(1)

As a result of differing national securities and insolvency laws, which are not harmonised at Union level, there is a divergence in the level of protection for financial instruments held in custody by third parties for Alternative Investment Funds (‘AIFs’) clients from insolvency risks. In seeking to ensure strong client asset protection as provided for under Directive 2011/61/EU while accommodating more robust national law requirements in relation to those non-harmonised areas, it is necessary to clarify the obligations relating to the safe keeping of assets laid down in Directive 2011/61/EU.

(2)

Currently competent authorities and industry apply the asset segregation requirements laid down in Commission Delegated Regulation (EU) No 231/2013 (2) differently. While depositaries, which are at the first level of a custody chain, have the obligation to provide an individual account to hold financial instruments for each AIF client, it is necessary to clarify that where the custody function is delegated to a third party, the latter should be able to hold assets of one depositary's clients, including the assets for AIFs and Undertakings for Collective Investment in Transferable Securities (‘UCITS’), in an omnibus account. This omnibus account should always exclude the proprietary assets of the depositary and the third party's proprietary assets as well as assets belonging to other clients of the third party. Correspondingly, in cases where custody function is further delegated, the sub-custodian should be able to hold assets of the delegating custodian's clients in an omnibus account. This omnibus account should always exclude the sub-custodian's proprietary assets and proprietary assets of the delegating custodian as well as assets belonging to other clients of the sub-custodian. This is necessary in order to achieve a healthy balance between the market efficiency and investor protection.

(3)

In order to minimise the risk of loss of assets held in omnibus financial instruments accounts provided by third parties, to whom the custody function has been delegated, the frequency of reconciliations between the financial securities accounts and the records of the depositary of an AIF client and the third party or between the third parties, where the custody function has been delegated further down the custody chain, should ensure a timely transmission of the relevant information to the depositary. Moreover, the frequency of those reconciliations should depend on any movement in that omnibus account, including transactions relating to the assets belonging to other clients of the depositary that are kept in the same omnibus account as the AIF's assets.

(4)

The depositary should be able to continue to carry out its duties effectively where the custody of assets belonging to its AIF clients is delegated to a third party. It is therefore necessary to require that the depositary maintains a record in the financial instruments account it has opened in the name of its AIF client or in the name of the AIFM, acting on behalf of the AIF, showing that the assets kept in custody by a third party belong to that particular AIF.

(5)

To strengthen the depositaries' standing in relation to third parties to whom the custody of assets is delegated, that relationship should be documented by a written delegation contract. That contract should allow the depositary to take all the necessary steps ensuring that the assets kept in custody are properly safeguarded and that the third party complies at all times with the delegation contract and the requirements of Directive 2011/61/EU and Delegated Regulation (EU) No 231/2013. Furthermore, the depositary and the third party should formally agree whether the third party is allowed to further delegate the custody functions. In that instance, the arrangement or contract between the delegating third party and the third party to whom the custody functions are further delegated should be subject to rights and obligations which are equivalent to those established between the depositary and the delegating third party.

(6)

In order to enable the depositary to fulfil its functions it is necessary to strengthen depositaries' oversight over the third parties, regardless of whether they are located inside or outside the Union. It should be required that depositaries verify whether financial instruments of AIFs are correctly recorded in the books of a third party and that the records kept are sufficiently accurate in order to be able to identify the nature, location and ownership of the assets held in custody. To facilitate effective fulfilment of the depositaries' duties, third parties should provide them with a statement on any change affecting the assets held in custody for the depositaries' AIF clients.

(7)

As part of the depositaries' obligations to exercise care and diligence in cases of delegation of the custody functions, before delegating this function to a third party located outside of the Union, the depositary should receive an independent legal opinion assessing the insolvency law of the third country where that third party is located this includes an evaluation of the level of protection afforded by segregated financial instruments accounts in that jurisdiction. The opinion provided for each jurisdiction by relevant industry federations or by law firms for the benefit of several depositaries should be acceptable. Furthermore, the depositary should ensure that the third party located outside the Union informs it of any change in circumstances or in that third country's insolvency law that may affect the status of the assets of the depositary's AIF clients.

(8)

In order to allow depositaries time to adapt to the new requirements contained in this Regulation, the starting date of application of this Regulation should be deferred for eighteen months after publication in the Official Journal of the European Union.

(9)

The measures introduced by this Regulation are in accordance with the opinion of the European Securities and Markets Authority. (3)

(10)

The measures introduced by this Regulation are in accordance with the opinion of the expert group of the European Securities Committee.

