Disclosure Framework - Euroclear · Disclosure Framework ... Principle 24: Disclosure of market data by ... processing of elective events and settlement of the movements associated

Disclosure Framework Observance by ESES CSDs of the CPMI-IOSCO Principles for Financial Market Infrastructures

2016

ESES 2016 CPMI-IOSCO DISCLOSURE FRAMEWORK

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Table of contents

I. EXECUTIVE SUMMARY ......................................................................................... 5 II. SUMMARY OF MAJOR CHANGES SINCE THE LAST UPDATE OF THE DISCLOSURE .......................... 6 III. GENERAL BACKGROUND ON THE FMI ........................................................................ 8

General description of the FMI and the markets it serves ............................................................................................... 8

General organisation of the FMI ..................................................................................................................................... 9

Legal and regulatory framework ................................................................................................................................... 10

Contractual relationship with ESES CSDs in the context of T2S ................................................................................. 11

System design and operations ....................................................................................................................................... 12

IV. PRINCIPLE-BY-PRINCIPLE SUMMARY NARRATIVE DISCLOSURE .............................................. 15 V. PRINCIPLE-BY-PRINCIPLE ANSWERS BY KEY CONSIDERATION ............................................... 16

Principle 1: Legal basis ................................................................................................................................................. 17

Principle 2: Governance ................................................................................................................................................ 25

Principle 3: Framework for the comprehensive management of risks .......................................................................... 37

Principle 4: Credit risk .................................................................................................................................................. 47

Principle 5: Collateral ................................................................................................................................................... 48

Principle 6: Margin ....................................................................................................................................................... 49

Principle 7: Liquidity risk ............................................................................................................................................. 50

Principle 8: Settlement finality ...................................................................................................................................... 51

Principle 9: Money Settlements .................................................................................................................................... 53

Principle 10: Physical deliveries ................................................................................................................................... 54

Principle 11: Central securities depositories ................................................................................................................. 56

Principle 12: Exchange-of-value settlement systems .................................................................................................... 60

Principle 13: Participant-default rules and procedures .................................................................................................. 61

Principle 14: Segregation and portability ...................................................................................................................... 63

Principle 16: Custody and investment risks .................................................................................................................. 68

Principle 17: Operational risk ....................................................................................................................................... 70

Principle 18: Access and participation requirements .................................................................................................... 91

Principle 19: Tiered participation arrangements ........................................................................................................... 96


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Principle 20: FMI links ................................................................................................................................................. 99

Principle 21: Efficiency and effectiveness .................................................................................................................. 101

Principle 22: Communication procedures and standards ............................................................................................ 104

Principle 23: Disclosure of rules, key procedures, and market data ............................................................................ 105

Principle 24: Disclosure of market data by trade repositories ..................................................................................... 113

VI. LIST OF PUBLICLY AVAILABLE RESOURCES .............................................................. 114


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ESES CSDs disclosure

Responding institution: Euroclear France, Euroclear Nederland and Euroclear Belgium

Jurisdiction(s) in which the FMI operates: France, the Netherlands and Belgium respectively

Authorities regulating, supervising or overseeing the Financial Market Infrastructures (FMI):

- Euroclear France: The Banque de France, Autorit des Marchs Financiers (AMF),

- Euroclear Nederland: The De Nederlandsche Bank (DNB), The Netherlands Authority for

the Financial Markets (AFM),

- Euroclear Belgium: The National Bank of Belgium (NBB) and the Financial Securities

Market Authority (FSMA)

The date of this disclosure is 31 December 2016

This disclosure can also be found at www.euroclear.com.

For further information, please contact [email protected]


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I. EXECUTIVE SUMMARY

This Disclosure Framework, produced during the last quarter of 2016, relates to Euroclear France, Euroclear

Belgium and Euroclear Nederland , altogether herein referred to as the ESES CSDs.

The systems of the three ESES CSDs are combined to create a single ESES platform that provides:

- an integrated settlement solution

- harmonised custody services for stock exchange and over-the-counter (OTC) activities.

The ESES CSDs operate a reliable, effective, low risk and efficient securities settlement system (SSS).

The ESES CSDs have appropriate clear and transparent rules and procedures in place to run their

operations, support the stability of the broader financial system and to monitor, manage and minimise the

risks involved.

Their systems, procedures and risk management framework allow the ESES CSDs and their participants to

deal with the various risks they face in operating and using the system. A clear business continuity

management exists and robust and effective rules and procedures are in place to handle default events.

The ESES Boards and management are strongly committed to maintain a low risk profile. This commitment

is reflected in both the risk management practices (such as conservative policies and proven

methodologies) and appropriate capitalisation.

The ESES CSDs have spent an important amount of time and effort in the launch of the Wave 2 T2S. Which

has successfully taken place during the week-end of 12 September 2016.

The ESES CSDs now focus on becoming compliant with CSDR & ESMA requirements with specific IT

developments to be made for Record Keeping and Settlement Discipline. Most of governance and controls

aspects have been already updated together with procedures. ESES CSDs intend to file to obtain a new

CSD licence by end Q3 2017 (depending on the publication of the Regulatory Technical Standards).

The recovery plan of ESES CSDs has been updated and now also include Orderly Wind Down aspects as

requested by CSDR.

The activities of the ESES CSDs have a sound legal basis and adequate governance arrangements. Self-

assessment and performance measurement are some of the important measures applied by the ESES CSDs

to help ensure the effective safekeeping of assets and demonstrate a risk-managed approach towards the

delivery of new and existing operational services. In this context, the management of the ESES CSDs is

pleased to provide you with this ESES Disclosure Framework Report.


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II. Summary of major changes since the last update of the

disclosure

Euroclear (hereafter we) continues to invest in regulation-driven initiatives that not only ensure

compliance with the market infrastructure regulatory framework but also support cost mutualisation and

open access. In an uncertain financial market context, shaped by an evolving economic and political

environment, clients and other market participants seek to work with a trusted, stable market infrastructure

that provides greater collateral mobility and access to liquidity, as well as operating safety, speed and

resilience through higher levels of process automation.

In Europe, we continue to support our clients transition to a new post-trade and regulatory environment,

giving them flexibility to access all Target2-Securities (T2S) markets via the national CSDs or Euroclear

Bank.

Wave 3 of the European Central Banks Target2-Securities (T2S) platform for euro-denominated CSDs was

successfully launched on 12 September, as our ESES CSDs (Euroclear Belgium, Euroclear France and

Euroclear Nederland) successfully connected to the platform.

T2S increases cross-border settlement efficiency in Europe and presents new opportunities for firms to

access liquidity and finance their activity more effectively. Through their migration to the T2S platform, our

ESES CSDs connect approximately 40% of the total outstanding in corporate bonds, equities and funds,

and 30% of government bonds for T2S markets.

In the T2S environment, we will provide the same level of asset servicing across asset classes, regardless

of the service access option and the asset location. We offer a range of harmonised services across all T2S

markets despite the continuing co-existence of varying market practices.

Since the end of the migration, the ESES CSDs have outsourced matching and settlement services to T2S,

but continue to directly offer all custody and other services to their clients. We provide ESES participants

with the key benefits of the T2S platform, including:

harmonised matching and settlement rules and life cycles with all T2S counterparties

single settlement window

extended settlement and liquidity management services

In addition, we continue to connect to other T2S markets throughout the T2S waves to offer:

the ability for clients to replace the multiple connections to European CSDs with a single access point

from the ESES platform to all T2S eligible securities (thanks to ESES acting as investor CSD),

the activation of Delivery Versus Payment (DVP) links with the other T2S-connected CSDs thanks to

the cross-CSD settlement feature of T2S,

a single pool of liquidity and collateral,


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the provision of extended asset servicing on all securities. Participants will be able to consolidate all

asset holding and activity for securities held in other T2S-connected CSDs, via the ESES platform.

