Ahead of the compliance deadline with the reviewed Shareholder Rights Directive on 3 September 2020, ECSDA and 9 other European associations reiterated the importance for the authorities to support smooth compliance with its requirements. On 1 September,  the Associations sent a joint letter to the European Commission Directorate-General for Justice and Consumers (DG JUST) and ESMA.

In June, the European Commission dismissed a call from the European financial services sector for a twelve-month delay that was needed in view of the status of market readiness, further impacted by the COVID-19 outbreak. In the view of the DG JUST, the pandemic made it even more important for shareholders to communicate electronically and to vote remotely at annual general meetings. The Associations are fully committed to supporting the market. In this new letter to the Commission and ESMA, they shed light on the operational aspects of compliance with SRD II in further detail and kindly asked, amongst others, to enable a smooth adoption with a transition period towards full implementation.

Read the full letter

For more information on how to comply with SRD II, visit the ECSDA SRD II website.

On 31 August 2020, ECSDA responds to the ESMA Consultation Paper on Outsourcing to Cloud Services Providers.

The European Central Securities Depositories Association (ECSDA) welcomes the consultation paper on Draft Guidelines on Outsourcing to Cloud Service Providers.

ECSDA believes that some elements in this consultation would benefit from alignment with the EBA Outsourcing Guidelines, while others would benefit from clarification, given the specific context of CSDs as FMI. The association considers that a single set of guidelines that would apply to all outsourcing relationships and thus integrate both cloud and non-cloud outsourcing would be the ideal methodology to follow if it is taken into account that only some CSDs are subject to the EBA Guidelines. Careful consideration needs to be given to the interaction between the European Authorities guidelines on outsourcing to CSPs and eventual related legislative developments. Those legislative efforts of enhancing coherence would gather our support, as they would alleviate the industry from some significant concerns related to contract management.

Read the full response

On 28 July, ESMA announced that it is preparing the new RTS to delay the entry into force of CSDR Settlement Discipline until 1 February 2022.

The delay is due to the impact of the COVID-19 pandemic on the implementation of regulatory projects and IT deliveries by CSDs.

ESMA aims to publish the final report on further postponing the date of entry into force of the RTS on settlement discipline by September. Following the endorsement of the RTS by the European Commission, the Commission Delegated Regulation will then be subject to the non-objection of the European Parliament and of the Council.

Find here the link to the ESMA release.

Find the request sent to ESMA by the European Commission

On 15 July, ECSDA responds to the Financial Stability Board consultation: Addressing the regulatory, surpervisory and oversight challenges raised by “global stabelcoin” arrangements

Introductory remarks

ECSDA welcomes FSB´s on-going efforts to further enhance market stability and market integrity by, among others, addressing the regulatory, supervisory and oversight related challenges raised by global stablecoin arrangements. We also acknowledge FSB´s valuable work within the DLT discussion. As operators of Central Securities Depositories (CSDs), we have a long experience in supporting markets and implementing safeguard mechanisms for these markets.
We favour the approach undertaken by the FSB, especially referring to already existing international standards to deal with global stablecoins (GSC). From our point of view, it is time to raise the crypto-asset ecosystem to the same level of regulation as the rest of the financial system. “Same business, same risks, same rules” should apply as a general principle.

CSDs are primarily looking at GSC as a potential means of settling one of the ‘legs’ of the transactions in securities or digital- assets. We would, therefore, ask regulators not to look at the arrangements in isolation, but as part of the ecosystem in which this new segment will be integrated. Due to the interdependence of different actors and segments of financial markets, regulators should also pay attention to financial stability risks related to GSC. Lessons learned from the previous financial turmoil should be kept in mind: the technology changes should not lead to the creation of a less regulated financial segment that may lead to global systemic consequences. The regulation of the actors using the technology should always be technology-neutral, and the technology should be no justification for different treatment.

Given that the application of the technology in financial markets is still in an early stage, we would ideally favour a close global alignment of regulators when addressing the vulnerabilities of the various activities of GSC arrangements. Therefore, we welcome the opportunity to comment on the FSB´s Consultative document.

Key messages

1. Financial stability has to be ensured at all times
   We agree with the consultation risks to financial stability which were mentioned. However, we would add:

   A. The need for attention to the value and stability of a fiat currency (or even multiple fiat currencies) and how the respective central bank(s) in charge might be affected (e.g. by inflation), and the need for attention to the value and stability of the securities backing GSCs and the risks linked to those.

   B. GSCs need to evidence the existence and amount/value of reserves they maintain at all times, both reliably and continuously. For this purpose, specific trusted third parties responsible for the ‘notary’ functions should be used.
   There should be mechanisms preventing custodian insolvency impacts, including ensuring the use of dedicated trusted third parties. Maximum protection, which may be desirable in the case of GSC, would be ensured by having reserves in the form of cash held in central banks and reserves in the form of securities held in CSDs.

2. We would encourage further global and regional cooperation and clarification of GSC arrangements
   
   A. Clear classification of crypto-currencies and (global) stablecoins is necessary.
   Digital payment assets (payment tokens) or ‘digital money’ in general, have different subcategories, depending on the features we specify below. The risks (including related to the probability of the issuer insolvency) related to the backed assets (‘reserves’ or ‘collateral’) will be a crucial factor for investors, and hence should be taken into account by regulators.

   B. It would also be useful to clarify the distinction between stablecoins and securities-tokens.

   C. Due to their insolvency remoteness and their proven resilience as systemic FMIs, the safety and resilience of a global stablecoin arrangement can be enhanced by having existing CSDs taking roles in the arrangements. For that reason, there may be no need to duplicate the PFMI requirements applicable to these institutions in a framework dedicated to stablecoins.

   D. We see the need for the detailing of the future FSB recommendations at the national or regional level in the near future.

Please read the full response

On 6 July 2020 ECSDA participated in a webinar on SRDII jointly organised with other members of the SRD II Industry Steering Group.

Slides of the webinar

Link to the video