(11)

Delegated Regulation (EU) No 231/2013 should therefore be amended accordingly,

(1)

Article 89 is amended as follows:

(2)

in Article 98, the following paragraph 2a is inserted:

(3)

Article 99 is amended as follows:

(1)

As a result of differing national securities and insolvency laws, which are not harmonised at the Union level, there is a divergence in the level of protection for financial instruments held in custody for undertakings for collective investment in transferable securities (‘UCITS’) clients from insolvency risks. In seeking to ensure strong client asset protection as provided for under Directive 2009/65/EC, while accommodating more robust national law requirements in relation to those non-harmonised areas, it is necessary to clarify the obligations relating to the safe-keeping of assets laid down in the Directive 2009/65/EC.

(2)

Currently, competent authorities and industry apply the asset segregation requirements laid down in Commission Delegated Regulation (EU) 2016/438 (2) differently. While depositaries, which are at the first level in a custody chain, have the obligation to provide an individual account to hold financial instruments for each UCITS client, it is necessary to clarify that where the custody function is delegated to a third party, the latter should be able to hold assets of one depositary's clients, including the assets for UCITS and Alternative Investment Funds (‘AIFs’), in an omnibus account. This omnibus account should always exclude the proprietary assets of the depositary and the third party's proprietary assets as well as assets belonging to other clients of the third party. Correspondingly, in cases where custody function is further delegated, the sub-custodian should be able to hold assets of the delegating custodian's clients in an omnibus account. This omnibus account should always exclude the sub-custodian's proprietary assets and proprietary assets of the delegating custodian as well as assets belonging to other clients of the sub-custodian. This is necessary in order to achieve a healthy balance between the market efficiency and investor protection.

(3)

In order to minimise the risk of loss of assets held in omnibus financial instruments accounts provided by third parties, to whom the custody function has been delegated, the frequency of reconciliations between the financial securities accounts and the records of the depositary of a UCITS client and the third party or between the third parties, where the custody function has been delegated further down the custody chain, should ensure a timely transmission of the relevant information to the depositary. Moreover, the frequency of those reconciliations should depend on any movement in that omnibus account, including transactions relating to the assets belonging to other clients of the depositary that are kept in the same omnibus account as the UCITS' assets.

(4)

The depositary should be able to continue to carry out its duties effectively where the custody of assets belonging to its UCITS clients is delegated to a third party. It is therefore necessary to require that the depositary maintains a record in the financial instruments account it has opened in the name of a UCITS or in the name of the management company acting on behalf of the UCITS showing that the assets kept in custody by a third party belong to that particular UCITS.

(5)

To strengthen the depositaries' standing in relation to third parties to whom the custody of assets is delegated, that relationship should be documented by a written delegation contract. That contract should allow the depositary to take all the necessary steps for ensuring that the assets kept in custody are properly safeguarded and the third party complies at all times with the delegation contract and the requirements of Directive 2009/65/EC and Delegated Regulation (EU) 2016/438. Furthermore, the depositary and the third party should formally agree whether the third party is allowed to further delegate the custody functions. In that instance, the contract between the delegating third party and the third party to whom the custody functions are further delegated should be subject to the rights and obligations which are equivalent to those established between the depositary and the delegating third party.

(6)

In order to enable the depositary to fulfil its functions it is necessary to strengthen depositaries' oversight over third parties, regardless of whether they are located inside or outside the Union. It should be required that depositaries verify whether financial instruments of UCITS are correctly recorded in the books of those third parties. The records kept by third parties should be sufficiently accurate in order to be able to identify the nature, location and ownership of the asset. To facilitate effective fulfilment of the depositaries' duties, third parties should provide them with a statement on any change affecting the assets held in custody for depositaries' UCITS clients.

(7)

In order to improve the clarity and legal certainty of Delegated Regulation (EU) 2016/438, it is necessary to amend certain internal references which are incorrect. Delegated Regulation (EU) 2016/438 should therefore be amended accordingly.

(8)

In order to allow depositaries time to adapt to these new requirements, the date of application should be deferred for 18 months after publication of this Regulation in the Official Journal of the European Union.

(9)

The measures introduced by this Regulation are in accordance with the opinion of the European Securities and Markets Authority (3).

(10)

The measures introduced by this Regulation are in accordance with the opinion of the expert group of the European Securities Committee.

