---
title: Regulatory Positioning Memo - IRU Framework for Central Banks and DFIs
version: 1.0.0
status: draft
last_updated: 2025-01-27
document_type: regulatory_memo
layer: regulatory
audience: central_banks, development_finance_institutions
---

# REGULATORY POSITIONING MEMO
## IRU Framework for Central Banks and Development Finance Institutions

**Date**: January 27, 2025  
**Subject**: Regulatory Classification and Treatment of DBIS IRU Participation  
**Audience**: Central Banks, Development Finance Institutions, Regulatory Authorities

---

## EXECUTIVE SUMMARY

The Digital Bank of International Settlements (DBIS) operates as a **supranational financial infrastructure entity**, providing settlement, clearing, and financial infrastructure services through an **Irrevocable Right of Use (IRU)** participation framework. This memo provides regulatory positioning guidance for central banks and development finance institutions (DFIs) considering DBIS participation.

**Key Points**:
- IRUs are **infrastructure access rights**, not securities or equity investments
- IRUs are accounted for as **capitalized intangible assets**, amortized over the IRU term
- IRUs avoid securities law triggers, capital control issues, and equity-related regulatory complexity
- IRUs align with established precedent (SWIFT, TARGET2, CLS Bank)
- IRUs preserve sovereignty and respect jurisdictional law

---

## 1. IRU AS INFRASTRUCTURE ACCESS RIGHT (NOT SECURITY)

### 1.1 Legal Characterization

An **Irrevocable Right of Use (IRU)** is a **non-transfer-of-title, non-equity, long-term contractual right** granting access to DBIS infrastructure and embedded Software-as-a-Service (SaaS) capabilities.

**Critical Distinctions**:
- ❌ **Not a security**: IRUs are contractual rights, not shares, stock, bonds, or other securities
- ❌ **Not equity**: IRUs confer no ownership interest, profit rights, or equity claims
- ❌ **Not transferable title**: IRUs are rights of use, not ownership transfers
- ✅ **Infrastructure access**: IRUs provide access to financial infrastructure and services
- ✅ **Contractual right**: IRUs are governed by contract law, not securities law

### 1.2 Regulatory Implications

**Securities Law Avoidance**:
- IRUs do **not** require securities registration or disclosure
- IRUs do **not** trigger securities law compliance obligations
- IRUs do **not** create securities law reporting requirements
- IRUs are **not** subject to securities market regulations

**Capital Control Avoidance**:
- IRUs are infrastructure access rights, **not** foreign investments
- IRUs do **not** trigger capital control regulations
- IRUs do **not** require foreign investment approvals (in most jurisdictions)
- IRUs do **not** create foreign ownership or control issues

---

## 2. ACCOUNTING TREATMENT

### 2.1 Intangible Asset Classification

IRUs should be accounted for as **capitalized intangible assets**:

**Initial Recognition**:
- Recognize IRU at cost (IRU Grant Fee + directly attributable costs)
- Capitalize as intangible asset on balance sheet

**Amortization**:
- Amortize over IRU term (typically 25 years, or as determined by local law)
- Straight-line amortization method (unless another method better reflects economic benefits)
- Amortization period should not exceed IRU term

**Impairment**:
- Test for impairment in accordance with applicable accounting standards (IAS 36, IFRS, or local GAAP)
- Indicators of impairment: material breaches, termination events, significant changes in DBIS operations

**Disclosure**:
- Disclose IRU in financial statements per applicable accounting standards
- Include: description, carrying amount, accumulated amortization, amortization method and period

### 2.2 Non-Equity Treatment

**Key Accounting Principles**:
- ❌ **Not equity investment**: IRUs are not accounted for as equity investments
- ❌ **No equity exposure**: IRUs create no equity exposure for accounting purposes
- ❌ **No profit rights**: IRUs confer no profit rights or dividend entitlements
- ✅ **Intangible asset**: IRUs are intangible assets, not equity
- ✅ **Predictable costs**: IRU costs (grant fee + ongoing costs) are predictable and contractual

