ECSDA welcomes the publication of the New Capital Markets Union Action plan. CSDs stand ready to contribute to the CMU discussions in the areas related to CSDs. We believe that the CMU should have a positive impact on future and existing legislation.
Over the last decades, the European CSDs have been contributing to the creation of a deeper single capital market in the EEA through cross-border connections and further harmonisation in the EU, EEA and beyond. The CMU proposal marks an important milestone in the right direction.
Today, on 30 June 2020, ECSDA submitted its feedback to the High-Level Forum on Capital Markets Union. It welcomes the reports, and particularly appreciates the recommendations on the CSD Regulation.
On 10 June, the High-Level Forum on the Capital Markets Union organised under the hospices of the European Commission published its final report.
The report consists in 17 recommendations put forward with the intent of addressing relevant issues related to corporate access to finance, pan-European market architecture, retail investment and cross-border investment.
Recommendation on CSDR The European Commission is invited to conduct a targeted review of Central Securities Depositories Regulation (CSDR) to strengthen the CSD passport and facilitate the servicing of domestic issuance in non-national currencies. This should be accompanied by measures to strengthen the supervisory convergence among National Competent Authorities (NCAs). These measures, taken jointly, should enhance the cross-border provision of settlement services in the EU.
Justification A targeted review could usefully tackle the following issues:
CSD passporting and links While the objective of CSDR is to create a “common CSD market” free of regulatory barriers and to offer CSDs a European passport, divergent application by NCAs of the rules according to which (I)CSDs should meet CSD links framework requirements and provide services in another Member State creates procedural and regulatory hurdles, fragmenting the post-trade landscape along national lines.
Cross-border payments and access to Central Bank and commercial liquidity The CSDR has unintendedly limited access to global liquidity pools for CSDs without a “limited purpose banking license”. Consequently, these CSDs cannot service domestic issuance in other currencies, including sovereign debt. The CSDR foresees the possibility for CSDs without a banking licence to appoint a “designated credit institution”. However, such liquidity providers have not emerged yet. National Central Banks (NCBs) should facilitate non-domestic (I)CSDs to process settlement in Central Bank Money in other currencies (including those frequently used for issuance and settlement: GBP, CHF, USD), after taking due account of the implications of such access. Alternatively, the CSDR restrictions that prohibit CSDs holding a banking license to provide such services to other CSDs could be amended.
Supervision of CSDs Divergence in national supervisory approaches is still an important fragmentation factor in the provision of settlement services that generates costs and limits the cross-border offer. Given that securities laws are not harmonised across EU 27, NCAs still have a role to play. Therefore, ESMA’s work within the current scope of its mandate in terms of convergence should be continued and strengthened. The aim should be to ensure convergence in supervisory approaches across the Member States to reduce administrative burdens on CSDs and to generate the value added for the EU financial markets in terms of the CSDR objectives.
With a line-up of prestigious speakers, panellists and moderators, ECSDA attracted over 190 participants at the Auditorium of the National Bank of Belgium in Brussels on 20 November 2019. The headline of the conference “Towards the Financial Infrastructures of Tomorrow” couldn’t have been chosen better to reflect the core of all presentations, panel discussions and updates.
CMU The first panel focused on how to deepen Capital Markets Union, and how post-trade could contribute to making the capital flows as easy as movements of persons in Schengen. Existing barriers to further harmonisation, most important being for the insolvency laws and fiscal matters, have been extensively discussed, and there seems to be an overall agreement that the next steps will take time and political willingness to move forward towards a deeper Capital Markets Union. Cross-currency fragmentation remains significant and needs to be overcame.
Regulation, regulation and regulation Some market infrastructures admitted quite a degree of fatigue after two-three years of heavy efforts on the CSDR implementation. On the other hand, they feel stronger today and better prepared towards the many challenges still ahead. In the debates around the CSDR aftermath, the regulators defend a need for further efforts to preserve a safe and risk-protected post-trade financial system. We learned that a gap analysis between the EU CSDR and the global Principles for FMIs is ongoing. For the review of CSDR, most opinions defend a level of detail that is rather moderate compared to a complete overhaul of the regulation. The regulators view is that it will be a balancing act: CSDR is there to stay, and with the help of the continuously ongoing efforts of representatives and partners such as ESMA, and the different ECSDA Working groups, the foundations are being laid towards CSDR II.
Tomorrow’s Market Infrastructures The cherry on the cake came with the afternoon elite panel, featuring no less than the Euroclear Group’s CEO, Lieve Mostrey, Deutsche Börse group ExCo member responsible for post-trading, Stephan Leithner, the new ECB’s Director General for Infrastructure, Ulrich Bindseil, and the National Central Bank Director overseeing the Euroclear group, Tim Hermans. Topics such as consolidation, collaboration, harmonisation, innovation and also co-competition were covered from different angles, and we heard loud and clear that smaller market infrastructures ask for an inclusive agenda on the road to the future. Technological challenges for market infrastructures are high on the priority list, but you don’t turn an aircraft into an agile drone overnight.
Innovation and technology After an expert view on tokenisation and custody of digital assets, which made clear that DLT is definitely there to stay; a last series of presentations covered ID2S’ trajectory as a ‘new kid on the block’; Monte Titoli/LSE’s Data & Analytics journey; and SDX SIX and SWIFT’s digital proposals to bring further value to the global financial eco-system. The panel has broadened the concept of innovation beyond Artificial Intelligence and Blockchain towards crafting new business models and rethinking the eco-systems. The discussions also revealed unanimity about regulation ‘equal for all’: start-up settlement and custody providers must undergo the same regulatory and other requirements as the incumbents. We noted the wise words of ID2S that the CSDR licence is not a burden for a start-up, but a pre-condition of trust granted by their investors and users.
The panellists encouraged to start a joint work on the legal framework for crypto assets, their asset servicing standards, governance and principles for interoperability as immediate priorities. We also noted a warning to watch out for a crypto-assets’ misclassification, e.g. between utility and security tokens, leading to an inaccurate legal regime.
The conclusions from the ECSDA Chairman and a networking cocktail wrapped up an inspiring day.
It was an energizing day full of content about where financial market infrastructures are heading to, what topics are high on their agenda’s and how they are preparing to be future proof. A warm thank you to the speakers, moderators and panellists for their rich interventions, as well as to the organising team that did their utmost for a flawless organisation of the day.
A printable version of the summary can be found here.
Some insights about the Conference can be found on the ECSDA Twitter.
29 Jan 2016 – Responding to a call for evidence on the EU regulatory framework for financial services, ECSDA has identified several areas where the quality of law-making can be improved in relation to post trade services and the activities of central securities depositories in particular.
13 May 2015 – The CMU initiative of the European Commission is likely to affect all financial markets players, infrastructures included. ECSDA’s response to the Commission Green Paper includes four recommendations from a CSD perspective.