(11)

Delegated Regulation (EU) 2016/438 should therefore be amended accordingly,

(1)

Article 13 is amended as follows:

(2)

in Article 15, the following paragraph 2a is inserted:

(3)

in Article 16, paragraph 1 is replaced by the following:

(4)

Article 17 is amended as follows:

(5)

in Article 22, paragraph 3 is replaced by the following:

‘The management company or the investment company shall demonstrate to the competent authority of the UCITS home Member State that it is satisfied with the appointment of the depositary and that the appointment is in the sole interest of the UCITS and the investors of the UCITS. The management company or the investment company shall make the documentary evidence referred to in paragraph 2 available to the competent authority of the UCITS home Member State.’.

(1)

Commission Delegated Regulation (EU) 2015/61 (2) should be amended in order to improve alignment with international standards and facilitate more efficient liquidity management by credit institutions.

(2)

In particular, in order to take adequate account of activities carried out by credit institutions active outside the Union, any requirement for a minimum issue size applying to liquid assets held by a subsidiary undertaking in a third country should be waived, so that such assets can be recognised for consolidation purposes. Otherwise, the parent institution could suffer a shortfall in liquid assets at consolidated level since the liquidity requirement arising from a subsidiary in a third country would be included in the consolidated liquidity requirement while the assets held by that subsidiary to fulfil its liquidity requirement in the third country would be excluded from the consolidated liquidity requirement. However, the assets of the subsidiary undertaking in a third country should only be recognised up to the level of the stressed net liquidity outflows incurred in the same currency as the currency in which the assets are denominated and arising from that particular subsidiary. Moreover, as for any other third-country assets, the assets should only be recognised if they qualify as liquid assets under the national law of the third country in question.

(3)

It is recognised that central banks can provide liquidity in their own currency and that the credit rating of central banks is less relevant for liquidity purposes than for solvency purposes. As a result, and in order to align the rules in Delegated Regulation (EU) 2015/61 more closely with the international standard and to provide a level playing field for internationally active credit institutions, reserves held by a third country subsidiary or branch of a Union credit institution in the central bank of a third country which is not assigned a credit assessment of credit quality step 1 by a nominated external credit assessment institution should be eligible as level 1 liquid assets where certain conditions are met. Specifically, those reserves should be eligible where the credit institution is permitted to withdraw them at any time during stress periods and, in addition, the conditions for their withdrawal are specified in an agreement between the supervisory authority of the third country and the central bank in which the reserves are held or in the applicable rules of the third country. However, those reserves should only be capable of being recognised as level 1 assets to cover stressed net liquidity outflows incurred in the same currency as that in which the reserves are denominated.

(4)

It is appropriate to take into account Regulation (EU) 2017/2402 of the European Parliament and of the Council (3). That Regulation contains criteria to determine whether a securitisation can be designated as a simple, transparent and standardised (‘STS’) securitisation. Since those criteria ensure that STS securitisations are of high quality, they should also be used to determine which securitisations are to count as high quality liquid assets for the calculation of the liquidity coverage requirement. Securitisations should therefore be eligible as level 2B assets for the purposes of Delegated Regulation (EU) 2015/61 if they fulfil all the requirements laid down in Regulation (EU) 2017/2402, in addition to those criteria already specified in Delegated Regulation (EU) 2015/61 that are specific to their liquidity characteristics.

(5)

The implementation of Delegated Regulation (EU) 2015/61 should not hinder the effective transmission of monetary policy to the economy. Transactions with the ECB or the central bank of a Member State can be expected to be rolled-over under conditions of severe stress. It should therefore be possible for competent authorities to waive the unwind mechanism for the calculation of the liquidity buffer in the case of secured transactions with the ECB or the central bank of a Member State where the transactions involve high quality liquid assets on at least one leg of each transaction and are due to mature within the next 30 calendar days. However, before granting the waiver, competent authorities should be required to consult with the central bank that is the counterparty to the transaction, and also with the ECB if that central bank is an Eurosystem central bank. In addition, the waiver should be subject to appropriate safeguards in order to avoid possible regulatory arbitrage opportunities or adverse incentives for credit institutions. Finally, to align the Union rules more closely with the international standard set by the BCBS, collateral received through derivatives transactions should be removed from the unwind mechanism.

(6)

In addition, the treatment of outflow and inflow rates for repurchase agreements (‘repos’), reverse repurchase agreements (‘reverse repos’) and collateral swaps should be fully aligned with the approach in the international standard for the liquidity coverage ratio set by the Basel Committee on Banking Supervision (‘BCBS’). Specifically, the cash outflows calculation should be directly linked to the prolongation rate of the transaction (aligned with the haircut on the collateral provided applied to the cash liability, as in the BCBS standard) rather than to the liquidity value of the underlying collateral.

