ISO27001:2013 and ISO27002 controls; additional frameworks (CIS, CCM) used where relevant. - Euroclear “monitors and manages the cyber threat landscape” but “EB’s cyber resilience posture remains inadequate with key deficiencies in its management of cyber and related IT risks.” - CISO and Business Resilience and Information Security team coordinate; EB Management Committee oversees. - Business continuity and data centres: - Business Resilience Management framework sets Recovery Time Objectives (“RTO”) for critical activities within “2 hours” and specifies EB “must take all reasonable steps to ensure that settlement is completed by the end of the business day even in case of a disruption.” - Three data centres: DC1 and DC2 provide synchronous mirroring; DC3 receives asynchronously replicated data and enables recovery “in a few hours”; risk of data loss between synchronous and asynchronous mirroring is “less than one minute” (dependent on volumes, excluding rolling disaster). - Data Loss recovery principles include recognition of NCBs and CSDs records and EB as ‘master’ source for clients; clients may need to re‑execute transactions during recovery. - Regular testing programme: transfer tests between DC1 and DC2, annual test with DC3, loss of office simulations, crisis management exercises, testing with external parties and market‑wide exercises. - Key Conclusions for Principle 17: - EB has a comprehensive operational risk management framework, IT resilience architecture with three data centres, and regular testing. - However, “deficiencies remain in EB’s management of critical operational risk elements, including IT and information asset management.” - Assessment of Principle 17: Broadly Observed - Recommendations and Comments (from source): - “EB should put in substantial efforts to continue to improve its cyber posture and, going forward, the CISO should focus on the effectiveness of fully‑embedded security controls, and on improving asset management and identity and access management.” - “The testing of non‑IT‑related business continuity plans and procedures could be made more robust and involve a wider range of stakeholders.” - “EB should develop simulation exercises for testing business continuity plans and procedures, and include, among others, scenarios involving the unavailability of linked FMIs, and the implementation of contingency plans in the case of insolvency or operational unavailability of a settlement agent used to access local markets.” ### Access, participation, tiered participation and monitoring (Principles 18–19) - Access and admission (Principle 18): - EB operates open, transparent, publicly disclosed, non‑discriminatory participation requirements consistent with SFA, CSDR and AML/sanctions regimes. - Admission governance: EB Management Committee decides after recommendation by the multidisciplinary Group Admission Committee (GAC). - Preliminary conditions include: not established in a jurisdiction subject to sanctions or FATF call for action; participation will not cause EB to breach law/sanctions; provision of AML information. - Five admission criteria: Adequate Financial resources; Operational & technological capacity; Legal capacity; Internal control & risk management; Ethical standards. - Notification: admission is notified in writing “no later than one month” after application; admission valid for “6 months” pending account opening. - Assessment of Principle 18: Observed - Sponsorship and ongoing monitoring: - EB’s sponsorship process performs initial KYC and regular risk‑based KYC/sponsorship reviews with varying frequencies (financial and internal control annually; operational/legal capacity every 1–3 years; ethical standards 1–3 years). - Governance: GAC reviews participant profiles and recommends actions; EB Management Committee can suspend or terminate participation, with termination notice “at least 30 calendar days’ notice” except for immediate events (liquidation, bankruptcy, attachment, or if participant no longer meets admission criteria and continued participation would be materially prejudicial). - Tiered