Besides, we continue to offer our existing services through the ESES CSDs, such as issuer services, custody,

triparty collateral management, trade management and funds order routing.

ESES CSDs are also preparing for the evolving regulatory landscape by working on ensuring compliance

with provisions of the Central Securities Depositories Regulation (CSDR). CSDR takes another important

step in harmonising European financial markets, by providing a single, pan-European rulebook for the post-

trade sector. ESES CSDs expect to complete the final filings to obtain their licences by end Q3 2017, early

Q4 2017.

We do support innovation based on new technologies to the benefit of the financial markets, often working

in collaboration with market participants. Notable initiatives include those looking at potential applications

of blockchain technology for European small- and medium-sized enterprises, as well as the launch of e-

data Liquidity, a new service that allows users to gain insight into the liquidity of specific debt instruments.


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III. GENERAL BACKGROUND ON THE FMI

General description of the FMI and the markets it serves

Euroclear Belgium, Euroclear France and Euroclear Nederland, operating through a single system called the

ESES (Euroclear Settlement of Euronext-zone Securities) platform, provide settlement and custody services

for domestic and international securities to a wide range of international participants, which are mostly

banks, custodians, broker-dealers, central banks and issuers. In addition to its core settlement and custody

services, the ESES CSDs offer related services such as new issues distribution to the Belgian, French and

Dutch domestic markets.

Description of the FMIs basic business processes and activities

Using one operational facility for three markets, the ESES system is a fully integrated solution allowing

clients to benefit from Straight Through Processing (STP) from trading through to clearing and settlement.

The core business services offered by the ESES CSDs are summarised below:

Settlement:

The ESES matching and settlement services are fully outsourced to the T2S platform offering Free Of

Payment (FOP) and Delivery Versus Payment (DVP) book-entry settlement services. This service offers

the following key features:

o DVP settlement in central bank money

o Real-time settlement with immediate finality

o Integrated model by which securities accounts and cash positions in central bank money are held

within the same environment

o Auto-collateralisation mechanism

o Multi-CSD and multi-NCB platform

o Cross-CSD settlement

o Overnight batch settlement and daytime real-time settlement

o Real-time exchanges with payment systems

ESES CSDs continue to offer the following services:

o Trade confirmation via the SBI which is a pre-settlement STP solution for processing stock

exchange and over-the-counter (OTC) trades, from execution through to settlement which are

considered as already matched instruction on the T2S platform

o Single access point to three domestic markets

Asset Services:


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The ESES CSDs offer a large number of new issues and custody services facilitating the exercise of securities

holders rights and corporate actions, including voting services, information on corporate events and

processing for collection of income and redemption proceeds, market claims, and subscription rights.

o New issues services:

The ESES CSDs provide securities admission services on issuers behalf.

o Custody:

Safekeeping: the ESES CSDs hold securities on behalf of their clients and do not hold any ownership

right on the securities deposited with them. The ESES accounting system guarantees, for each issue, that the number of securities held by its clients is always equal to the total of the issuing account or

equivalent; Corporate actions services include the provision of data on corporate actions, electronic dividends

payments, automatic generation and processing of market claims and transformations, the processing of elective events and settlement of the movements associated with the full range of mandatory, optional or voluntary corporate actions;

Physical Securities Handling:

Physical securities are kept in vaults. Inventory controls are performed to ensure securities stocks correspond to clients securities accounts. Physical securities services include deposits, withdrawals, destructions and oppositions in accordance

with the applicable laws. Due to the specific dematerialisation legislation in Belgium, France and the Netherlands, the quantity

of bearer securities has been greatly reduced over the last years.

Issuer Services:

The ESES CSDs offer a large number of issuers services including:

Bordereaux de Rfrence Nominative (BRN): Issuers of registered securities in France have the

possibility to receive information on any change in ownership on a continuous basis;

Titre au Porteur Identifiable (TPI) Shareholding identification: Issuers of bearer securities can receive

detailed information on the identity of their shareholders upon request to Euroclear France;

Belgium Registered Securities (BRS): BRS is a service which provides support to issuers of listed

registered shares for the management of their share register via a data feed. The service includes

the processing of both on-exchange transactions traded on the Euronext Brussels market and out of

stock exchange transactions like succession and transfer of ownership and usufruct;

Euroclear Capitrack: Since all bearer securities need to be dematerialised pursuant to Belgian law,

Euroclear Belgium offers (1) dematerialisation services to all issuers of Belgian securities, (2) a

facility for the management of their nominative shareholders register and (3) payment services for

the securities eligible in its CSD system and admitted to Euroclear Capitrack.

General organisation of the FMI

Euroclear Belgium, Euroclear France and Euroclear Nederland are Central Securities Depositaries (CSDs)

respectively in Belgium, France and the Netherlands. Since January 2009, they run most of their operations

on the same IT platform and offer a largely integrated service to the clients of the Euronext markets (to


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the exception of the Portuguese market), namely the Euroclear Settlement of Euronext-zone Securities

system (ESES). They are part of the Euroclear group which also comprises the CSDs for UK and the Republic

of Ireland (Euroclear UK & Ireland), Sweden (Euroclear Sweden), Finland (Euroclear Finland) and an

International CSD (Euroclear Bank).

Euroclear plc, incorporated in the UK, is the ultimate holding company of the Euroclear group. It owns

Euroclear SA/NV, a Belgian financial holding company, which is the parent company of the group (I)CSDs.

Euroclear SA/NV acts as the group service company and provides a broad range of common services to the

group (I)CSDs such as IT production and development, audit, financial, risk management, legal,

compliance, human resources, sales and relationship management, strategy and public affairs and product

management. The Euroclear groups shares are largely owned by the users of its services.

Legal and regulatory framework

Euroclear Belgium

Euroclear Belgium1, a company incorporated under Belgian law, is a settlement institution within the

meaning of the Royal Decree N 62 of 10 November 1967, coordinated by the Royal Decree of 27 January

2004, on the Deposit of Fungible Financial Instruments and the Settlement of Transactions involving such

Instruments (hereafter referred to as the Royal Decree 62). Euroclear Belgium is the operator of the ESES

Belgium system, is legally recognised as a central securities depository (CSD) by Royal Decree of 22 August

2002 for financial instruments and has been recognised as a securities settlement system within the

meaning of the Law of 28 April 1999 on Settlement Finality (implementing the Settlement Finality

Directive). Euroclear Belgium is also a head of pyramid for corporate securities as set out in article 468 of

1 Euroclear Belgium is the commercial name of the "Caisse Interprofessionnelle de Dpts et de Virements de Titres SA/ Interprofessionele Effectendeposito-en Girokas NV or " CIK".


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the Companies Code. Euroclear Belgium is further subject to the Royal Decree of 26 September 2005 on

the status of settlement institutions and assimilated settlement institutions.

Euroclear Belgium is under the regulatory supervision of the Autoriteit voor Financile Diensten en Markten/

Autorit des services et marchs financiers (FSMA) and the prudential supervision and oversight of the

Banque Nationale de Belgique/ Nationale Bank van Belgi (BNB/ NBB).

Euroclear Nederland

Euroclear Nederland, a company incorporated under Dutch law, is the operator of the ESES The Netherlands

system. Euroclear Nederland has been appointed as system operator by the Dutch Minister of Finance

(hereafter MoF) and is legally responsible for the functioning of the system. For purposes of the Securities

Giro Act (SGA), which is the basis of the Dutch book-entry and asset-protection system, Euroclear

Nederland has been appointed as the central institution by the MoF and has been recognised as a securities

settlement system within the meaning of the Settlement Finality Directive.

Euroclear Nederland is regulated and supervised by the MoF, by the Autoriteit Financile Markten (AFM-

The Netherlands Authority for the Financial Markets) and by the De Nederlandsche Bank (DNB the Dutch

Central Bank).

Euroclear France

Euroclear France is the French central securities depository and the operator of the ESES France system

which has been recognised as a securities settlement system within the meaning of the Settlement Finality

Directive.

