(1) A designating authority may treat as an institution any undertaking which participates in a designated system and which is responsible for discharging financial obligations arising from transfer orders effected through that system, provided that -

(a) the designating authority considers such treatment to be required on grounds of systemic risk, and

(b) the designated system is one in which at least three institutions (other than any undertaking treated as an institution by virtue of this paragraph) participate.

(2) Where a designating authority decides to treat an undertaking as an institution in accordance with paragraph (1), it shall give written notice of that decision to the designated system in which the undertaking is to be treated as a participant and to the system operator of that system.