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REG S Notes Protection Pack

Reg S Insured Note – Bank Intake & Protection Pack

Purpose

This document defines the minimum acceptance requirements, risk controls, and indemnity protections for receiving a Regulation S insured note (including large-ticket instruments such as USD 4.5B) for monetization or placement. It is designed for use by banks, trustees, custodians, and placement intermediaries.

1. Bank Intake Checklist (Mandatory)

1.1 Client & Account Setup

  • Approved Wealth Management / Custody Account opened in the legal name of the note holder

  • Account KYC/KYB completed and approved (including UBO disclosure)

  • Authorized signatories on file

1.2 Instrument Documentation

  • Final Offering Memorandum / Information Memorandum

  • Executed Note Purchase Agreement

  • Trust Deed or Issuer Resolution (if applicable)

  • Legal Opinion from issuer counsel confirming:

    • Valid issuance

    • Enforceability

    • Reg S compliance

  • Reg S Non‑US Person Representation Letter

1.3 Identification & Eligibility

  • ISIN (mandatory)

  • CUSIP (if applicable)

  • Clear statement of:

    • Seniority

    • Coupon

    • Tenor

    • Governing law

  • Confirmation of book‑entry eligibility

2. Insurance Requirements (Non‑Negotiable)

2.1 Identified Insurer

  • Rated international insurer or Lloyd’s syndicate (lead underwriter named)

  • No captive, unrated, or issuer‑affiliated insurers

2.2 Insurance Binder (Issued Prior to Acceptance)

Binder must explicitly state:

  • Insurer legal name and rating

  • Coverage amount (or layered schedule)

  • Instrument reference (ISIN / note ID)

  • Term matching note maturity

  • Irrevocable and non‑cancellable status

  • Bank named as loss payee / beneficiary

  • Governing law

  • Authorized underwriter signature

2.3 Verification

  • Direct confirmation with insurer or syndicate

  • Reinsurance schedule (if layered)

  • Premium funding mechanics disclosed

3. Settlement & Delivery

3.1 Clearing & Settlement

  • DTC / Euroclear / Clearstream eligibility confirmed

  • Delivery via DVP or FOP as approved

  • Correct participant codes and settlement instructions

3.2 SWIFT Messaging (as applicable)

  • MT540–543 (securities delivery)

  • MT760 (insurance / guarantee reference if applicable)

  • MT799 / MT199 for confirmations

3.3 Physical Confirmation (If Required)

  • Bank‑to‑bank bonded courier only

  • Tamper‑evident packaging

  • Chain‑of‑custody acknowledgment

  • No client‑hand‑carried instruments accepted

4. Compliance & Due Diligence

  • Full AML / sanctions screening (OFAC, UN, EU)

  • Enhanced Due Diligence (EDD) for transactions > USD 1B

  • Source of funds / source of assets documentation

  • Corporate structure chart and beneficial ownership confirmation

5. Bank Acceptance Conditions

  • Credit Committee approval required

  • Insurance must be active prior to acceptance

  • No conditional, embedded, or post‑closing insurance

  • Acceptance does not constitute obligation to monetize or place

6. Risk Position of Receiving Bank / Intermediary

  • No transfer of title to the bank or intermediary

  • Bank acts as custodian / receiving institution only

  • No funds advanced prior to:

    • Verified settlement

    • Insurance confirmation

    • Clearing delivery

7. Indemnity & Legal Protection (Required)

7.1 Issuer Indemnity

Issuer indemnifies the bank/intermediary against:

  • Fraud or misrepresentation

  • Invalid or defective issuance

  • Regulatory breaches

  • Insurance failure or non‑performance

7.2 Hold Harmless & Non‑Reliance

  • Bank relies on issuer representations and third‑party confirmations

  • No independent obligation to verify beyond standard procedures

7.3 No Obligation Clause

  • Acceptance ≠ commitment to fund, monetize, or place

  • Absolute discretion retained

8. Practical Structuring Notes

  • Large tickets may require tranching (e.g., USD 500M–1B blocks)

  • Layered insurance is standard at this size

  • Staged settlement and escrowed premiums are common

9. Guiding Rule

If the note is not insured, cleared, verified, and delivered prior to monetization, the receiving bank or intermediary bears no liability.