Euroclear France is regulated by the Autorit des Marchs Financiers (AMF) and is subject to the oversight

of the Banque de France (BdF).

Contractual relationship with ESES CSDs in the context of T2S

We outsource ESES settlement services to the T2S platform and continue to offer other services via the

ESES platform. ESES participants can connect directly to the T2S platform for settlement services only, or

use their connection with the ESES platform as a single entry point for settlement and other services.

Whether they connect directly to the T2S platform (Directly Connected Parties) or indirectly to the T2S

platform (Indirectly Connected Parties), ESES participants maintain their business, legal and operational

relationships exclusively with their ESES CSDs. While settlement processing is performed on the T2S

platform, participants continue to hold their securities accounts with the respective ESES CSDs.

To fulfil their role of CSD and settlement system, the ESES CSDs have a permanent privilege to intervene

on their clients accounts and instructions, for operational and technical purposes. This privilege is subject

to legal, contractual and regulatory constraints


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System design and operations

Matching and settlement services

ESES CSDs provide matching and settlement services that are outsourced to the T2S platform. Several

CSDs and NCBs (including the NCBs of Belgium, France and The Netherlands) outsource their settlement

and liquidity management services to the T2S platform. ESES participants can hence:

benefit from cross-border settlement with their counterparties in other CSDs

concentrate their liquidity management in a single funding point

T2S provides Free Of Payment (FOP) and Delivery Versus Payment (DVP) book-entry settlement services

that follow these principles:

DVP settlement in central bank money

Real-time settlement with immediate finality

Integrated model by which securities accounts and cash positions in central bank money are held within

the same environment

Auto-collateralisation mechanism

Multi-CSD and multi-NCB platform

Cross-CSD settlement

Overnight batch settlement and daytime real-time settlement

Real-time exchanges with payment systems

Multi-currency settlement capabilities (although, at the launch of T2S, only EUR is eligible)

Figure 1 shows how the ESES platform technically interacts with clients and T2S, for matching and

settlement.


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The ESES participants send their settlement instructions to the ESES platform or T2S platform (via the

corresponding ISO-compliant message).

Depending on their activity, they can process transactions on ESES 'pre-settlement platforms or external

pre-settlement platforms that settle on their ESES account. The ESES CSDs then send relevant settlement

instructions onwards to the T2S platform, on behalf of the participant.

We outsource the matching and settlement services to the T2S platform. The T2S platform generates

settlement reports that are sent to the participant directly, or via our reporting services.

The ESES CSDs offer DvP settlement in central bank money. For this purpose, all Central Banks may act

as settlement agent (in the meaning of the Settlement Finality Directive) of the CSD System via Dedicated


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Cash Accounts they open to Payment Banks. The latter may, but must not, be participant of the CSD. Each

such Central Bank operates a payment system in the meaning of the Settlement Finality Directive and the

execution of the cash leg of any instruction in the CSD System is subject to the Central Bank Rules of the

concerned Central Bank.

Each participant shall designate one or several Dedicated Cash Accounts to be used in connection with each

Securities Accounts opened in its name.


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IV. Principle-by-principle summary narrative disclosure

TABLE 1 - RATINGS SUMMARY

Assessment Category Principle

Observed 1,2,3,8,9,10,11,12,13,15,16,17,18,20,21,22,23

Broadly Observed 19 (No Tiering System in ESES CSDs)

Partly Observed

Not Observed

Not Applicable 4,5,6,7,14,24


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V. Principle-by-principle answers by Key Consideration


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Principle 1: Legal basis

An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material

aspect of its activities in all relevant jurisdictions.

Key consideration 1: The legal basis should provide a high degree of certainty for each

material aspect of an FMIs activities in all relevant jurisdictions.

Material aspects and relevant jurisdictions

The following table gives an overview of the material aspects of the ESES CSDs activities that require legal

certainty.

Material Aspect Relevant jurisdiction

Regulatory

framework

the existence of an adequate

authorisation and supervision, from a

regulatory point of view

The most relevant jurisdiction is the

jurisdiction where the relevant ESES CSD is

located (i.e. Belgium for Euroclear Belgium,

the Netherlands for Euroclear Nederland

and France for Euroclear France).

Asset protection the protection of the holdings in financial

instruments of the participants in the

securities settlement system (SSS)

operated by the ESES CSDs, i.e. the

ESES System.

The most relevant jurisdiction is the

jurisdiction where the relevant ESES CSD is

located. The law applicable to the foreign

CSD and the SSS is also relevant where

financial instruments are held through links

with foreign CSDs.

Finality the settlement finality of securities and

cash transfers

The relevant jurisdiction for settlement

finality is the jurisdiction where the SSS

operated by the ESES CSD is located (i.e.

Belgium for Euroclear Belgium, the

Netherlands for Euroclear Nederland and

France for Euroclear France).

The finality rules for transfer orders in the

ESES System are set out in the contractual

framework, in accordance with national law

implementing the Settlement Finality

Directive.

For securities held through links with a

foreign CSD operating a SSS, the law

applicable to the foreign CSD and the SSS

is also relevant, when settlement occurs in

the local market.

Contractual

framework

the material aspects of the services and

activities

The relevant jurisdiction is the jurisdiction

of the governing law of the agreements.

How the default of

a participant would

affect

enforceability of

rules and

procedures

the rules concerning default situations In the event of an insolvency of a

participant, the rights and obligations

deriving from or linked to its participation in

the ESES System are determined by the

Belgian law for Euroclear Belgium, Dutch

law for Euroclear Nederland and French law

for Euroclear France.

In case of insolvency or resolution

proceedings affecting participants, the


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actual location or place of incorporation of

participants can be relevant as well.

1.1 Regulatory framework

The ESES CSDs are implementing Regulation 909/2014 on improving securities settlement in the European

Union and on central securities depositories (CSDR), which came into force in September 2014.

1.1.1 Euroclear Belgium

Euroclear Belgium, a company incorporated under Belgian law, is a settlement institution within the

meaning of Royal Decree 62. Euroclear Belgium is legally recognised as a central securities depository

(CSD) by Royal Decree of 22 August 2002. Euroclear Belgium is the operator of the ESES Belgium system,

which has been recognised as a securities settlement system within the meaning of the Law of 28 April

1999 on Settlement Finality implementing the EU Settlement Finality Directive 98/26 (SFD). Euroclear

Belgium is also a head of pyramid for corporate securities as set out in article 468 of the Companies Code.

Euroclear Belgium is further subject to the Royal Decree of 26 September 2005 on the status of settlement

institutions and assimilated settlement institutions.

Euroclear Belgium is under the regulatory supervision of the Autoriteit voor Financile Diensten en

Markten/Autorit des services et marchs financiers (FSMA) and the prudential supervision and oversight

of the Banque Nationale de Belgique/Nationale Bank van Belgi (BNB/ NBB).

1.1.2 Euroclear Nederland

Euroclear Nederland, a company incorporated under Dutch law, is the operator of the ESES The Netherlands

system. Euroclear Nederland has been appointed as system operator by the Dutch Minister of Finance

(hereafter MoF) and is legally responsible for the functioning of the system. For purposes of the Securities

Giro Act (SGA), which is the basis of the Dutch book-entry and asset-protection system, Euroclear

Nederland has been appointed as the central institution by the MoF and has been recognised as a securities

settlement system within the meaning of the Settlement Finality Directive.

Euroclear Nederland is regulated and supervised by the MoF, by the Autoriteit Financile Markten (AFM -

The Netherlands Authority for the Financial Markets) and by the De Nederlandsche Bank (DNB - the Dutch

Central Bank).

1.1.3 Euroclear France

Euroclear France is the French central securities depository2 and the operator of the ESES France system3

which has been recognised as a securities settlement system within the meaning of the Settlement Finality

Directive.

