Author: Charles Trong Thien Lam

ECSDA response to the EC on the use of digital tools and processes in company law

ECSDA response to the EC on the use of digital tools and processes in company law

The recent proposal by the Commission for a Directive regarding the digital tools and processes in company law gives rise to the importance of taking into account the already existing identification for financial institutions.
European CSDs call upon policymakers to consider reusing the identification for the purposes of the proposed Directive and to use it as an opportunity to streamline the process of
(a) obtaining, maintaining and collecting the identifier for financial institutions and issuance as well as
(b) facilitating the acceptance of securities in an EU CSD.

Please read the full response.

ECSDA consults on the draft Settlement Fail Penalties Framework

ECSDA consults on the draft Settlement Fail Penalties Framework

 

9 July 2018

Today, ECSDA makes available the draft version of its future ECSDA Settlement Fail Penalties Framework (the Framework). The document aims at creating a harmonised and coherent set of rules and considerations for creation and operation of the Settlement Discipline Cash Penalties mechanisms by all European CSDs subject to the CSD Regulation (Regulation (EU) 909/2014) or equivalent provisions. It intends to provide a clear, safe and efficient Framework for settlement penalties mechanisms of the CSDs that have joined and that have not yet joined T2S platform.
The draft version of the Framework is based on numerous assumptions which need to be confirmed by the authorities and other relevant stakeholders. It is intended to evolve pursuant to clarification of assumptions, dialogue with relevant stakeholders and further ECSDA work.
Preliminary or partial views will be appreciated as soon as possible.

The open consultation on the early draft framework is running until 17 August at the latest.
Please send us your views, comments and proposals to info@ecsda.eu.

We thank you in advance for your attention and possible contribution to improving the ECSDA Settlement Fail Penalties Framework further.

Please read the full document.

 

ECSDA views on migration to ISO20022

ECSDA views on migration to ISO20022

European CSDs support a coherent use of the same standard globally. At this stage, we see that earlier standards are more in use for securities communication across the globe. However, we note that several pan-European infrastructure projects and regulatory initiatives would expand further the use of ISO20022 in the upcoming years.
At the same time, given (i) the significant cost of migration for infrastructures and market participants across the globe and (ii) the relatively limited value-added of ISO 20022 versus the current 15022 for securities, we would advise not to urge a full global migration of all flows.
Should a ‘forced’ migration occur, the co-existence shall be limited.

Please see the full document

European CSDs welcome a clear ECB guidance on FMI Cyber resilience

European CSDs welcome a clear ECB guidance on FMI Cyber resilience

On 10 April 2018, the European Central Bank (ECB) launched a public consultation on the ECB’s draft report with proposed Cyber Resilience Oversight Expectations (CROE) for Financial Market Infrastructures (FMIs). The CROE includes the ECB’s expectations in terms of cyber resilience, based on existing global guidance. This paper constitutes ECSDA’s response to the consultation, focusing on the perspective of European Central Securities Depositories (CSDs). The draft report forms an excellent basis for improving cyber resilience of FMIs. It also supports FMIs in the implementation and operationalisation of the existing global guidance, i.e. the “Cyber Guidance” issued by the CPMI and IOSCO in 2016 as a complement to the 2014 Principles for Financial Market Infrastructures.
We are appreciative of the ECB fostering the principle of proportionality and taking a reasonable approach which will contribute to meaningful discussions between FMIs and their overseers, as:

  • The CROE correctly identifies that there should be a degree of flexibility when dealing with a heterogeneous group of FMIs. Even though a CSD is an FMI, there are substantial differences with other FMIs and amongst CSDs which justify a proportional approach.
  • The CROE is to be considered a set of practices that can contribute to an FMI’s compliance with the Guidance. We welcome the acknowledgement that the CROE is not put forward as a checklist of measures FMIs need to strictly comply with and that there is a graduation in the level of compliance to be reached.
  • The CROE is meant to be used as a reference document which has been aligned with global and international standards and frameworks. Global CSDs are governed by multiple overseers and thus confronted with a regulatory fragmented landscape. The CROE will contribute to supervisory convergence as it can be used as a single reference document across multiple jurisdictions.

