30 Jun 2016 – CSDs must have effective and transparent rules in place to manage a participant’s default. To ensure that this is the case, the EU Regulation on CSDs (CSDR) foresees the adoption by ESMA of supervisory guidelines on CSD participant default rules and procedures. Draft guidelines were issued by ESMA on 31 May.
In its response to the ESMA consultation, ECSDA makes the following recommendations:
1. The upcoming ESMA guidelines should not result in CSDs implementing different rules on participant defaults than other operators of payment or clearing systems
Participant default rules and procedures are closely related to existing rules on finality and insolvency. In principle, these rules all apply equally to all operators of payment, clearing and settlement systems. It is therefore important that the adoption of guidelines on CSD participant default rules and procedures by ESMA does not result in a situation where CSDs would have to apply different rules from other market infrastructure operators.
2. The ESMA guidelines should distinguish more clearly between non-bank CSDs and CSDs authorised to provide banking type ancillary services
Unlike CCPs and commercial banks, CSDs are not expected to use their own financial resources in relation to the management of a participant default. The ESMA guidelines should be redrafted to more clearly reflect this fact, and should clearly specify when certain actions or procedures are expected to be used by CSDs authorised to provide banking type ancillary services.
3. The ESMA guidelines should be redrafted to avoid potential conflicts with national law
ECSDA is concerned that some of the “minimum requirements” specified in the guidelines may occasionally conflict with national law. This could be the case with insolvency law, local law implementing the Settlement Finality Directive (SFD), and/or legal provisions on professional secrecy duties. Despite steps taken by Council Regulation 1346/2000 on insolvency proceedings, insolvency law is not harmonised across EU jurisdictions and national rules typically impose strong restrictions on the possibility for counterparties of the defaulting entity to take unilateral decisions. ESMA should thus be aware that, in cases where there is a potential conflict between national law and the proposed guidelines, CSDs may be prevented from implementing the guidelines in full. In some countries for instance, a CSD risks infringing the law if it terminates a participation agreement solely on the basis of a default declaration.