---

## 3. REGULATORY CLASSIFICATION

### 3.1 Infrastructure/Utility Classification

IRUs should be classified as **infrastructure access rights** or **utility service rights**, similar to:
- **SWIFT** membership and access rights
- **TARGET2** participation rights
- **CLS Bank** participation rights
- Other financial infrastructure access arrangements

**Regulatory Treatment**:
- IRUs are **not** banking investments or equity participations
- IRUs are **not** subject to banking investment restrictions
- IRUs are **utility service arrangements**, not commercial banking relationships
- IRUs align with financial infrastructure utility model

### 3.2 Regulatory Capital Treatment

For regulatory capital purposes:

**Intangible Asset Deduction**:
- IRUs are intangible assets and are deducted from regulatory capital per applicable regulations
- Subject to limits on intangible assets for regulatory capital purposes (varies by jurisdiction)

**Not Equity Investment**:
- IRUs are **not** treated as equity investments for regulatory capital
- IRUs do **not** create equity exposure or concentration limits
- IRUs do **not** require equity investment approvals or notifications

**Consultation Recommended**:
- Participants should consult with primary regulator to confirm regulatory capital treatment
- Treatment may vary by jurisdiction and regulatory framework

---

## 4. AVOIDANCE OF SECURITIES LAW TRIGGERS

### 4.1 Why IRUs Avoid Securities Law

**Contractual vs. Securities Framework**:
- IRUs are **contractual rights**, governed by contract law and international arbitration
- IRUs are **not** investment contracts or securities under Howey test or similar frameworks
- IRUs provide **infrastructure access**, not investment returns or profit participation
- IRUs are **functional entitlements**, not financial instruments

**No Investment Contract Elements**:
- ❌ **No investment of money**: IRU Grant Fee is payment for infrastructure access, not investment
- ❌ **No common enterprise**: DBIS is infrastructure utility, not investment enterprise
- ❌ **No expectation of profits**: IRUs provide access, not profit rights
- ❌ **No profit from efforts of others**: Access is provided, not investment returns

### 4.2 Regulatory Compliance Benefits

**Eliminated Obligations**:
- No securities registration requirements
- No ongoing securities disclosure obligations
- No securities law reporting requirements
- No securities market compliance obligations
- No insider trading or market manipulation concerns

**Simplified Compliance**:
- Contract law compliance (straightforward)
- Infrastructure access compliance (operational)
- Regulatory reporting (as infrastructure user, not securities holder)

---

## 5. AVOIDANCE OF CAPITAL CONTROL TRIGGERS

### 5.1 Infrastructure Access vs. Foreign Investment

**Key Distinction**:
- IRUs are **infrastructure access rights**, not foreign investments
- IRUs provide **service access**, not ownership or control
- IRUs are **operational arrangements**, not capital investments

**Capital Control Avoidance**:
- IRUs do **not** trigger foreign investment regulations (in most jurisdictions)
- IRUs do **not** require foreign investment approvals
- IRUs do **not** create foreign ownership or control issues
- IRUs are **service arrangements**, not investment transactions

### 5.2 Sovereignty Preservation

**Jurisdictional Respect**:
- IRU terms respect local jurisdictional law
- IRU participation preserves sovereign autonomy
- IRU framework avoids cross-border ownership complications
- IRU model aligns with sovereign financial infrastructure participation

---

## 6. SOVEREIGNTY PRESERVATION

### 6.1 Jurisdiction-Respecting Framework

**Local Law Governance**:
- IRU term determined by law of Participant's local jurisdiction (subject to DBIS minimums)
- IRU participation respects local regulatory requirements
- IRU framework accommodates jurisdictional variations
- IRU model preserves sovereign legal autonomy

### 6.2 Constitutional Foundation

**Founding Sovereign Bodies**:
- 7 Founding Sovereign Bodies provide constitutional legitimacy
- No economic ownership required
- Constitutional foundation without equity participation
- Sovereignty preserved through IRU framework