participation (Principle 19): - EB only has contractual relationships with direct participants; indirect participants access EB via direct participants. - EB’s T&Cs allow EB to gather information on underlying clients; participants must comply with requests for additional information to identify/monitor/manage material risks. - EB identifies Key Participants (those generating a large share of activity) and Large accounts; for Key Participants and Large accounts EB performs enhanced due diligence and operational risk assessments (including account type analysis and concentration risk in omnibus vs segregated accounts). - EB reviews Key Participants and Large accounts “every six months” using aggregated activity of the last 12 months. - Key conclusions for Principle 19: - EB’s T&Cs permit gathering basic information on underlying clients and EB conducts enhanced due diligence for Key Participants and Large accounts. - However, “EB does not currently gather basic information on all underlying clients that account for a significant proportion of activity with respect to the direct participants through which they access the FMI.” - Assessment of Principle 19: Broadly Observed - Recommendations and Comments (from source): - EB “should develop capacity for increasing the transparency with respect to the business of its direct participants’ clients and could consider encouraging large underlying clients to have segregated accounts or ensure that they are subject to enhanced data collection and due diligence.” ### Links between FMIs and counterparty/country risk (Principle 20) - Types of links managed by EB: - Direct links, Indirect links, Interoperable link (the “Bridge” with Clearstream Banking S.A. in Luxembourg), Relayed links. - Link governance and assessment: - Pre‑clearance high‑level risk assessment precedes link setup (credit, financial stability, compliance, legal, operational, political environment). - Detailed assessments at market environment and counterpart levels include country risk, account structure, asset accessibility, AML, operational capacity, business continuity, legal analysis and asset protection; external legal opinions are obtained per link. - Annual review and re‑approval of all CSD links and counterparts; material changes reported to EB Board. - Interoperable link (Bridge) risk mitigation: - EB and Clearstream Banking S.A. in Luxembourg have credit exposures on each other; each holds a Letter of Credit (LoC) in favour of the other backed by a syndicate of international banks; LoC renewed at least annually and complies with article 16 of EBA RTS. - System‑embedded buffers introduced on the LoC; liquidity exposures managed via ex‑ante controls to ensure exposure in a currency does not exceed qualifying liquid resources. - As a last resort, EB has the contractual right to reverse provisional cash credits to participants involved in Bridge transactions to cover unpaid amounts due by Clearstream Banking S.A. in Luxembourg (a mechanism never used to date). - Settlement mechanics and provisional transfers: - Provisional transfers of securities are not possible because EB books securities only after final receipt in the local CSD. Exception: DTC where newly‑issued money market instruments are provisionally credited; EB blocks retransfers until final booking. - Key conclusions for Principle 20: - EB maintains a framework for setup and maintenance of CSD links, continuous monitoring, annual reviews and contractual/legal protections. - Assessment of Principle 20: Observed - Recommendations and Comments (from source): - “There is scope for improving the smoothness of settlement activity and the management of the consumption of the LoC” across the Bridge with CBL; further automation of interim intraday payments could improve this. - EB should “further investigate having in place two settlement agents for contingency purposes—either both active or one as backup—for indirectly accessing local CSDs, where practical and available.” ### Efficiency, communication standards and disclosure (Principles 21–23) - Efficiency and participant engagement (Principle 