2 Article 550-1 et seq. of the general Regulation of the Autorit des Marchs Financiers 3 Article 560-1 et seq. of the general Regulation of the Autorit des Marchs Financiers


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Euroclear France is regulated by the Autorit des Marchs Financiers (AMF) and is subject to the oversight

of the Banque de France (BdF).

1.2 Asset protection

The ESES CSDs do not hold securities for their own account but only on behalf of their clients. Moreover,

attachment by garnishment on the accounts opened with each CSD is prohibited under their respective

applicable legislations.

1.2.1 Euroclear Belgium

The Belgian legislation provides for a clear and sound basis for admission and book-entry transfers of

immobilised, dematerialised or registered securities regardless of whether or not they are governed by

Belgian law.

The Royal Decree 62 provides for a two-tier structure of asset protection, benefiting to the participants in

Euroclear Belgium and their underlying clients. The financial instruments held with Euroclear Belgium are

protected against both the consequences of the insolvency of Euroclear Belgium and its participants.

By virtue of the Belgian legislation, the securities deposited with Euroclear Belgium never become part of

the estate of Euroclear Belgium and cannot be claimed by its creditors: the participants of Euroclear Belgium

are granted by law a co-ownership right of an intangible nature on a pool of book-entry securities of the

same category held by Euroclear Belgium on behalf of all of its participants holding securities of that

category. The participants holding securities in Euroclear Belgium retain ownership on such securities which

implies that they retain (1) a right of revendication of the relevant quantity of securities deposited in the

event of an insolvency event or bankruptcy affecting Euroclear Belgium and (2) voting rights. Similarly, the

clients of the participants hold co-ownership right on a pool of book-entry securities of the same category,

deposited in the securities accounts maintained by Euroclear Belgium participants. Euroclear Belgium

enables the participants, on demand, to segregate their own assets from those of their own clients. The

clients of the participants can exercise their co-ownership rights collectively, against Euroclear Belgium,

when the participants that are holding their securities would face an insolvency proceeding (i.e. bankruptcy,

insolvency, winding-up or other situation of concurrence between creditors, as meant under the relevant

provisions of Belgian law).

1.2.2 Euroclear Nederland

The Securities Giro Act (SGA) provides for a two-tier structure of asset protection, benefiting to the

participants in Euroclear Nederland and their underlying clients. The financial instruments held with

Euroclear Nederland are protected against both the consequences of the insolvency of Euroclear Nederland

and its participants.

Euroclear Nederland holds securities in a girodeposit on behalf of the Admitted Institutions (within the

meaning of the SGA) which become pro-rata owners of the girodeposit that corresponds to the amount of

securities they delivered for inclusion in the girodeposit. The right of co-ownership is represented for each


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Admitted Institution by a book entry record in the books of Euroclear Nederland. Similarly, the Admitted

Institutions hold securities for their clients in a collective deposit (verzameldepot). The clients of the

participants have jointly co-ownership rights on the securities which they delivered to the Admitted

Institutions for inclusion in the collective depot.

Euroclear Nederland enables the participants, on request, to segregate their own assets from those of their

own clients.

1.2.3 Euroclear France

In France, proprietary rights are not materialised at the level of the CSD (i.e. Euroclear France) but at the

level of the authorised account keeper (Teneur de Compte Conservateur). As a result, when securities are

credited to the account held by Euroclear France, proprietary rights over said securities remains determined

by reference to individual account opened in the books of the entity acting as an authorised account keeper.

Therefore, under French laws and regulations, the asset protection regime is ensured at the level of the

authorised account keeper.

Further details concerning the asset protection applicable to each ESES CSD are available in Rights of

Clients relating to the Securities deposited in the ESES Central Securities Depositories, which is published

on www.euroclear.com.

1.3 Finality

Each ESES CSD has been designated as system operator and each system operated by them (ESES CSD

System) has been designated as a securities settlement system for the purposes of the Settlement Finality

Directive and its national transpositions.

Each ESES CSD system is on the list of the designated security settlement systems notified to the European

Commission pursuant to Article 10 of the Settlement Finality Directive (SFD) as displayed on the European

Commission and ESMA websites.

In the event of an insolvency proceeding affecting a participant, the system operator or the operator of a

linked or interoperable system, general bankruptcy laws like zero hour rules or claw-back rules do not

apply. Instead, the local legislation of each ESES CSD implementing the SFD ensures irrevocability and

finality of transfer orders entered into the CSD System. The finality rules of transfer orders are set out in

Book I of the ESES Terms and Conditions (T&Cs). For Euroclear France, in application of French law, the

finality rules are also reflected in the ESES France Operating Rules.

In addition, the Settlement Finality Directive refers to the rules of the system to determine the moment of

(i) entry of transfer orders in the system (ii) irrevocability of transfer orders (in accordance with applicable

law) and (iii) finality of settlement.

The typology of participants and the access criteria to each ESES system are set out in the Euroclear

Contractual Documentation in compliance with the local laws of each CSD and the CPMI-IOSCO Principles

for FMIs, in particular Principle 18.


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Finally, in the event of an insolvency of a participant, the rights and obligations deriving from or linked to

its participation in the respective ESES system operated by each ESES CSD are determined by the law of

that ESES system.

1.4 Impact of the default of a participant and default management procedure

Pursuant to Article 8 of the SFD, as transposed into national law, in case of insolvency of a participant, the

rights and obligations deriving from or linked to its participation in an ESES CSD System are determined

by the laws of the jurisdiction in which the ESES CSD System is located, i.e. Belgium, France and the

Netherlands.

On how the ESES CSDs manage the default of a participant, please refer to Principle 13.

1.5 Contractual framework

The contractual framework is published on www.euroclear.com, please refer to KC 2 below.

Key consideration 2: An FMI should have rules, procedures, and contracts that are clear,

understandable, and consistent with relevant laws and regulations.

The main contractual documentation, issued respectively by each ESES CSD consists of:

- ESES T&Cs (Book I and II)

- ESES Operating Manuals (Part I and II)

- Detailed Services Descriptions (DSDs)

- Newsletters

- For Euroclear France only, in accordance with French law, the Operating rules of Euroclear France

Central Depository and ESES Operating Rules approved by Autorit des Marchs Financiers

Together referred to as Euroclear Contractual Documentation.

These documents are provided to participants upon their admission to the ESES CSDs. The amendments

to the T&Cs are communicated to the participants via Newsletters and via www.euroclear.com.

In addition, each ESES CSD has issued standard documentation concerning the issuer services (the ESES

Issuer Services Documentation) consisting of the following documents:

- A standard contract template with the main contractual and legal provisions and its annexes

composed of service level descriptions for each issuer service

- ESES Issuer Services T&Cs (Book I and II) to which the standard contract and its annex is subject

- ESES Issuer Services Description

http://www.euroclear.com/


22

The ESES Issuer Services Documentation is entered into and/or provided to issuers or agents subscribing

to the ESES Issuers services described in the ESES Issuer Services Documentation.

Besides, the Euroclear France and Euroclear Nederland are providing (Triparty) Collateral Management

services which are subject to the following contractual documentation:

- T&Cs

- Operating Procedures

- Annexes

which form the Collateral Management Service Documentation.

A version of those documents exists for the main types of underlying collateral agreement (Repurchase

Service agreement, Collateral Service Agreement).

In addition, the ESES CSDs provide their participants (including the issuers and their agents under the

ESES Issuer Services Documentation) with a number of notices, e-News, alerts, guides, manuals or

technical documents to facilitate their use of the ESES system.

Consistency of the Euroclear Contractual Documentation and the ESES Issuer Services Documentation with

relevant laws and regulations is ensured both by the scrutiny exercised by in-house counsels and by periodic

legal opinions from external counsels.

In accordance with the Dutch regulatory framework, Euroclear Nederland submits the Euroclear Contractual

Documentation and any amendment thereto as well as template contractual documents (including the ESES

Issuer services Documentation) for pre-approval to the Dutch Regulators. New services and tariffs are also

subject to pre-approval.