Nonetheless, we believe that a few issues require further consideration by the ECB before the CROE is published in its final form. In particular:

  • The ECB’s oversight is limited to payment systems and T2S. For ‘other’ FMIs like CSDs, the ECB refers to the National Competent Authorities (NCAs) to decide how they will need to apply the CROE and what is the maturity level they expect the FMI to reach. This could open the door to more regulatory fragmentation for CSDs and an unequal level playing field depending on the views local authorities take. We would like to encourage the ECB to ensure further alignment with ESMA, to avoid that each NCA takes its own view on this matter.
  • We ask for greater alignment between the CROE and inherent risk assessment models, like the Cybersecurity Capability Maturity (C2M2) model. Concrete explanations are provided in the consultation’s feedback table. However, we would like to avoid that CSDs become exposed to multiple and divergent expectations from the NCAs depending on whether they align with CROE and/or other inherent risk models.
  • We have no doubt that Eurosystem will ensure that appropriate actions are taken to prevent a cyber-attack at the level of T2S. However, when speaking about CSDs, the CROE does not appear to consider the current situation of dependency of CSDs on the Eurosystem in terms of cyber security exposure and requirements.
  • The Eurosystem (as T2 and T2S provider) is a key provider to the CSDs and thus there is an important dependence to ensure an appropriate level of CSD cyber resilience. Particularly when an attack occurs at the level of the Eurosystem and directly or indirectly impacting securities transactions, the response, responsibilities and consequences for CSDs need to be cleared. In addition, there are further ramifications on the CSDs liability in view of the T2S Framework Agreement.
  • In our view it would be beneficial if CROE could clarify the expectations for regulated entities belonging to a group or being part of a corporation.

Detailed comments are provided in the consultation’s feedback table.

Please read the full consultation.

The European Commission issues the RTS on Settlement Discipline

The European Commission issues the RTS on Settlement Discipline

 

The European Commission has just issued the Standards (RTS) on Settlement Discipline.

The Legislators (Council and Parliament) have one to three months of a (non-) objection period, i.e. to express their objection to the draft. The period can be extended for the maximum of here additional months, if the changes in comparison with the ESMA draft RTS have been sufficiently substantial for that.

RTS annexes

 

ECSDA response to the consultation on Shareholder Rights Standards

ECSDA response to the consultation on Shareholder Rights Standards

European Central Securities Depositories Association (ECSDA) represents 38 national and international Central Securities Depositories (CSDs) across 35 European countries. The association aims at promoting a constructive dialogue between the CSD community, European public authorities and other stakeholders looking to contribute to an efficient and risk-averse infrastructure for European financial markets.

ECSDA welcomes the European Commission consultation on the draft implementing regulation. CSDs also thank the European Commission for the opportunity to provide views during the meetings of the Corporate governance expert group and the quality of the resulting draft Implementing Regulation (the Regulation).

Main points:

  1. ECSDA appreciates the draft regulation to be broadly supportive of the market standards, ensuring that their provisions are based on the harmonised and enforceable legal grounds within the EU. We would kindly ask to make an explicit reference to the CSD Regulation (CSDR, (EU) 909/2014). This, to clarify that this Regulation ensures continuity and does not exempt CSD participants holding shares from the CSDR and its standards.
  2. We encourage the Commission to collaborate with other authorities globally to ensure further global harmonisation. As the Shareholder Rights Directive (the Directive) articles 3a, 3b and 3c have extra territorial effect (resulting from Article 3e), we use the opportunity to ask the EU Commission to explain their expectations of the implementation of cross-border processes involving third country intermediaries. The national law of a third country may prohibit the disclosure of beneficial owner, particularly for bearer shares. Hence, this can delay or prevent the transmission of information in line with the Directive and the Regulation. It is also unclear (a) how the regulation applies to the dually-listed securities (within and out-side of the EU), and (b) a holding of a depository receipt (DR) shall be subject to the same processes. The latter are generally deemed an “indirect shareholding” subject to terms and condition established by the DR agent.
  3. European CSDs are fully in support of the Straight Through Processing (STP) and machine-readability of the transmission of data for the purposes of the processes defined in the Regulation. Such tools will significantly reduce operational complexities and operational risks. They may also increase the efficiency of the intermediary network. As the intermediary chain will need to put some efforts (in addition to the numerous ongoing projects) to ensure a fully efficient flow through the chain, automation will require additional time. CSDs would encourage the Commission to positively respond to the market request for a longer implementation period.
  4. We appreciate the alignment of flows for transmission of the shareholder identification, meeting notice and exercise of rights with those used in most European markets.

CSDs would ask the Commission to consider the benefits of harmonising the record date across the EU.

Read the full response.

ESMA issues updated Q&A on the CSD Regulation

ESMA issues updated Q&A on the CSD Regulation

In brief, the new/modified Q&A says:

  • Links shall be assessed in compliance with the CSDR by the time of the CSD application for authorisation under CSDR
  • Communication standards requirement to use international standards is limited to :
    a) the machine-to-machine communication
    b) communication where international, fair and open standards exists
    c) where the CSD cannot/does not provide evidence that the international standards are less efficient. It is possible to use other standards if they are more efficient
  • CSD links should not be qualified as interoperable links only because of the participation of the two CSDs in T2S. T2S links are deemed interoperable only for T2S-related aspects.

Please see the full document