21): - EB evolves services to meet participant needs (examples: EasyWay, Taskize, signing T2S Framework Agreement in December 2021). - EB User Committee provides independent advice to EB Board and is composed to reflect participant segments. - Annual “Client Survey” and other periodic surveys collect participant feedback. - Assessment of Principle 21: Observed - Recommendation from source: several participants want improvements to the EasyWay web tool; EB could provide API access to tool functionalities. - Communication procedures and standards (Principle 22): - EB accommodates internationally accepted communication standards via SWIFT and ISO standards (ISO 15022, ISO 20022 where applicable); settlement uses ISO15022 and legacy ISO7775 support. - Securities identified by ISIN; counterparties identified via BIC or a five‑digit EB code. - Assessment of Principle 22: Observed - Disclosure of rules, procedures and market data (Principle 23): - EB publishes Terms and Conditions (Terms and Conditions governing use of Euroclear; Operating Procedures of the Euroclear System) and supplementary materials on euroclear.com and my.euroclear.com (including Due diligence pack, ISAE 3402 report, Pillar 3 disclosures, Asset protection pack, CPMI‑IOSCO Disclosure Framework). - Admission, suspension/termination rules, rights/responsibilities and contingency measures (including exceptional measures related to Clearstream Banking S.A. in Luxembourg) are included in the Terms and Conditions. - Assessment of Principle 23 (implied by concluding statements): EB provides comprehensive public and participant disclosures. *Source: 1belea2023012 - 2. a scenario based approach, which captures the business* ### Annex of the CSDR in relation to a securities issue and for ancillary ### Annex of the CSDR in relation to a securities issue and for ancillary services referred to in Section B of the same Annex ### Transparency, disclosure, and client communication (Principle 23 / Key Consideration 5) - EB publishes and updates a Disclosure Framework on a regular basis and discloses material information predominantly through digital channels. - Information disclosed includes: - high-level overviews, updates on new service developments or relevant market news; - detailed descriptions of services, procedures, and the rights and obligations of participants; - risk management information such as the CRR Pillar 3 disclosures and information on Euroclear’s business continuity. - Statistical data published quarterly includes statistics on turnover, collateral management and assets under custody. - Tariff-change procedures: - EB updates tariff brochures before implementation of a tariff change. - EB aims, as good practice, to publish tariff change at least 10 business days in advance. - Updates are announced through newsflash on the website and sent by e-mails to registered clients. - Depending on nature, magnitude and topic, EB may also inform clients via newsletters and User Committee (judgment call rather than set procedure). - Communication media used (in addition to website and e-mail alerts): - press releases, social media, adverts, commercial presentations, speeches at industry events, videos/banners, marketing brochures (electronic and paper), internal communications. - All information mentioned in this Principle is available in English. - Key conclusion: EB has clear and comprehensive rules and procedures promoting transparency; key documents (T&Cs, OPs, CPMI-IOSCO Disclosure Framework) are publicly available. - Assessment: Observed. - Recommendations/comments: None. *Key statistics and facts* - Statistical publication frequency: quarterly. - Advance publication target for tariff changes: at least 10 business days. ### Trade Repositories (Principle 24) - Assessment: Not Applicable. - Key considerations 1–3: Not Applicable. - Key conclusions and recommendations: Not Applicable. ### Authorities’ responsibilities — overview and legal framework (Responsibility A) - Legal and supervisory framework references: - NBB Organic Law (Law of 22 February 1998 establishing the organic statute of the