With respect to Euroclear Belgium, the amendments to the Euroclear Contractual Documentation and the

ESES Issuer Services Documentation are communicated to the Belgian Regulator although they are not

subject to its pre-approval.

With respect to Euroclear France, the Euroclear Contractual Documentation and any amendment thereto

as well as template contractual documents (including the ESES Issuer Services Documentation) are not

subject to pre-approval of the AMF. However, the Operating rules of Euroclear France Central Depository

and ESES Operating Rules and any changes thereto are subject to pre-approval of the AMF.

Key consideration 3: An FMI should be able to articulate the legal basis for its activities to

relevant authorities, participants, and, where relevant, participants customers, in a clear and

understandable way.


23

The legal basis4 of the ESES CSDs activities is articulated in the following documents:

- the Euroclear Contractual Documentation (please refer to KC 2)

- the ESES Issuer Services Documentation (please refer to KC2)

- the Collateral Management Service Documentation (please refer to KC2)

- the yearly ESES CSDs Disclosure framework report

- the yearly ISAE 3402 Report

- the Rights of Clients relating to the Securities deposited in the ESES Central Securities Depositories

For the communication of and access to the Euroclear Contractual Documentation and the ESES Issuer

Services Documentation, please refer to KC2 above.

The Rights of Clients relating to the Securities deposited in the ESES Central Securities Depositories, the

Disclosure Framework Report and the ISAE 3402 Report are publicly available on the Euroclear website.

Key consideration 4: An FMI should have rules, procedures, and contracts that are enforceable

in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the

FMI under such rules and procedures will not be voided, reversed, or subject to stays.

Enforceability of rules, procedures and contracts

Most aspects have already been covered in KC1 and KC2.

The Euroclear Contractual Documentation and the ESES Issuer Service Documentation are enforceable in

case of insolvency of (i) participants in each ESES system (ii) the operator of each ESES system or (iii) the

operators of linked or interoperable systems. Those enforceability principles would also apply to the

Collateral Management Services Documentation.

Degree of certainty for rules and procedures

Please refer to KC1.

Key consideration 5: An FMI conducting business in multiple jurisdictions should identify and

mitigate the risks arising from any potential conflict of laws across jurisdictions.

The ESES CSDs carry out their activities in the jurisdictions where they are located, i.e. Belgium for

Euroclear Belgium, the Netherlands for Euroclear Nederland and France for Euroclear France. In the context

of an insolvency proceeding declared against a participant of one of the ESES CSDs, no conflict of laws

4 Notably: Euroclear Belgium Royal Decree 62, Euroclear Nederland: Securities Giro Act and Euroclear France: Monetary and Financial Code and the General Regulation of the Autorit des Marchs Financiers.


24

arises since the rights and obligations deriving from, or linked to, its participation in the ESES system are

determined by the law of the relevant ESES CSD System (see 1.4 above).

Potential conflict of laws could arise when an ESES CSD holds securities on behalf of its participants via a

link with a CSD located in another jurisdiction. To date, no conflicts of laws (in particular from an asset

protection perspective) have been identified in the legal opinions obtained from outside counsels.


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Principle 2: Governance

An FMI should have governance arrangements that are clear and transparent, promote the safety and

efficiency of the FMI, and support the stability of the broader financial system, other relevant public interest

considerations, and the objectives of relevant stakeholders.

Key consideration 1: An FMI should have objectives that place a high priority on the safety and

efficiency of the FMI and explicitly support financial stability and other relevant public interest

considerations.

The mission and objectives of the Euroclear group are published on our website. The main strategic

objective of the Euroclear group and the ESES CSDs is to be one of the leading providers of post-trade

services through reliability, innovation and leadership by:

o Building long-term partnerships with clients

o Supporting the stability and developments of the markets, locally and globally.

Within this framework, the ESES CSDs Boards have the requisite autonomy and authority to effectively

manage their interests when implementing the group strategy.

ESES CSDs benefit from the pooling of investments within a larger group, the ability to develop new services

and cover new products leveraging the expertise of the group with the objective of meeting the needs of

the market where they operate.

The Boards of Euroclear France, Euroclear Belgium and Euroclear Nederland and Euroclear plc/ Euroclear

SA/NV are responsible for assessing their respective performance in meeting their objectives. In addition,

the Management Committee of Euroclear SA/NV assesses also the performance of each ESES CSD as a

group entity.

The ESES CSD Boards and Management Committees are strongly committed to maintain a low risk profile

for the CSDs activities. This commitment is namely reflected by conservative policies and appropriate

capitalisation.

The group has established high standards of professional conduct and ethics that direct the ongoing

activities of the group and our behaviour. These standards are formalised in various policies and procedures

applicable to employees, senior management and Directors across the group.

The groups shares are largely owned by users of its services and its main Boards (Euroclear plc and

Euroclear SA/NV Boards) are essentially composed of members drawn from a cross-section of firms that

use the Euroclear services allowing users' interests and sensitivities to influence the decision-making

process of Euroclear.

In addition, independent directors, not affiliated with firms using the groups services have been appointed

to each of the Boards of Euroclear plc, Euroclear SA/NV and ESES in order to allow for the interests of

stakeholders other than users to be represented. Users can also influence the decision-making bodies


26

through the Market Advisory Committees, which are committees established for each market where an

entity of the group acts as CSD.

Furthermore, in view of ensuring proper dialogue between the ESES CSDs and the market players, a market

representative has also been appointed to the Board as an observer with no voting rights.

Key consideration 2: An FMI should have documented governance arrangements that provide

clear and direct lines of responsibility and accountability. These arrangements should be

disclosed to owners, relevant authorities, participants, and, at a more general level, the public.

Governance arrangements

The current structure of the Euroclear group is presented on our website5.

Euroclear Belgium is incorporated under Belgian Law. Euroclear Belgiums governance requirements are

set out in EU and Belgian legal documentation. Euroclear Belgium has a regulatory obligation to describe

how it complies with those governance requirements in a Governance Memorandum, provided annually to

the Belgian regulator for their review.

Euroclear France is incorporated under French Law. Euroclear Frances governance requirements are set

out in EU and French legal documentation, i.e. the Commercial Code and the Rglement Gnral of the

AMF.

Euroclear Nederland is incorporated under Dutch Law. Euroclear Nederlands governance requirements are

set out in EU and Dutch legal documentation, i.e. the Securities Giro Act (Wet Giraal Effectenverkeer) and

additional rules and regulations as determined by the AFM.

Euroclear Belgium, Euroclear France and Euroclear Nederland are subsidiaries of Euroclear SA/NV.

Euroclear SA/NV acts as the group service company providing shared services to other group companies

in services arrangements with each group Company, the Shared Services Agreements. Euroclear SA/NV

contractually provides various business functions, such as IT development and operations, financial,

technical, administrative, legal, tax, accounting, commercial and product management services, as well

as control functions, such as internal audit, risk management and compliance functions, to the CSDs.

Euroclear plc is the owner of the Euroclear System, the clearance and settlement system for internationally

traded securities.

The ESES CSDs created an integrated settlement infrastructure, introducing a single IT platform,

harmonised services, market practices and tariffs across Belgium, France and the Netherlands. This

integration strengthened the interdependence between Euroclear Belgium, Euroclear France and Euroclear

Nederland. They have hence adopted an integrated governance model to further coordinate the decision-

making in these three entities in view of ensuring (where possible) a consistent approach in the delivery of

ESES services and products across the Belgian, Dutch and French markets. The ESES governance model

5 www.euroclear.com/en/about/our-structure.html


27

consists of a harmonised governance and management structure of the three ESES CSDs while complying

in each jurisdiction with the local laws and regulations. In practice, this harmonised governance model

implies, in the three ESES CSDs, the same composition of most of the corporate bodies, the appointment

of the same person as Chief Executive Officer, and the creation of cross-entity fora or committees, and

accountabilities.