(7)

Given divergent interpretations that have emerged, it is important to clarify various provisions of Delegated Regulation (EU) 2015/61, in particular regarding the fulfilment of the liquidity coverage requirement; the eligibility in the buffer of assets included in a pool available to obtain funding under uncommitted lines operated by the central bank, of CIUs and of deposits and other funding in cooperative networks and institutional protection schemes; the calculation of additional liquidity outflows for other products and services; the granting of preferential treatment to intragroup credit and liquidity facilities; the treatment of short position; and the recognition of monies due from securities maturing in the next 30 calendar days,

(8)

Delegated Regulation (EU) 2015/61 should therefore be amended accordingly,

(1)

in Article 2(3), point (a) is replaced by the following:

(2)

Article 3 is amended as follows:

(3)

Article 4 is amended as follows:

(4)

Article 7 is amended as follows:

(5)

Article 8 is amended as follows:

(6)

Article 10 is amended as follows:

(7)

Article 11 is amended as follows:

(8)

Article 13 is amended as follows:

(9)

Article 15 is amended as follows:

(10)

Article 16 is replaced by the following:

(11)

Article 17 is amended as follows:

(12)

Article 21 is replaced by the following:

(13)

Article 22 is amended as follows:

(14)

in Article 23, paragraph 1 is replaced by the following:

(15)

in Article 25(2), point (b) is replaced by the following:

(16)

at the end of Article 26, the following paragraph is added:

‘Competent authorities shall inform the EBA which institutions benefit from the netting of outflows with interdependent inflows under this article. The EBA may request supporting documentation.’;

(17)

Article 28 is amended as follows:

(18)

in Article 29, paragraph 2 is amended as follows:

(19)

Article 30 is amended as follows:

(20)

Article 31 is amended as follows:

(21)

the following Article 31a is inserted:

(22)

Article 32 is amended as follows:

(23)

Article 34(2) is amended as follows:

(24)

Annex I is amended as follows:

(1)

In order to define the quantities of skimmed milk powder covered by the tendering procedure opened by Commission Implementing Regulation (EU) 2016/2080 (3), Article 1 of that Regulation lays down a time limit before which the skimmed milk powder must have entered into public storage.

(2)

Given the current situation on the milk and milk products market in terms of price recovery and the high level of intervention stocks, it is appropriate that an additional volume of skimmed milk powder is made available for sale by changing the date of entry into storage.

(3)

Implementing Regulation (EU) 2016/2080 should therefore be amended accordingly.

(4)

In order to make the skimmed milk powder available for sale without delay, this Regulation should enter into force on the day after its publication in the Official Journal of the European Union.

(5)

The measures provided for in this Regulation are in accordance with the opinion of the Committee for the Common Organisation of the Agricultural Markets,

(1)

Commission Delegated Regulation (EU) No 1062/2014 (2), as amended by Delegated Regulation (EU) 2017/698 (3), establishes in its Annex II a list of active substance/product-type combinations included in the review programme of existing active substances in biocidal products on 3 February 2017.

(2)

For a number of active substance/product-type combinations included in that list, all the participants have withdrawn their support in a timely manner.

(3)

As regards some active substances generated in situ, the name of those active substances and their precursors which are supported in the review programme has been clarified in a more precise manner. This has lead in certain cases to a redefinition of the active substance in accordance with Article 13 of Delegated Regulation (EU) No 1062/2014.

(4)

A notification was published inviting persons wishing to support those active substance/product-types combinations which have been redefined and currently not supported, including the generation in situ of the active substances for the product-types listed in Annex II to Delegated Regulation (EU) No 1062/2014, so that the role of participant may be taken over.

(5)

For some active substance/product-type combinations no notification has been submitted or a notification has been submitted and rejected pursuant to paragraphs 4 or 5 of Article 17 of Delegated Regulation (EU) No 1062/2014.

(6)

In accordance with Article 20 of Delegated Regulation (EU) No 1062/2014, those active substance/product-type combinations should not be approved for use in biocidal products.

(7)

The measures provided for in this Decision are in accordance with the opinion of the Standing Committee on Biocidal Products,

(1)

On 28 September 2017, France requested the Commission to decide whether bacteria of the genus Wolbachia (‘the bacteria’) or any preparation containing the bacteria to be inoculated into mosquitoes, and mosquitoes non-naturally infected with the bacteria (‘the non-naturally infected mosquitoes’) used for vector control purposes are biocidal products within the meaning of Article 3(1)(a) of Regulation (EU) No 528/2012 or treated articles within the meaning of Article 3(1)(l) of that Regulation or neither.