National Bank of Belgium); - Law of August 2, 2002 on the supervision of the financial sector and on financial services; - Royal Decree of 26 September 2005 on institutions providing support to CSDs (under review following CSDR). - EU CSDR defines central securities depositories and includes additional authorization for FMIs with a banking licence. - NBB designated as financial sector authority for critical infrastructure protection under Law of 1 July 2011. - EB identified as a clearing agency by the US SEC and operates under an SEC exemptive order with conditions. - EB identified as a third-country CSD under the UK CSDR and has requested BoE authorisation. - Key conclusion: EB is subject to effective supervision, regulation, and oversight by the NBB and the FSMA. - Assessment: Observed. - Recommendations/comments: None. ### Powers and resources of authorities (Responsibility B) - Information and enforcement powers available to NBB and FSMA include access to: - financial statements, board policies, operating procedures, risk assessments, Internal Capital and Liquidity Adequacy Assessment report, internal audit opinions, mandatory and ad hoc CSDR and banking-related reportings, opinions by accredited auditor. - Sanctions and corrective measures referenced: - Title V ‘Sanctions’ of the CSDR (administrative and criminal sanctions; Art 63 lists relevant provisions); - Banking rules (SREP, Pillar 2 Requirement (P2R), Pillar 2 Guidance (P2G), mandatory supervisory capital add-ons, liquidity requirements, powers to appoint commissioners, replace/sanction/appoint board members, suspend activities, revoke banking licence); - Chapter 5 of Royal Decree of 2005 supervisory measures and sanctions. - Sanctions Committees exist at NBB and FSMA for administrative fines/penalties. - Resources: - NBB Post-trade Group: 13 FTE allocated to supervision and oversight of post-trade infrastructures. - In 2022, about 75% of the Post-trade Group’s resources were allocated to Euroclear group entities. - FSMA ‘Markets and Post-Trading’ division (created 2022) has 4 FTE as of February 2023. - Tools and activities: - NBB uses Business Intelligence tools (such as Qlikview) for quantitative reporting. - Post-trade Group covers oversight/supervision of other FMIs (T2S, CLS, NBB-SSS) and policy work (CPMI-IOSCO, ESCB, ESMA/EBA, EC). - Key conclusions: - Activities and powers of NBB and FSMA are well-defined; staff are professional and have sufficient expertise. - Assessment: Observed. - Recommendations and comments: - NBB (as National Resolution Authority) should continue working with counterparts to fully operationalize EB’s resolution plan, including FMI contingency plans and operational continuity. - NBB could consider onboarding additional staff given the large scope of prudential supervision and oversight activities (management of numerous bilateral and multilateral agreements and arrangements, including link with CBL). *Key statistics and facts* - NBB Post-trade Group staff: 13 FTE. - Share of Post-trade Group resources allocated to Euroclear entities in 2022: about 75%. - FSMA Markets and Post-Trading division staff as of February 2023: 4 FTE. ### Disclosure of authorities’ policies (Responsibility C) - NBB and FSMA policies with respect to FMIs are based on Belgian legal framework and are reflected in regulations, circulars and communications; references to ESMA guidelines are made. - NBB publishes an annual “FMI and Payment Services Report” (detailed overview of regulatory changes, oversight and supervision approaches and priorities). - FSMA publishes an annual report with a section about FMI supervision and material changes. - Key conclusions: - Authorities publicly disclose and clearly define scope and extent of FMI policies; annual reports detail relevant activities. - Assessment: Observed. - Recommendations and comments: - FSMA annual report could provide further information on its FMI supervision activities and outcomes. - FSMA should make an English translation of its annual report available more timely (current lag: over a year). - NBB should consider formalizing the