---

## 7. PRECEDENT ALIGNMENT

### 7.1 Established Infrastructure Models

**SWIFT (Society for Worldwide Interbank Financial Telecommunication)**:
- Cooperative structure with membership and access rights
- Governance participation without traditional equity
- Infrastructure utility model
- **DBIS Alignment**: IRU model follows similar infrastructure access approach

**TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System)**:
- Central bank participation through access rights
- Technical connection and infrastructure use
- No equity ownership model
- **DBIS Alignment**: IRU model provides similar infrastructure access framework

**CLS Bank (Continuous Linked Settlement)**:
- Utility providing settlement services
- Membership and access rights, not equity
- Infrastructure functionality focus
- **DBIS Alignment**: IRU model mirrors utility service approach

### 7.2 Regulatory Precedent

**Established Treatment**:
- Financial infrastructure participation treated as infrastructure access, not equity investment
- Regulatory classification as utility/service arrangement, not banking investment
- Accounting treatment as service costs or intangible assets, not equity
- **DBIS Follows Precedent**: IRU model aligns with established regulatory treatment

---

## 8. KEY REGULATORY CONSIDERATIONS BY JURISDICTION TYPE

### 8.1 Central Banks

**Primary Considerations**:
- ✅ **Charter Compliance**: IRUs compatible with central bank charters restricting equity investments
- ✅ **Regulatory Capital**: IRUs treated as intangible assets (deducted per applicable rules)
- ✅ **Securities Law**: IRUs avoid securities law compliance obligations
- ✅ **Sovereign Immunity**: IRU participation preserves sovereign immunity considerations
- ⚠️ **Consultation Recommended**: Consult with legal and regulatory advisors for jurisdiction-specific guidance

**Common Questions**:
- **Q**: Can central banks participate without equity investment restrictions?
  - **A**: Yes. IRUs are infrastructure access rights, not equity investments.
- **Q**: How are IRUs treated for regulatory capital?
  - **A**: As intangible assets, deducted from regulatory capital per applicable regulations.
- **Q**: Do IRUs trigger securities law compliance?
  - **A**: No. IRUs are contractual rights, not securities.

### 8.2 Development Finance Institutions (DFIs)

**Primary Considerations**:
- ✅ **Charter Alignment**: IRUs align with DFI infrastructure investment mandates
- ✅ **Equity Restrictions**: IRUs avoid equity investment restrictions in DFI charters
- ✅ **Development Impact**: IRU participation supports financial infrastructure development
- ✅ **Multilateral Cooperation**: IRUs enable multilateral financial infrastructure participation
- ⚠️ **Consultation Recommended**: Consult with DFI legal and compliance teams for charter-specific guidance

**Common Questions**:
- **Q**: Do IRUs comply with DFI equity investment restrictions?
  - **A**: Yes. IRUs are infrastructure access rights, not equity investments.
- **Q**: How do IRUs align with DFI development mandates?
  - **A**: IRUs support financial infrastructure development, benefiting DFI member countries.
- **Q**: Are IRUs subject to DFI investment approval processes?
  - **A**: IRUs may be subject to DFI internal approval processes, but are not equity investments requiring equity-specific approvals.

### 8.3 Commercial Banks and Financial Institutions

**Primary Considerations**:
- ✅ **Regulatory Capital**: IRUs treated as intangible assets for regulatory capital
- ✅ **Securities Law**: IRUs avoid securities law compliance
- ✅ **Infrastructure Access**: IRUs provide access to modern financial infrastructure
- ✅ **Operational Benefits**: IRUs enable participation in global settlement and clearing
- ⚠️ **Consultation Recommended**: Consult with primary regulator and legal advisors

---

## 9. RECOMMENDATIONS FOR PARTICIPANTS

### 9.1 Pre-Participation Steps

1. **Legal Review**: Engage qualified legal counsel to review IRU Agreement and confirm treatment under local law
2. **Accounting Consultation**: Consult with accounting advisors to confirm intangible asset treatment and amortization
3. **Regulatory Consultation**: Consult with primary regulator to confirm regulatory classification and capital treatment
4. **Tax Consultation**: Consult with tax advisors regarding tax treatment of IRU Grant Fee and ongoing costs
5. **Internal Approval**: Obtain necessary internal approvals per institutional policies

