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ESMA is preparing a new RTS to further postpone CSDR Settlement Discipline

ESMA is preparing a new RTS to further postpone CSDR Settlement Discipline

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

ECSDA answer to the FSB consultation on stablecoins

ECSDA answer to the FSB consultation on stablecoins

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

ECSDA welcomes HLF report on CMU

ECSDA welcomes HLF report on CMU

 

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.

Full text

CMU HLF published its final report

CMU HLF published its final report

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:

  1. 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.
  2. 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.
  3. 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.

Please read the full report

ECSDA requests postponement of Settlement Discipline

ECSDA requests postponement of Settlement Discipline

On 8 June 2020, the European Central Securities Depositories Association (ECSDA) writes to request a postponement in the implementation of Settlement Discipline Regime (SDR), and Settlement penalties in particular, possibly by one year beyond the date of 1 February 2021.

We acknowledge that the European Commission recently adopted a decision to amend the date of entry into force of the Central Securities Depositories Delegated Regulation on Settlement Discipline (Regulation 2018/1229). In this letter, we aim to alert you about a set of new elements which affect the SDR timeline and might not yet have been considered by the Commission. We hope these elements will be taken into account during the scrutiny period of the amendment.

The letter calls for a holistic approach on the implementation timeline of the regulatory and mandatory projects. The approach may lead to the postponement of the mentioned projects by one year.

Full letter

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