Disclosure of governance arrangements

Euroclear makes public relevant governance information via different channels to provide accountability to

owners, participants and other relevant stakeholders, namely:

Publications with relevant authorities (for example in Belgium: Belgian State Gazette, Banque

Carrefour des Entreprises, NBB, FSMA; in France: Greffe du Tribunal de Commerce; in the

Netherlands: Dutch Chamber of Commerce)

Publications in financial/national newspapers

Publications on the Euroclear website (for example Board and Board Committees composition and

Terms of Reference, ISAE 3402, CPMI-IOSCO Disclosure Framework, etc.)

Publications to shareholders (annual reports, notice of meetings, etc.)

Key consideration 3: The roles and responsibilities of an FMIs board of directors (or equivalent)

should be clearly specified, and there should be documented procedures for its functioning,

including procedures to identify, address, and manage member conflicts of interest. The board

should review both its overall performance and the performance of its individual board members

regularly.

Roles and responsibilities of the Board

Each ESES CSD Board has the power to carry out all acts that are useful to achieve the objectives of its

respective CSD as defined in the Articles of Association, except those that are explicitly reserved by law or

the Articles to the shareholders. In carrying out this role, each Board member acts in good faith in the way

s/he considers would be most likely to promote the success of the ESES CSDs for the benefit of its

shareholders as a whole while having due regard to the interests of other stakeholders (such as regulators,

customers, employees and suppliers). The Boards also have regard to the interests of the group, provided

the proper balance is struck between the financial charges imposed on the ESES CSDs and the eventual

benefit to the ESES CSDs.

The primary responsibilities of the Boards are to define the strategy of the ESES CSDs and to supervise

ESES CSDs management. The main responsibilities and operating procedures of the Boards have been

defined in the Articles of Association and Boards Terms of Reference. The Boards Terms of Reference

are available on the Euroclear website.

In order to perform their responsibilities more efficiently, the Boards, each separately, have established

the following committees exclusively composed of non-executive directors: the Audit and Risk Committees


28

and the Nominations, (Remuneration6) and Governance Committees.

The Audit and Risk Committees assist their respective Boards in fulfilling their responsibilities

for oversight of the quality and integrity of the accounting, auditing and reporting practices of the

ESES CSDs, the review of the effectiveness of the internal control system, the monitoring of the

evolution of the risk profile, the monitoring of the management systems, the compliance with laws

and regulations, the process for monitoring security and business continuity arrangements, the

appointment, independence, accountability and effectiveness of the External Auditor, the approval

of the annual external audit plans, the CSDs risk management governance structure, risk tolerance,

appetite and strategy, management of key risks as well as the process for monitoring and mitigating

such risks (including contingency planning, cyber security, recovery plans, board policies, etc.) and

any such other duties as directed by the Boards.

The Nominations, (Remuneration) and Governance Committees review and make

recommendations to their respective Boards in respect of nominations of their executive and non-

executive Directors, the composition of the Board and Board Committees and advises the Board on

corporate governance matters as well as with respect to the total amount of remuneration paid to

its executive Directors. They also set a target for representation of the underrepresented gender

on the Board and define guidelines describing appropriate actions to reach this target. Furthermore

they review and make recommendations to the Boards with respect to remuneration policies as

well as the remuneration practices and incentives arising therefrom taking into account the long-

term interests of shareholders, investors and other interested parties, as well as with the general

interest. The Remuneration Committee and the Nominations and Governance Committee in France

are separate committees.

The Boards also established a Management Committee in each ESES CSD, in accordance with local legal

and regulatory requirements, and delegated to it the responsibility for managing the business of the

respective entity within the strategy and general policy decided by the Boards, and to implement such

strategy and general policy. The Management Committees have set up several internal committees to assist

them in the performance of their duties.

The composition and Terms of Reference of the Board and Board Committees are available on

www.euroclear.com .

Euroclear established policies outlining the principles of ethics that Euroclear employees, senior

management and board members must demonstrate. The policies also outline the principles to follow in

order to identify and prevent any conflicts of interest and, in the event it is not reasonably possible to

avoid a conflict of interest, to properly manage such a conflict. The principles of the procedures set out in

the policies are available on www.euroclear.com .

Review of performance

The Nominations, (Remunerations) and Governance Committees review annually the balance of skills,

6 Euroclear France has both a Remuneration Committee and a Nomination and Governance Committee while Euroclear Nederland and Euroclear Belgium respectively have a single Committee covering Remuneration, Governance and Nomination matters.

http://www.euroclear.com/


29

experience and participation on their respective Boards (both individually and collectively) and report on

the same to the Boards. The N(R)GCs perform this review based on:

The structure, size, composition (incl. collective skills and experience), performance of the Board in

general; and

The expertise (knowledge, experience, skills) and implication of the Board members.

In addition, on an annual basis, the Boards of the ESES CSDs carry out a self-assessment and effectiveness

review of the Boards as a whole, the Board Chairman and the individual members. This review endeavours

to ensure that the Boards have the necessary framework in place within which to make decisions, focusing

on the optimum mix of skills and knowledge amongst the Directors, clarity of goals and processes, a culture

of frankness that encourages constructive evaluation, full disclosure of procedures and an effective

relationship with management. This annual review is carried out by completion of a questionnaire by each

Board member.

The consolidated responses of the self-assessment are reviewed by the Nominations, (Remuneration) and

Governance Committees and the results are reported to the Boards for discussion. Concerns raised in the

responses are followed-up appropriately. On a periodic basis, the evaluation of the Board is externally

facilitated.

Key consideration 4: The board should contain suitable members with the appropriate skills and

incentives to fulfil its multiple roles. This typically requires the inclusion of non-executive Board

member(s).

In accordance with legal requirements, Board members are appointed by the shareholders. The Board

submits to the shareholders its proposals regarding appointment (and re-election) of Board members,

supported by a recommendation of the Nominations, (Remuneration) and Governance Committees which

assesses the Director against selection criteria. All nominations are made against merit and on the basis of

a Directors potential contribution in terms of knowledge, experience and in accordance with the needs of

the Board at the time of nomination. All nominations to the Board are made with due regard to diversity

on the Board, including gender. All directors have the highest degree of personal integrity and ethics,

leadership qualities and a proven ability to exercise sound business judgement.

In addition, to adequately fulfil its role and responsibilities, the Board as a whole should possess the

necessary balance of skills and experience to set the ESES CSDs general policy and strategy, and to properly

supervise management in the implementation of such policy and strategy. The skills that should necessarily

be represented on the Board are both generic (finance, accounting, management and organisation) and

specific to the ESES CSDs business (Operations, Settlement, IT, capital markets).

The Boards of Directors of the ESES CSDs are composed of members of the ESES CSDs Management

Committees and of non-executive directors. The ESES CSDs ensure to have a sufficient number of

independent directors sitting on their Boards in line with legal and regulatory requirements.

The overall membership of the Boards (and Board Committees) is reviewed by the Nominations,


30

(Remuneration) & Governance Committees on an annual basis with a view to ensuring the Boards remain

appropriately composed. The Boards and Board Committees composition are available on www.euroclear

.com.

Non-executive directors who are not member of the group management receive remuneration for their

mandate, taking into account their level of responsibility and time required of them in fulfilment of their

Board role. It comprises an annual gross fee, pro-rated to the number of Board meetings attended and

reflects any additional formal responsibilities held.

Non-executive directors do not receive incentive compensation (short or long-term) or stock options or

employments benefits (other than reimbursement of expenses). Their remuneration is not linked to the

performance of Euroclear.

Key consideration 5: The roles and responsibilities of management should be clearly specified.

An FMIs management should have the appropriate experience, a mix of skills, and the integrity

necessary to discharge their responsibilities for the operation and risk management of the FMI.