### 9.2 Documentation and Record-Keeping

1. **IRU Agreement**: Maintain executed IRU Participation Agreement
2. **Legal Opinions**: Retain legal opinions regarding treatment under local law
3. **Accounting Documentation**: Maintain accounting documentation supporting intangible asset classification
4. **Regulatory Correspondence**: Retain correspondence with regulators regarding IRU treatment
5. **Ongoing Compliance**: Maintain records of ongoing compliance with IRU obligations

### 9.3 Ongoing Monitoring

1. **Regulatory Changes**: Monitor for regulatory changes affecting IRU treatment
2. **Accounting Standards**: Monitor for changes in accounting standards affecting intangible asset treatment
3. **DBIS Communications**: Review DBIS communications regarding IRU framework updates
4. **Governance Participation**: Participate in IRU Holder Council and governance processes as appropriate

---

## 10. CONCLUSION

The DBIS IRU framework provides a **regulatory-friendly, sovereignty-preserving, precedent-aligned** approach to participation in supranational financial infrastructure.

**Key Benefits**:
- ✅ Avoids securities law complexity
- ✅ Avoids capital control triggers
- ✅ Preserves sovereignty and jurisdictional autonomy
- ✅ Aligns with established infrastructure utility models
- ✅ Provides clear accounting and regulatory treatment
- ✅ Enables participation without equity investment restrictions

**Next Steps**:
1. Review IRU Participation Agreement
2. Consult with legal, accounting, and regulatory advisors
3. Obtain necessary internal approvals
4. Execute IRU Participation Agreement
5. Begin onboarding and integration process

---

## 11. TECHNICAL INFRASTRUCTURE

### 11.1 Infrastructure Deployment Model

DBIS infrastructure is deployed using modern container-based architecture (Proxmox VE LXC deployment) provided through Sankofa Phoenix Cloud Service Provider. This technical architecture:

- **Supports Infrastructure Classification**: Container-based deployment model reinforces infrastructure utility classification, not commercial banking operations
- **Ensures Security and Isolation**: Network segmentation, firewall enforcement, and container isolation provide security appropriate for financial infrastructure
- **Enables Scalability**: Container-based architecture supports expansion and high availability without disrupting operations
- **Maintains Operational Control**: DBIS maintains operational control over infrastructure while providing access through IRUs

### 11.2 Regulatory Considerations

The technical infrastructure architecture:
- **Reinforces Infrastructure Model**: Container-based, utility-style deployment aligns with infrastructure classification
- **Security Compliance**: Comprehensive security measures (mTLS, network segmentation, key management) support regulatory compliance
- **Operational Resilience**: High availability and failover capabilities support operational resilience requirements
- **Audit and Observability**: Comprehensive monitoring, logging, and audit capabilities support regulatory oversight

For detailed technical architecture documentation, see [IRU Technical Architecture - Proxmox VE LXC Deployment](./IRU_Technical_Architecture_Proxmox_LXC.md).

---

**For Further Information**:
- [Complete IRU Participation Agreement](./IRU_Participation_Agreement.md) - Master IRU Participation Agreement
- [Foundational Charter Excerpt](./Foundational_Charter_IRU_Excerpt.md) - Constitutional foundation for IRU model
- [IRU Technical Architecture](./IRU_Technical_Architecture_Proxmox_LXC.md) - Technical infrastructure architecture
- [DBIS Concept Charter](../../../gru-docs/docs/core/05_Digital_Bank_for_International_Settlements_Charter.md) - Foundational DBIS Charter
- [DBIS Architecture Atlas](../architecture-atlas-overview.md) - Technical architecture documentation
- [DBIS Compliance Documentation](../../../gru-docs/docs/compliance/) - Regulatory compliance frameworks

---

**This memo is for informational and guidance purposes only and does not constitute legal, accounting, tax, or regulatory advice. Participants should consult with qualified advisors regarding their specific circumstances and applicable law.**

---

**END OF MEMO**