(2)

According to the information provided by France, these intracellular bacteria are transmitted vertically, maternally inherited and naturally present in around 40 % of arthropods. The infection of mosquitoes by the bacteria may reduce the ability of some mosquitoes to transmit certain pathogenic viruses and parasites by interfering with those pathogens within the mosquitoes, and promotes the reproduction of infected females mosquitoes and the spread of the bacteria in the mosquito population. Furthermore, since male mosquitoes infected with the bacteria are incompatible with local females, the introduction of those infected males in the target population reduces its potential for reproduction. Therefore, vector control campaigns are based on the release of non-naturally infected mosquitoes within a population of mosquitoes in order to control the population size and/or to reduce their ability to transmit certain pathogens to humans.

(3)

According to the information provided by France, not all species of mosquitoes or individuals within one species are naturally infected with the bacteria, or with a strain of the bacteria that is exploitable for the vector control purposes. Therefore, non-natural infections have to be carried out under laboratory conditions in order to create non-naturally infected mosquitoes with a suitable strain of the bacteria. That can be achieved by different infection techniques, including the inoculation of the bacteria into adult female mosquitoes or into the cytoplasm of mosquitoes' eggs.

(4)

For the purpose of the provisions in Article 3(3) of Regulation (EU) No 528/2012, it is therefore relevant to assess separately the status of the bacteria or any preparation containing the bacteria to be inoculated into mosquitoes and the status of the non-naturally infected mosquitoes, irrespectively of the infection technique used.

(5)

The bacteria are micro-organisms within the meaning of Article 3(1)(b) of Regulation (EU) No 528/2012

(6)

Mosquitoes are harmful organisms within the meaning of Article 3(1)(g) of Regulation (EU) No 528/2012, since they may have an unwanted presence or a detrimental effect on humans or animals.

(7)

The bacteria has an indirect action on the mosquitoes population, either by controlling its size or by reducing its ability to transmit certain pathogens, and should therefore be considered an active substance within the meaning of Article 3(1)(c) of Regulation (EU) No 528/2012.

(8)

Product-type 18, insecticides, acaricides and products to control other arthropods, as defined in Annex V to Regulation (EU) No 528/2012, includes products used for the control of arthropods, by means other than repulsion or attraction. Since the bacteria are inoculated into mosquitoes with the intention to exert a controlling effect on mosquitoes' populations, such use falls under the description of product-type 18.

(9)

The bacteria or the preparation containing the bacteria is exerting a controlling effect on mosquitoes by other means than mere physical or mechanical action.

(10)

For the purposes of Article 3(1)(a) of Regulation (EU) No 528/2012, the bacteria or the preparation containing the bacteria should be considered a substance or a mixture, respectively, consisting of or containing an active substance. As a consequence, the bacteria or any preparation containing the bacteria, as it is supplied to the user carrying out the inoculation into mosquitoes, is a biocidal product within the meaning of the first indent of Article 3(1)(a) of Regulation (EU) No 528/2012 and falls within product-type 18.

(11)

Non-naturally infected mosquitoes are not micro-organisms within the meaning of Article 3(1)(b) of Regulation (EU) No 528/2012.

(12)

Non-naturally infected mosquitoes are not a substance or a mixture within the meaning of points 1 and 2 of Article 3, respectively, of Regulation (EC) No 1907/2006 of the European Parliament and of the Council (2). Therefore, pursuant to points (a) and (b) of Article 3(2) of Regulation (EU) No 528/2012, they are neither a substance nor a mixture for the purposes of that Regulation.

(13)

As a consequence, non-naturally infected mosquitoes are not an active substance within the meaning of Article 3(1)(c) of Regulation (EU) No 528/2012. Therefore, non-naturally infected mosquitoes cannot be a biocidal product within the meaning of the first indent of Article 3(1)(a) of that Regulation.

(14)

Non-naturally infected mosquitoes are not articles within the meaning of Article 3(3) of Regulation (EC) No 1907/2006. Therefore, pursuant to Article 3(2)(c) of Regulation (EU) No 528/2012, they are not considered articles for the purposes of that Regulation. Consequently, the non-naturally infected mosquitoes cannot be considered treated articles within the meaning of Article 3(1)(l) of Regulation (EU) No 528/2012.

(15)

The measures provided for in this Decision are in accordance with the opinion of the Standing Committee on Biocidal Products,