Roles and responsibilities of management

The ESES Management Committees (MCs) have been established by the Boards (under the responsibility

of the CEO in the case of Euroclear France) in accordance with the legal requirements and have been

entrusted with the general management of the ESES CSDs with the exception of (i) the determination of

the strategy and the board policies (e.g. Corporate Risk Management Board Policy, Code of conduct, ethics,

compliance and legal risk Board Policy) of the Company and (ii) the powers reserved to the Board by law

or the Articles. The MCs act in accordance with applicable law and the rules set out in the Articles and their

Terms of Reference and under the supervision of the Board (or the CEO in the case of Euroclear France).

The Euroclear Nederland and Euroclear Belgium MCs acting as a collegial body report directly to the Board

and, where it concerns an area within the remit of the Board committees, to the Boards specific

committees, which in turn report their analysis on the same to the Board. The Euroclear France MC reports

directly to the CEO who in turn reports to the Board and, where it concerns an area within the remit of the

Board committee, to the Boards specific committees.

A Chief Executive Officer has been appointed by the ESES CSDs Boards and is the Chairperson of the ESES

MCs.

The Boards of Euroclear Nederland and Euroclear Belgium and the CEO of Euroclear France are responsible

for the appointment of the Management Committees members and the discharge of their role and individual

members. They ensure, through regular review, the continued suitability of these persons for their role as

Management Committee members, taking into account the needs of the company and legal and regulatory

requirements regarding individuals suitability for such role.

The objectives of the Management Committees are set annually by the Boards of Euroclear Nederland and


31

Euroclear Belgium and the CEO of Euroclear France. The Nominations, (Remuneration) and Governance

Committees of Euroclear Nederland and Euroclear Belgium and the CEO of Euroclear France assess the

performance of the Management Committees the following year. The CSDs and ESES MCs/ Euroclear France

CEOs objectives, as set by the ESES Boards, are laid down in the annual ESES Performance Assessment

report. This report covers well defined objectives in the areas of (i) Service excellence, (ii) Service

enrichment, (iii) People & Organisation, (iv) Sustainability, and (v) Risk and Compliance (with regulations).

Management provides quarterly performance assessment status updates to the ESES CSD Boards.

Experience, skills and integrity

All nominations to the MCs are made against merit and based on the knowledge, experience and skills of

the candidate, regardless of his/her gender or ethnic background.

With respect to future potential members of the MCs, Human resources, together with the Chairperson of

the MCs and the Chairman of the Euroclear Belgium and Euroclear Nederland Boards jointly propose to

their respective Boards the names of the candidates to be appointed as members of the MCs.

The recruitment process includes a series of interviews of the candidate, an assessment of the candidates

profile carried out by reputable external consultants, where appropriate, as well as a check of the

candidates professional references.

In addition, the MCs as a whole should possess the necessary balance of skills and experience to fulfil its

role and responsibilities.

Key consideration 6: The Board should establish a clear, documented risk-management

framework that includes the FMIs risk-tolerance policy, assigns responsibilities and

accountability for risk decisions, and addresses decision making in crises and emergencies.

Governance arrangements should ensure that the risk-management and internal control

functions have sufficient authority, independence, resources and access to the Board.

Risk management framework

The Management Committee of Euroclear group actively supports the development and maintenance of an

effective enterprise risk management (ERM) framework and strong internal control system (ICS) within the

group. The ERM Framework is documented through a comprehensive set of Board policies, handbooks and

procedures and has been approved by the Board.

Our Corporate Risk Board Policy sets out the Boards role in relation to risk management, and

communicates the Boards risk management expectations to the business. In so doing, the Board has

articulated our desired risk culture and overall risk appetite, which details how much and what types of

risk we are willing to accept in order to achieve our key goals.

In addition to the Corporate Risk Management Board policy, a number of other key policies and handbooks

guide the organisation on the way risks are managed in Euroclear, including: Remuneration Policy, Board


32

policy on the Code of Ethics, conflicts of interest & external mandates for the board, the Ethical conduct,

Legal and Compliance risk board policy.

As part of the continued development and refinement of the ERM framework, management will take the

Board-defined risk appetite statement and turn it into a risk appetite framework of meaningful metrics;

thresholds and limits to help management understand and manage risks within our appetite. A robust

internal control framework, based on control objectives, is used to help Euroclear manage the risks it faces.

High Level Control Objectives (HLCOs) link to more detailed Control Objectives. These control objectives

are supported by detailed controls and control processes describing how the risks impacting business

activities are to be mitigated.

These control objectives are the foundation of the groups internal control system and are documented in

the Positive Assurance Reports (PAR). The PARs are deployed at entity/divisional level and, where relevant,

at departmental level. They link business objectives with the control objectives, control activities, and forms

of evidences. The PARs allow first line management to timely identify and report on the adequacy and

effectiveness of the control environment.

Crisis procedures are also in place allowing quick escalation at entity or group level depending on the nature

and the severity of the crisis. Those crisis procedures are regularly tested.

Three lines of defence

In line with best market practice, Euroclear operates a three lines of defence model. The allocation of responsibilities within Euroclear's three lines of defence model is:

First line of defence:

The first line (management) is responsible for taking acceptable risks as per our risk appetite to meet

the key business objectives/key goals. Management uses the ERM framework to help them identify,

assess and manage risks that might impact the achievement of the key goals or are outside of the risk

appetite.

Consequently, first line management:

- provides the Board with information on our risk profile, as well as our key and emerging risks;

- demonstrates to the Board that risk controls are both adequate and effective; and

- advises whether key goals are likely to be achieved

In this context, the first line becomes the primary source of (non-independent) assurance to the Board.

Second line of defence:

The second line (Risk Management & Compliance divisions) provides robust independent oversight of

managements risk-taking activities through:

establishing, maintaining, facilitating and assessing the effective operation of our ERM framework

constructively challenging management and advising the Board around identification, assessment,

risk-response and reporting of risks, including compliance risks


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providing the Board with an independent view of our:

o risk capacity, appetite (including risk appetite framework) and risk profile

o key and emerging risks, both at the group and entity level

o likely achievement of key goals across business.

acting as an independent risk sounding board (providing advice) for executive management and

the Board.

The Risk Management and Compliance Charters clarify how the second line functions will achieve their

mission and objectives through the authority, remit and responsibilities provided to them. Other support

functions like Finance or Human Resources monitor specific controls and escalate to management in case

of control defects.

Third line of defence:

The third line (Internal Audit) provides the highest level of independent assurance to senior management

and the Board on the adequacy and effectiveness of governance, risk management and internal controls.

Internal Audits Charter governing the internal audit functions mission, authority, remit and

responsibilities are approved by the Audit Committees.

The Risk Management, Compliance and Internal Audit Divisions are independent from the business lines

they monitor. The Chief Risk Officer, the Chief Auditor and the Head of Compliance have a direct reporting

line to the CEO and direct access to the chairman of the relevant Board committees (Euroclear SA/NV and

ESES CSDs Boards, Audit Committees and Risk Committees).

Authority, independence and resources of risk management and audit functions and access to

the board

Risk Management

Mission

The Euroclear Risk Management divisions mission is to support Euroclear in achieving its goals and

delivering its strategy through providing robust, independent oversight of risk taking activities. Risk

Management implements an approach which enables the identification and understanding of all material

current and emerging risks and the management of appropriate responses.

This is done by providing a coherent effective framework, suitable training, appropriate tools, expert

impartial advice, timely risk assessments, escalation of material risk issues, informed relevant reporting,

all of which enable risks to be managed within our risk appetite.

Organisation and authority

The Risk Management division provides independent oversight of managements risk-taking activities

across the group to help Euroclear achieve its goals and deliver its strategy, and thus is central to ensuring

each Board is able to meet its obligations. It is headed by the Chief Risk Officer (CRO) who is also a

permanent invitee to the ESA Management Committee.