approval and assessment process for action plans addressing shortcomings from R&E and on-site reports. ### Application of the PFMI (Responsibility D) - NBB and FSMA have adopted the PFMI (CPMI-IOSCO Principles for Financial Market Infrastructures) as guidance for oversight and supervision; NBB issued circular NBB_2012_06 in July 2012 adopting the PFMI. - EU CSDR is based on the PFMI and implements them in the EU. - Key conclusions: - Belgian authorities explicitly adopted the PFMI as basis for oversight and supervisory activities in 2012. - Assessment: Observed. - Recommendations/comments: None. ### Cooperation with other authorities (Responsibility E) - Multilateral and bilateral cooperation arrangements established, coordinated by NBB as lead overseer: - EB Multilateral Oversight Group (EB MOG) chaired by NBB; signatories include US Federal Reserve Board of Governors, Federal Reserve Bank of New York, BoE, BOJ, Reserve Bank of Australia, ECB (observer). EB MOG covers interactions between EB (operator of SSS) and Euroclear SA (ESA) as provider of key services. EB MOG uses CPMI-IOSCO PFMI as general assessment framework. EB MOG meets at least once a year; currently meets twice a year. - Euroclear SA Technical Forum (ESA TF) and ESA High Level Forum (HLF) chaired by NBB; ESA TF meets, as a rule, four times a year; ESA HLF meets, as a rule, two times a year. - NBB, BCL and CSSF MoU on cooperation regarding EB and Clearstream Banking Luxembourg (CBL) interoperable link; NBB requested CSSF, BCL to update MoU to reflect CSDR changes; ESMA recommended MoU update in peer review. - Bilateral MoUs/Protocols: - NBB–FSMA protocol setting modalities of consultation and cooperation; FSMA responsible for specific CSDR articles and assists NBB during annual review and evaluation. - NBB–BoE MoU first signed 15 October 2014; new MoU to reflect UK CSDR recognition requirements; NBB and BoE meet at least twice a year; specific reporting framework agreed. - NBB–CBI MoU; NBB and CBI meet at least once a year (in practice twice a year aligned with EB MOG); specific reporting framework agreed. - NBB–BOJ MoU; specific reporting framework for BOJ agreed; covers JPY settlement and correspondent bank use. - NBB–ECB exchange of letters on cooperation of mutual interest. - NBB–SEC understanding regarding EB’s SEC exemptive order and supervisory cooperation. - NBB–HKMA MoU regarding oversight of EB and Hong Kong CMU and their linkages. - Cross-border importance and notification: - EB MOG currencies (EUR, USD, GBP, JPY, AUD) represent about 98% of settlement turnover in number and value of instructions. - As EB is considered of substantial importance in 25 EEA countries, competent authorities of these countries receive NBB’s evaluation reports for both core & non-banking type ancillary services and banking-type ancillary services. - NBB’s annual FMI and Payment Services Report is used to notify other central banks of issue of the supervision of EB. - Key considerations on cooperation design and responsibilities: - Cooperation forms are tailored to signatories’ needs and are consistent with PFMI Responsibility E. - NBB is lead overseer and accepts responsibility for establishing effective cooperation among relevant authorities. - Authorities retain discretion to discourage use of EB’s SSS or provision of services where judged imprudent; such action should include clear rationale provided to EB and to the NBB. - Cooperative arrangements do not prejudice statutory powers of participating authorities. - Key conclusions: - NBB has established comprehensive and effective bilateral and multilateral cooperative arrangements covering information sharing, crisis protocols, consultation, and communication. - As of May 2023, EB was recognized as a third country CSD under the UK CSDR. - Assessment: Observed. - Recommendations and comments: None. *Key statistics and facts* - Currencies representing bulk of EB settlement turnover: EUR, USD, GBP, JPY, AUD (about 98% of settlement turnover in number and value). - Number of EEA countries where EB is considered of substantial importance: 25. - EB MOG