EU expert group identifies post-trade barriers to CMU
24 August 2017 Brussels
Image: Shutterstock
The European Post-Trade Forum (EPTF) has identified the remaining barriers to efficient and resilient market infrastructures in the EU, and added some new issues to the list.
In a report written in May and released yesterday, the EPTF, a European Commission expert group, assessed the “state of removal of the Giovanni Barriers”, listed those yet to be dismantled, and identified new barriers and bottlenecks that could hamper the development of a “true capital markets union (CMU)”.
The Giovanni Barriers were identified in 2003 as issues that prevent efficient cross-border clearing and settlement in the EU. Since then, derivatives markets, securities finance activities, collateral management and post-trade reporting have become much more developed, while new products and new barriers have emerged.
This means a “semantic transposition” of the original barriers would not be possible. Therefore, the new barriers will be termed the EPTF Barriers.
According to EPTF, significant operational barriers include fragmentation in corporate actions and general meeting processes, a lack of convergence in information messaging services, and a lack of harmonisation in exchange-traded fund processes—a point that did not appear in the original Giovanni Barriers.
Identified structural barriers include inconsistent application of asset segregation rules for securities accounts, a lack of harmonisation of registration rules and shareholder identification, and the complexity of post-trade reporting structures.
The EPTF also “refined and combined” two Giovanni Barriers into a fourth structural barrier, namely unresolved issues around International Securities Identification Numbers.
Regarding the three legal barriers identified in the Giovanni Reports, the EPTF said: “Progress in removing the barriers has remained limited and the rationale for such reforms is unchanged.”
It also noted additional legal shortcomings highlighted by the 2008 financial crisis.
Uncertainty around the legal soundness of intermediaries’ risk mitigation techniques, and of default management procedures, as well as deficiencies in the protection of client assets, shortcomings in EU rules around finality, and uncertainty around ownership rights in book-entry securities, all remain as legal barriers.
A tax-related barrier in the “prevailing withholding tax regimes, that are currently characterised by various shortcomings, such as lack of tax exemption at source, non-harmonised reclaim procedures and in certain member states unduly long repayment periods”, was also identified.
Welcoming the report, the Association for Financial Markets in Europe (AFME) suggested that this tax barrier should be given high priority for resolution, along with legal inconsistencies and fragmented corporate actions processes.
AFME also named inconsistent asset segregation rules, lack of harmonisation in registration and investor identification, and complexity in post-trade reporting as issues that should be of “the highest priority”.
Werner Frey, managing director of post trade at AFME, said: “Europe needs a clear vision for its post trading landscape and a coherent strategy for delivering this goal. We believe that the CMU project will contribute to the dismantling of the remaining barriers to achieve a safe and efficient European post-trade landscape.”
The EPTF report coincided with the release of a European Commission consultation paper on the current state of post-trade markets and the scale of any new or remaining barriers, as part of its CMU Action Plan.
Valdis Dombrovskis, vice president of the European Commission responsible for financial stability, financial services and the CMU, said: “Efficient and integrated post-trade markets are essential for EU financial markets and for a well-functioning CMU. We need to find the best solutions to remove all barriers to efficient and resilient post-trade services.”
Responses to the paper can be submitted up until 15 November.
The EPTF was set up by the European Commission in February 2016, to assess the evolution of the EU post-trade landscape, and the progress in removing the Giovanni barriers.
In a report written in May and released yesterday, the EPTF, a European Commission expert group, assessed the “state of removal of the Giovanni Barriers”, listed those yet to be dismantled, and identified new barriers and bottlenecks that could hamper the development of a “true capital markets union (CMU)”.
The Giovanni Barriers were identified in 2003 as issues that prevent efficient cross-border clearing and settlement in the EU. Since then, derivatives markets, securities finance activities, collateral management and post-trade reporting have become much more developed, while new products and new barriers have emerged.
This means a “semantic transposition” of the original barriers would not be possible. Therefore, the new barriers will be termed the EPTF Barriers.
According to EPTF, significant operational barriers include fragmentation in corporate actions and general meeting processes, a lack of convergence in information messaging services, and a lack of harmonisation in exchange-traded fund processes—a point that did not appear in the original Giovanni Barriers.
Identified structural barriers include inconsistent application of asset segregation rules for securities accounts, a lack of harmonisation of registration rules and shareholder identification, and the complexity of post-trade reporting structures.
The EPTF also “refined and combined” two Giovanni Barriers into a fourth structural barrier, namely unresolved issues around International Securities Identification Numbers.
Regarding the three legal barriers identified in the Giovanni Reports, the EPTF said: “Progress in removing the barriers has remained limited and the rationale for such reforms is unchanged.”
It also noted additional legal shortcomings highlighted by the 2008 financial crisis.
Uncertainty around the legal soundness of intermediaries’ risk mitigation techniques, and of default management procedures, as well as deficiencies in the protection of client assets, shortcomings in EU rules around finality, and uncertainty around ownership rights in book-entry securities, all remain as legal barriers.
A tax-related barrier in the “prevailing withholding tax regimes, that are currently characterised by various shortcomings, such as lack of tax exemption at source, non-harmonised reclaim procedures and in certain member states unduly long repayment periods”, was also identified.
Welcoming the report, the Association for Financial Markets in Europe (AFME) suggested that this tax barrier should be given high priority for resolution, along with legal inconsistencies and fragmented corporate actions processes.
AFME also named inconsistent asset segregation rules, lack of harmonisation in registration and investor identification, and complexity in post-trade reporting as issues that should be of “the highest priority”.
Werner Frey, managing director of post trade at AFME, said: “Europe needs a clear vision for its post trading landscape and a coherent strategy for delivering this goal. We believe that the CMU project will contribute to the dismantling of the remaining barriers to achieve a safe and efficient European post-trade landscape.”
The EPTF report coincided with the release of a European Commission consultation paper on the current state of post-trade markets and the scale of any new or remaining barriers, as part of its CMU Action Plan.
Valdis Dombrovskis, vice president of the European Commission responsible for financial stability, financial services and the CMU, said: “Efficient and integrated post-trade markets are essential for EU financial markets and for a well-functioning CMU. We need to find the best solutions to remove all barriers to efficient and resilient post-trade services.”
Responses to the paper can be submitted up until 15 November.
The EPTF was set up by the European Commission in February 2016, to assess the evolution of the EU post-trade landscape, and the progress in removing the Giovanni barriers.
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