Financial stability, financial services and Capital Markets union

← Financial stability, financial services and Capital Markets union

Central securities depositories Regulation (EU) No 909/2014 (CSDR)

Summary
Evaluation
Commission Proposal
Legal Act
Implementation

Overall state of play:

Report on the settlement and central securities depositories regulation – COM(2021) 348 final, 01/07/2021
Evaluation - Finalised: SWD(2022) 75, Annex V, 16/03/2022
Commission proposal - Adopted: COM(2022) 120 adopted by the Commission on 16/03/2022,
Legal Act - pending in legislative procedure

State of play, main conclusions, outlook

The Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs) seeks to improve the safety and efficiency of settlement as well as provide a set of common requirements for central securities depositories (CSDs) across the EU. It was adopted in 2014 in the wake of the financial crisis to make post-trade activities, in particular settlement, safer and more stable by introducing:

• Shorter settlement periods;

• Settlement discipline measures;

• Strict organisational, conduct of business and prudential requirement for CSDs;

• Increased prudential and supervisory requirements for CSDs and other institutions providing banking services and that support securities settlement;

• A passport system allowing authorised CSDs to provide their services across the EU under a specific procedure.

CSDR entered into force on 17 September 2014 with some parts, notably on settlement discipline regime, entering into force only on 01 February 2022.

On 16 March 2022, based on the findings of a review process¹ (summarised in Report COM(2021) 348) and the impact assessment and annexed evaluation , the Commission proposed changes to the CSDR to enhance the efficiency of the EU’s settlement markets, while safeguarding financial stability.

The review concluded that the CSDR continues to achieve its original objectives to enhance the efficiency of settlement in the EU and the soundness of CSDs. Nevertheless, while the volume of settled trades increased since the entry into force of the CSDR, feedback from stakeholders indicated that in several areas, such as passporting, licensing, and supervisory assessments, significant barriers exist.

The proposed amendments to the CSDR in particular aim to improve the passporting regime, cooperation between supervisory authorities, banking-type ancillary services, settlement discipline and the oversight of third-country CSDs. They should bring about more proportionate and effective rules to reduce compliance costs and regulatory burdens for central securities depositories, as well as facilitate their ability to offer a broader range of services cross-border, while improving their cross-border provisions.

The proposal is a key component of the 2020 Capital Markets Union Action Plan and delivers on its Action 13 “Developing cross-border settlement services”. The proposal is pending in legislative procedure.

Estimated savings and benefits

The proposal aims to have a positive effect through a more proportionate regulation of CSDs and an enhanced competitiveness of the EU settlement market. Simplifying the passporting procedure could save CSDs EUR 10 million in the first year and ca. EUR 4 million thereafter. Supervisory changes with regards to the establishment of colleges or the provision of banking-type ancillary services would streamline procedures, resulting in more coherent supervision and easier access to certain services. These benefits, though difficult to quantify, are expected to be significant for businesses and regulators.

With respect to amendments to the settlement discipline regime, the main immediate benefits relate to clarifications with regards to the scope of the regime, while other costs or benefits are deferred, i.e. connection to buy-in agent or the amount of trade that would potentially migrate to non-EU venues (estimated at 4%-5% of total turnover) in case of a badly designed mandatory buy-in regime. Finally, the benefits for competent authorities in connection to the simplified passporting procedure would relate to lower costs and time spent on passporting.

The Union’s regulatory agencies, in particular the European Securities and Markets Authority and European Banking Authority, will mainly be impacted by participation into supervisory colleges or the development or update of technical standards that will further spell out provisions of the review. These tasks can be carried out within the current resources.

¹ The review process gathered evidence by means of Member States Expert Group meetings, reports by European Securities and Markets Authority on internalised settlement and cross-border provision of services as well as a targeted public consultation held between 08 December 2020 and 02 February 2021.

State of Play

Finalised: SWD(2022) 75, Annex V, 16/03/2022

Scope:

Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and Regulation (EU) No 236/2012

Evaluation findings:

Article 75 of CSDR mandated the Commission to review and prepare a general report on the functioning of the CSDR Regulation. The report was supported by a targeted consultation carried out between 8 December 2020 and 2 February 2021².