meeting frequency: currently twice a year (representatives meet at least once a year or more if necessary). - ESA TF meeting frequency: as a rule, four times a year. - ESA HLF meeting frequency: as a rule, two times a year. - Date of NBB circular adopting PFMI: July 2012 (NBB_2012_06). - Date of initial NBB–BoE MoU signature: 15 October 2014. - Royal Decree referenced: 26 September 2005. - Relevant law dates and references: Law of 22 February 1998; Law of August 2, 2002; Law of 1 July 2011. *Source: Annex of the CSDR in relation to a securities issue and for ancillary services referred to in Section B of the same Annex (IMF country report content).* ### Appendix I. List of EB Links with Other CSDs and SSS ### Appendix I. List of EB Links with Other CSDs and SSS ### EB Links with Other CSDs and SSS - ASX Settlement Pty. Limited — AU — CHESS - ATHEX CSD — GR — Dematerialized Securities System - Austraclear — AU — ASX Settlement - Banca Nationala a Romaniei SAFIR — RO — Banca Nationala a Romaniei SAFIR - Bank Negara Malaysia — MY — Rentas - BOGS (Bank of Greece Securities Settlement System) — GR - BOGS (Bank of Greece Securities Settlement System) — (entry repeated) - Caja de Valores S.A. — AR — CRYL, Central de Registracion y Liquidacion de Instrumentos de Endeudamiento Publico - Caja de Valores S.A. — AR — Caja de Valores S.A. - CDS Clearing and Depository Services Inc. — CA — Debt Clearing Service (DCS) and the Securities Settlement Service (SSS). - Central Depository (Pte) Ltd. — SG — The Central Depository (Pte) Limited (CDP) - Central Depository of Securities Prague — CZ — Centrální depozitář cenných papírů, a.s. - Central Securities Depository Prague — (no country specified in source) - Central Moneymarket Unit — HK — Central Moneymarket Unit - Centralna klirinsko depotna druzba (KDD) — SI — KDD CENTRALNA KLIRINŠKO DEPOTNA DRUŽBA - Centrální depozitár cenných papíru SR a.s. (CDCP) — SK - Centrální depozitár cenných papíru SR a.s. (CDCP) — (entry repeated) - Clearstream Banking AG — DE — Clearstream SSS Cascade - Clearstream Banking SA — LU — Clearstream Securities Settlement System (Creation) - Cyprus CDCR (Central Depository and Central Registry) — GR — Central Depository and Central Registry - Deposito Central de Valores — CL — Contraparte Central S.A. (CCLV) - DTC (Depository Trust Company) — US — DTC (Depository Trust Company) - Edaa Securities Depository Center Company (Saudi CSD) — SA — Edaa Securities Depository Center Company (Saudi CSD) - Euroclear Belgium — BE — CIK - Euroclear Finland — FI — Euroclear Finland - Euroclear France SA — FR — ESES France - Euroclear Netherland — NL — ESES Netherlands - Euroclear Sweden AB — SE — VPC systemet - Euroclear UK & International Limited (EUI) (CREST) — GB — Crest system - Euronext securities Copenhague - VP — DK — VP Securities - Euronext securities Lisbon - Interbolsa — PT — Euronext securities Lisbon - Interbolsa - Euronext Securities Milan - Monte Titoli S.p.A. — IT — Euronext Securities Milan - Monte Titoli S.p.A. - Euronext securities Oslo - VPS — NO — The security settlement system VPO NOK - Euronext securities Oslo - VPS — NO — The security settlement system VPO EURO - Fedwire Securities Services — US — Fedwire Securities Service - Hong Kong Securities Clearing Company Limited (HKSCC) — HK — CCASS - Iberclear — SP - ARCO Securities Settlement Systems — (no country specified in source) - The systems operated by BME CLEARING S.A.U. — (no country specified in source) - Ireland — IE — Euroclear Bank - Japan Securities Depository Center Inc — JP — Japan Securities Depository Center Inc - KDPW S.A. — PL — KDPW S.A. - KELER — HU — KELER - LUX CSD — LU — LuxCSD Securities Settlement System - MERKEZİ KAYIT KURULUŞU ANONİM ŞİRKETİ — TR — MERKEZİ KAYIT KURULUŞU ANONİM ŞİRKETİ for all securities except for Government bonds where TIC-ESTS (Turkish Interbank Clearing – Electronic Security Settlement System) is the SSS - Monetary Authority of Singapore — SG — MEPS-SGS subsystem - NARODOWY BANK POLSKI (NBP) — PL — SKARBNET4 - Nasdaq CSD SE Estonian branch — ES — Nasdaq CSD SE Estonian branch - Nasdaq CSD