34

The CRO has a direct reporting line to the Chairman of the ESA Board Risk Committee in addition to its

normal (i.e. day-to-day) reporting line to the ESA Chief Executive Officer (CEO). Where required, the Group

CRO has unmediated access to the ESA Chairman, Board and Board Risk Committee.

ESES CRO reporting follows the same arrangements at the local level with reporting lines to the ESES CEO

and the Chair of the ESES Audit & Risk Committee. Where required, the ESES CRO has unmediated access

to the ESES Chairman, Board and Audit & Risk Committee. In addition, the ESES CRO reports functionally

to the Euroclear Group CRO. The ESES CRO has responsibility for ensuring there is robust independent

oversight of risk-taking activities across the ESES entities.

The Chair of the ESES Audit & Risk Committee is responsible for safeguarding the independence, and

overseeing the performance, of the ESES CRO as well as regularly assessing the adequacy of ESES overall

risk arrangements.

The ESES CRO, in consultation with the ESES Audit & Risk Committee, has complete autonomy in deciding

what additional activities might be necessary in order to meet its Risk Management Charter

responsibilities.

The ESES Audit & Risk Committee will be consulted as appropriate on decisions regarding appointment or

removal of ESES CRO and on performance.

The mission, authority, operating model of Risk Management function is laid down in the Risk Management

Charter7.

Internal Audit

Mission

The mission of the group Internal Audit Division is set out in the Internal Audit Charter reviewed the groups

Management Committee (MC) and Board Audit Committee (AC), and approved by the Board of Directors,

as providing reasonable assurance, in an independent and objective way, on the adequacy and

effectiveness of the groups governance, risk management and internal controls to support the Board and

senior management in reaching their objectives.

Organisation

The Euroclear SA/NV Internal Audit Charter describes Internal Audits purpose, authority and responsibility.

The Charter stipulates that the group Chief Auditor should report to a level within the organisation that

allows Internal Audit to fulfil its responsibilities, with proper independence in determining the Audit

Universe, Audit Plan and scope of audit reviews, performing work (through an unlimited access right to all

records and data of the company), and communicating results.

Internal Audit is organisationally independent from any operational or business activity. The Chief Auditor

reports to the CEO of the group. The independence of Internal Audit is further ensured by an additional

7 Risk management charter is currently under the approval of some boards of the group (March 2017).


35

reporting line to the Chairman of the AC. The Chief Auditor has direct access to the Chairman and members

of the AC, the Chairman of the Board of directors, and the accredited statutory auditors.

Functioning

In order to carry out its mission, Internal Audit has set up a comprehensive audit universe including all

processes carried out by the group, whether directly or outsourced. The Audit Plan covers the full audit

universe and is presented quarterly for approval by the MC and AC. The Audit Plan is the result of:

a risk and control based approach: each line of the audit universe is assessed quarterly, which

drives the depth and scope of audits

a cyclical approach: even though the results of the risk and control assessments would not lead to

a full scope audit, such a full scope is anyway performed every three years.

The Audit Plan focuses on the next quarter but has a six-quarter time horizon.

Such a frequent and comprehensive plan process ensures that the Audit Plan remains commensurate to

the risk profile of the company and focuses on the areas presenting the highest risks or being heavily

control dependent.

Issues identified by Internal Audit are entered into the risk database used at group level. In line with the

Institute of Internal Auditors standards, Internal Audit performs the follow-up and verification of the issues

it raises.

Reporting

ESES management and the Audit and Risk Committees are informed periodically of the adequacy and

effectiveness of the internal control system through the quarterly Internal Audit activity report, which

covers:

the progress on the internal audit plan

the results of audit work (including concerns regarding the effectiveness or timeliness of

managements actions to address audit issues)

resourcing

In addition to this, Internal Audit sends any communication, audit memos and reports it deems necessary,

directly to management members; the High Priority Control Issues (HPCI) report is made quarterly to

highlight significant control issues as well as progress in mitigating them.

Internal Audit also has regular meetings with external auditors. Audit reports are communicated to these

stakeholders upon request.


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Key consideration 7: The Board should ensure that the FMIs design, rules, overall strategy, and

major decisions reflect appropriately the legitimate interests of its direct and indirect

participants and other relevant stakeholders. Major decisions should be clearly disclosed to

relevant stakeholders and, where there is a broad market impact, the public.

Identification and consideration of stakeholder interests

Euroclears mission and what our clients, the capital markets and other stakeholders expect from us is

to:

develop and maintain resilient, reliable, secure and efficient post-trade services;

support the development of sound and stable capital markets, locally and globally; and

serve the public good by supporting the efficiency of markets and actively enabling the

reduction of risk.

Our strategy is aligned to our mission which is to maintain a resilient, reliable, secure and efficient post-

trade services. Our board policies, handbooks, procedures and therefore the way we operate reflect our

mission and strategy.

The user governance framework of Euroclear ensures that the interests of participants and other

stakeholder are taken into account in the CSDs design, rules, overall strategy and major decisions. Users

can also influence the decision-making bodies through the Market Advisory Committees which are

committees established for each market where an entity of the group acts as CSD (Belgium, the

Netherlands, France, Ireland, Sweden, Finland and United Kingdom) and the Cross-Border Market Advisory

Committees. These committees act as a primary source of feedback and interaction between the user

community and Euroclear management on significant matters affecting their respective markets.

In addition, as mentioned under KC 1, independent directors, which are not affiliated with firms using the

groups services, are member to each of the Boards of Euroclear plc, Euroclear SA/NV and the ESES CSDs

in order to allow for the interests of stakeholders other than users to be represented.

Furthermore, in view of ensuring proper dialogue between the ESES CSDs and the market players, a market

representative has also been appointed to the Board as an observer with no voting rights.

Users and other stakeholders can also influence the group's decision bodies by participating in ad hoc

working groups and committees, international groups (European Repo Council, ISMA, IPMA) or through ad

hoc consultations

Disclosure

Major decisions are communicated to owners (Euroclear SA/NV and Euroclear plc user shareholders)

through the Notice to Shareholders for the annual general meeting and for each extraordinary general

meeting. They are communicated to the users (participants) via the commercial account officers and

through various publications (i.e. Newsletters) and through user representatives in regular meetings of the

Market Advisory Committees and/or ad-hoc working groups/committees.


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Principle 3: Framework for the comprehensive management of risks

Key consideration 1: An FMI should have risk-management policies, procedures, and systems

that enable it to identify, measure, monitor, and manage the range of risks that arise in or are

borne by the FMI. Risk-management frameworks should be subject to periodic review.

Our Enterprise risk management framework

Our Enterprise Risk Management (ERM) framework is the methodology designed by the Risk Management

division, approved by the boards of Euroclear and implemented and operated by Senior Management that

helps the company manage risks in a structured way. This contains the process for identifying, measuring,

responding and monitoring of risks. The ERM framework also builds on key pillars including amongst others

the risk governance arrangements, our risk culture and our risk appetite framework.

Euroclears strategy, goals and risk appetite are inextricably linked with, and central to, our ERM framework.

Euroclear continuously seeks to improve its ERM framework to reflect changes in market practice and

stakeholder expectations. As a result of recent organizational changes and regulatory feedback, Risk

Management division is leading a Risk Transformation Program to review and enhance Euroclears risk

management arrangements across the Group.

Risks that arise in or are borne by the FMI

The Euroclear group uses the following risk categories/sub-categories:


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Of these categories, ESES CSDs are mainly exposed to:

operational risk;

strategic risk (defined as medium to long term (>2 years) risks to our existence or our ability to

deliver our strategy arising from, for example, our business model or implementation of strategy);

and

business risk (defined as short term (


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The four key stages of the ERM cycle are detailed below.

Identify & assess

Euroclear management and staff routinely

Disclosure Framework - Euroclear · Disclosure Framework ... Principle 24: Disclosure of market data by ... processing of elective events and settlement of the movements associated

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