Appendix A – Issuer Indemnity (Summary Clause)

The Issuer agrees to fully indemnify and hold harmless the Receiving Institution, its officers, directors, employees, and agents from and against any and all losses, claims, damages, liabilities, costs, and expenses arising from or related to the issuance, validity, enforceability, or insurance of the instrument, except for gross negligence or willful misconduct.

Appendix B – Reg S Acceptance Acknowledgment (Summary)

Acceptance of the instrument is subject to completion of all due diligence, insurance verification, clearing settlement, and internal approvals, and does not constitute a commitment to monetize, place, or fund the instrument.

Additional Reference Articles – Securities Acceptance Requirements

Article 1: Core Requirements for Accepting Securities Into a Bank or Custodian

Overview

Banks and regulated financial institutions may only accept securities that meet strict custody, compliance, and risk-management standards. Acceptance is a custodial and compliance decision, not a commercial one.

Minimum Requirements

  • Approved Wealth Management / Custody Account in the name of the legal holder

  • Full KYC/KYB and UBO disclosure completed and approved

  • Identified and eligible security (ISIN mandatory)

  • Book-entry eligibility via DTC, Euroclear, or Clearstream

  • Clear title and transferability confirmation

  • No regulatory, sanctions, or jurisdictional restrictions

Key Principle

No security is accepted without an approved account. The account is the legal anchor for custody, reporting, insurance, and liability control.

Article 2: Why a Wealth Management Account Is Mandatory for Securities Acceptance

Overview

A wealth management or custody account is not administrative—it is a legal requirement for holding securities.

Functions of the Account

  • Establishes legal custody and segregation of assets

  • Defines the beneficial owner and authorized signatories

  • Enables insurance beneficiary designation

  • Allows valuation, reporting, and audit trail

  • Serves as the conduit for settlement and income flows

Without an Account

  • The bank cannot take possession

  • Insurance cannot be perfected

  • Clearing systems will reject delivery

  • Liability exposure becomes undefined

Rule

No account = no custody = no acceptance.

Article 3: Acceptance Requirements for Reg S Securities

Overview

Regulation S securities are restricted instruments and require additional controls beyond standard securities.

Required Deliverables

  • Approved wealth management / custody account

  • Reg S representation letter (non-US person)

  • Legal opinion confirming Reg S compliance

  • ISIN and clear transfer restrictions legend

  • Eligible clearing system delivery (Euroclear/Clearstream preferred)

  • Insurance binder (if used for credit enhancement or monetization)

Compliance Note

Acceptance does not imply tradability in the U.S. market.

Article 4: Insurance-Enhanced Securities – Acceptance Standards

Overview

When insurance is used to enhance or substitute credit risk, banks rely on the insurer—not the issuer.

Mandatory Requirements

  • Approved wealth management / custody account

  • Identified rated insurer

  • Active insurance binder prior to acceptance

  • Bank named as loss payee / beneficiary

  • Direct insurer verification

Prohibited Structures

  • Embedded or implied insurance

  • Post-acceptance insurance issuance

  • Unrated or captive insurers

Article 5: Clearing, Settlement, and Delivery Requirements

Overview

Securities are accepted only if they can be safely settled through recognized clearing systems.

Requirements

  • Approved wealth management / custody account

  • DTC / Euroclear / Clearstream eligibility

  • Correct participant codes and settlement instructions

  • SWIFT confirmation messages

  • Bonded bank-to-bank courier for any physical confirmations

Risk Control

Clearing validation is a condition precedent to acceptance.

Article 6: Risk, Liability, and Indemnity When Accepting Securities

Overview

Banks must strictly limit liability when receiving third-party securities.

Protective Measures

  • Assets held only within an approved wealth management account

  • No transfer of title to the bank

  • Acceptance subject to verification and committee approval

  • Issuer indemnity and hold-harmless provisions

  • No obligation to monetize or fund

Guiding Rule

Acceptance into custody does not equal endorsement, valuation, or funding commitment.

Closing Principle

Across all asset classes and jurisdictions, the rule is consistent:

**A security can only be accepted through an approved wealth management or custody account.

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