Agreement on changes to financial instruments settlement regime
- Deterrent and proportionate cash penalties to prevent settlement fails
- The principle of “same activity, same risk, same rules”
- Minimising cross-border obstacles and administrative burden for authorised CSDs across the EU
The Economic and Monetary Affairs Committee negotiators reached a deal to improve organisation of the central securities depositories in the EU, to promote efficiency and prevent fails.
Provisional agreement on the central securities depositories introduces number of measures including settlement regime and closer monitoring to target settlement fails, to encourage timely settlement, when securities transactions are being completed.
Measures to prevent settlement fails
For each securities settlement system it operates, a CSD should establish procedures that facilitate settlement of transactions as well as a framework to monitor settlement fails. Reports will be made public by the CSD in an aggregated and anonymised form on an annual basis.
In order to address settlement fails, when a party of a transaction does not deliver a security or funds on time, negotiators agreed to apply deterrent and proportionate cash penalties. The Commission should reassess parameters of cash penalties every four years.
They agreed that mandatory buy-in rules (when non-delivered securities are purchased in the market and made available for settlement) should apply only as a last resort measure with an aim to maintain a sustainable reduced level of settlement fails. The Commission will be empowered to determine when to apply them.
Negotiators also decided that specific types of transactions should not be subject to cash penalties or mandatory buy-ins in order avoid detrimental consequences for the market.
Banking-type ancillary services
According to the agreement, CSDs would be able access banking services to offer settlement services for a broader range of currencies and obtain financing from cross-border investors. In order to ensure a level playing field among CSDs, with and without authorisation to provide banking-type ancillary services, CSDs non-authorised as banks should be able to offer a sufficient amount of arrange foreign currency settlement through a bank account. Non-authorised CSDs should be below a set risk threshold ensuring financial stability and prevent an unintended shift away from settlement in central bank money.
In line with the principle of “same activity, same risk, same rules” the European Banking Authority (EBA) should be tasked with drafting risk mitigating requirements.
Minimising administrative burden
Negotiators agreed to minimising cross-border obstacles and administrative burden for authorised CSDs so that they can operate across the EU. Competent authority in a home member state will take the final decision on passporting.
Enhancing supervisory cooperation
In order to protect financial stability and investors, negotiators agreed to establish a college of supervisors for CSDs of substantial importance in more than one host Member State, college issues non-binding opinions. European Securities and Markets Authority (ESMA) will be tasked with specifying criteria for such CSDs.
National competent authority tasked with monitoring and centralising information such as risk thresholds for banking-type ancillary services at the EU level should share this information with European Supervisory Authorities (ESAs). The competent authority can also invite ESMA for onsite CSDs inspections.
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Johan van Overtveldt (ECR, BE), the lead MEP said: “The agreement on the CSDR Refit is an important step towards the completion of the Capital Markets Union. Safe and efficient settlement of financial securities contributes to the attractiveness of our capital markets, and ultimately to the financing of our economy.”
Next steps
The provisional political agreement reached by the EP negotiating team will now have to be approved first by the Economic and Monetary Affairs Committee, followed by a plenary vote. The Council also has to approve the deal, before it can come into force.