The general conclusion of the report is that the Regulation has been effective in enhancing the efficiency of settlement in the EU and the soundness of CSDs. Nevertheless, the report identified specific areas where targeted action may be necessary to ensure the fulfillment of the objective of CSDR in a more proportionate, efficient and effective manner:

• Clarifying and simplifying the burdensome requirements related to the provision of services by CSDs domestically and cross-border;

• Improving the supervisory convergence amongst authorities involved in CSDs’ supervision;

• Facilitating the provision of banking-type ancillary services;

• Reducing the disproportionate burdens and costs related to settlement discipline;

• Enhancing the framework for third-country CSDs.

The impact assessment and evaluation supporting the CSDR review assessed to what extent specific policy requirements have met their objectives and in particular whether these requirements have done so in an efficient and effective way, while at the same time ensuring that CSDR is coherent, relevant and providing EU added-value. The main findings were:

• With regards to effectiveness and efficiency of CSDR, although the volume of settled trades increased since entry into force of CSDR, significant barriers exist and the evaluation suggests that actions to (i) reduce disproportionate compliance burdens and (ii) improve cross-border activity should be undertaken.

• CSDR objectives remain relevant.

• CSDR is coherent as it is aligned with international efforts to ensure the stability and safety of post-trade infrastructures. CSDR is also coherent with other pieces of EU legislation.

• CSDR provides EU added value by harmonising EU’s settlement markets and addressing related systemic risks, where continuing fragmentation would be detrimental to economic growth based on dynamic financial markets and financial stability risks.

Estimated savings and benefits

At the time of adoption of CSDR, settlement markets in the EU remain fragmented. At the end of 2021, there were approximately EUR 64 trillion worth of securities in EU Securities Settlement Systems handling over 520 million delivery instructions in 2021 for a total turnover of over EUR 1 298 trillion. This represents a growth of 40% in value of securities held, 78% in number of delivery instructions and 52% in turnover in the period between 2016 and 2021.

Overall the evaluation concluded that CSDR has largely paved the way for a more efficient EU settlement market, notably by creating synergies and cross-border opportunities for CSDs, and by reducing settlement period to T+2. However, the evaluation suggested that efficiency of CSDR can be improved further by simplifying the passporting process and enhancing supervisory cooperation between authorities with a view to facilitate the development of cross-border activities. Lastly, the evaluation recommended that the settlement discipline regime, even though it was not in force at the time, should be further scrutinised with respect to potential costs for trading activities as well as burdens for market participants and supervisors alike.

² Commission targeted consultation on the review of regulation on improving securities settlement in the European Union and on central securities depositories: https://ec.europa.eu/info/consultations/finance-2020-csdr-review_en

State of Play

Adopted: COM(2022)120; adopted by the Commission on 16/03/2022

Which objective(s) does the Commission pursue?

The general objective remains to create a safe and efficient market for the settlement of securities transactions in the EU, while preserving resilience and stability of the EU financial system. The overarching policy objective will be achieved via the pursuit of the following specific objectives:

• Minimising barriers to cross-border settlement;

• Ensuring adequate powers of information to monitor risks;

• Reducing administrative burden and compliance costs, without endangering financial stability.

Estimated savings and benefits

Simpler and more proportionate rules will reduce costs for Central Securities Depositories, market participants, investors and issuers. For example, Central Securities Depositories will benefit from a simplified passporting procedure, which will reduce costs when operating across the EU. Simplifying the passporting procedure could save CSDs EUR 10 million in the first year and ca. EUR 4 million thereafter. They will also benefit from more proportionate requirements, such as the increased possibility for banking-type ancillary services.

The proposal will increase competition between Central Securities Depositories, which investors and issuers will benefit from. Clearer and less burdensome requirements in the area of settlement discipline will also reduce costs for market participants. This will ultimately improve businesses' access to finance, thereby directly benefitting the real economy.

Finally, better insight into the activities of third-country Central Securities Depositories and better cooperation between EU supervisors, including in the area of passporting, will improve financial stability for all market participants.