Delayed adoption of CSDR standards
3 July 2015 – The “Level 2” standards under the CSD Regulation will be submitted to the European Commission in September 2015, instead of June. ECSDA believes that this delay can be beneficial and contribute to better regulation if it allows for a thorough legal and market review of the draft standards and impact assessments.
Seizing the opportunity of this delay, ECSDA would like to stress some key considerations in view of the finalisation of the CSDR technical standards:
1. Impact assessment reports should be shared and discussed with the market.
The delayed publication of the CSDR standards provides an opportunity for ESMA and the EBA to share their draft impact assessment with the industry. This would make the impact assessment process more transparent and would allow regulatory authorities to obtain feedback from industry experts on their cost-benefit analysis and on possible ways to mitigate a potential negative market impact of the standards.
2. The EBA regulatory technical standards on CSD capital requirements will only be workable and proportionate if they take CSD specificities into account.
Capital requirements should reflect the fact that the vast majority of EU CSDs do not provide cash credit and are thus not exposed to counterparty credit risk in relation to their participants. This involves, among others, recalibrating provisions coming from the framework in place for banks and/or CCPs to take into account the many instances where such provisions are irrelevant in a CSD context, especially for non-bank CSDs.
3. Standards on settlement discipline should maintain CSDs’ low risk profile and foresee a phased implementation of 24 months.
ECSDA supports the new approach adopted by ESMA in its Consultation Paper of 30 June recognising that buy-ins should be executed at the trading level rather than at the settlement level and that the introduction of mandatory buy-ins should not require CSDs to perform new tasks which could have a detrimental impact on their risk profiles.
4. Level 2 standards should not impose specific technical functionalities of CSD systems.
Mandating compulsory matching fields and technical functionalities of CSD systems such as the number and duration of settlement batches is unnecessary and CSDs are convinced that a high level of settlement efficiency can better be achieved by allowing each CSD to decide on the most appropriate tools and technical solutions, based on the specific characteristics of the market in which it operates. ESMA should also not underestimate the importance of harmonising market practices prior to imposing the use of certain standards.
5. CSDs should be given sufficient time to adapt their records to international standards.
The Level 2 rules for record keeping will require a transition period of at least 24 months before they can be implemented. Moreover, the use of Legal Entity Identifiers (LEI) for all issuers and CSD clients cannot be implemented by imposing a requirement on CSDs alone.
6. The CSD authorisation framework should not endanger the reconciliation process.
To avoid negative consequences on financial stability, technical standards on reconciliation at CSD level should not require the automatic suspension of settlement in a financial instrument in case of discrepancies. There should be an element of proportionality to ensure that the damage caused by the suspension is not greater than that caused by the reconciliation error, and requirements on daily reconciliation should only apply to cases where the CSD provides central maintenance services for a financial instrument.
7. The CSD authorisation framework should not hamper links with non-EU CSDs.
European CSDs must be allowed to continue to maintain links with non-EU CSDs. Expecting CSDs or intermediaries established in non-EU jurisdictions to be subject to a comparable regulatory regime as that in place in the EU in order for links to be allowed is not realistic, given that European rules are among the strictest in the world. Forcing European CSDs to discontinue existing links with non-EU CSDs would be detrimental to market integration and would not in any way enhance the safety of cross-border settlements.