SE, Lithuanian branch — LT — Nasdaq CSD SE, Lithuanian branch - NBB SSS — BE — NBB SSS - New Zealand Securities Central Depository Limited — NZ — NZClear - OeKB CSD (WSB System) — AT — OeKB CSD (WSB System) - S.D. Indeval SA de CV — MX — Comision Nacional Bancaria y de Valores - SHANGHAI CLEARING HOUSE (SHCH) — CN — SHANGHAI CLEARING HOUSE (SHCH) - SIX SIS AG — CH — SECOM, the securities settlement system operated by SIS SegaInterSettle AG - SKD (Short Term Bond System) ČESKÁ NÁRODNÍ BANKA — CZ - SKD (Short Term Bond System) ČESKÁ NÁRODNÍ BANKA — (entry repeated) - Strate Limited — ZA — Strate Limited - Thailand Securities Depository Company Limited — TH — Thailand Securities Depository Company Limited - The Bank of Japan — JP — Bank of Japan Financial Network Systems (BOJ-NET) - The Bureau of Treasury, Philippines - RoSS — PH — BTR-RoSS - The National Settlement Depository (NSD) — RU — NSD - The Taiwan Depository and Clearing Corporation (TDCC) — TW — The Taiwan Depository and Clearing Corporation (TDCC) - The Tel Aviv Stock Exchange Clearing House Limited — IL — The Tel Aviv Stock Exchange Clearing House Limited ### Source note for Appendix I - Source: EB ### Appendix II. List of FMIs that are Participants in the Euroclear System ### Participant FMIs and Profiles - ASTANA INTERNATIONAL EXCHANGE — KAZAKHSTAN — CSD - B3 S.A. — BRAZIL — CCP - BANQUE CENTRALE DE COMPENSATION — FRANCE — CCP - BME CLEARING, S.A. SOCIEDAD UNIPERSONAL — SPAIN — CCP - Caja de Valores S.A. — ARGENTINA — CSD - CASSA DI COMPENSAZIONE E GARANZIA SPA — ITALY — CCP - CAVALI S.A. ICLV — PERU — CSD - Central Counterparty National Clearing Centre — RUSSIA — CCP - CENTRAL SECURITIES DEPOSITORY — KAZAKHSTAN — CSD - CENTRALNI DEPOZITAR CENNYCH PAPIRU A.S. — CZECH REPUBLIC — CSD - Clearstream Banking SA — Luxembourg — CSD - Deposito Central de Valores — CHILE — CSD - EUREX CLEARING AG — GERMANY — CCP - Euroclear Belgium — BELGIUM — CSD - Euroclear France SA — FRANCE — CSD - Euroclear Netherland — THE NETHERLANDS — CSD - Euroclear Sweden AB — SWEDEN — CSD - Euroclear UK & International Limited (EUI) (CREST) — UNITED KINGDOM — CSD - Euronext securities Copenhague - VP — DENMARK — CSD - Euronext Securities Milan - Monte Titoli S.p.A. — ITALY — CSD - EUROPEAN CENTRAL COUNTERPARTY NV — THE NETHERLANDS — CCP - HONG KONG MONETARY AUTHORITY — HONG KONG — CSD - HONG KONG SECURITIES CLEARING — HONG KONG — CSD - ICE CLEAR CREDIT LLC — UNITED STATES OF AMERICA — CCP - ICE CLEAR EUROPE LIMITED — UNITED KINGDOM — CCP - ICE CLEAR NETHERLANDS B.V. — THE NETHERLANDS — CCP - ICE SECURITIES EXECUTION & CLEARING, LLC — UNITED STATES OF AMERICA — Market Infrastructure* - INTERCLEAR CENTRAL DE VALORES SA — COSTA RICA — CSD - Japan Securities Clearing Corporation — JAPAN — CCP - KDPW S.A. — POLAND — CCP - Krajowy Depozyt Papierów Wartościowych S.A — POLAND — CSD - LATIN CLEAR CENTRAL LATINOAMERICANA DE VALORES — PANAMA — CSD - LCH LIMITED — UNITED KINGDOM — CCP - LME CLEAR LIMITED — UNITED KINGDOM — CCP - M.A.E. (Mercado Abierto Electronico) — ARGENTINA — Market Infrastructure* - MFEX MUTUAL FUNDS EXCHANGE AB — SWEDEN — Market Infrastructure* - MIDCLEAR — LEBANON — CSD - MUSCAT CLEARING & DEPOSITORY COMPANY SAOC — OMAN — CSD - NASDAQ CLEARING AB — SWEDEN — CCP - NASDAQ DUBAI GUARDIAN LIMITED — UNITED ARAB EMIRATES — CSD - PHILIPPINE DEPOSITORY AND TRUST CORP. — THE PHILIPPINES — CSD - SD INDEVAL INSTITUCIÓN PARA EL DEPOSITO DE VALORES SA DE CV — MEXICO — CSD - SHANGHAI CLEARING HOUSE (SHCH) — PEOPLE REPUBLIC OF CHINA — Market Infrastructure* - SIX SIS AG — SWITZERLAND — CSD - THE CENTRAL DEPOSITORY (PTE) LIMITED — SINGAPORE — CSD - THE KOREA SECURITIES DEPOSIT — SOUTH KOREA — CSD - The National Settlement Depository (NSD) — RUSSIA — CSD - The Taiwan Depository and Clearing Corporation (TDCC) — TAIWAN — CSD - The Tel Aviv Stock Exchange Clearing House Limited — ISRAEL — CCP - TRINIDAD AND TOBAGO CENTRAL Depository Ltd — TRINIDAD AND TOBAGO — CSD - Note: "* Market Infrastructure : Participant acting as trading platform and clearing." *Source: EB* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1belea2023012.pdf_