ESMA responds to European Commission’s Review of CSDR
28 May 2021 France
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The European Securities and Markets Authority (ESMA) has responded to the European Commission’s review of the Central Securities Depository Regulation (CSDR).
This recommends amendments to the regulation in a number of areas, including arrangements for the supervision of T2S and to the third-country CSD recognition regime.
T2S is the central settlement platform for EU securities settlement operated by the Eurosystem and launched through a phased release from 2015.
At the forefront of its recommendations, ESMA highlights a need to strengthen the capacity of T2S CSDs to manage risks that derive from outsourcing settlement activities to the T2S platform.
ESMA notes in its letter that T2S is currently monitored under a “light approach”, through provisions defined in the Principles for Financial Market Infrastructures (PFMIs) in the ECB Oversight Framework, and not through provisions directly embedded in CSDR.
Given the centrality of T2S to settlement operations across EU member states, ESMA believes it is “not appropriate” to exclude such a systemically-important settlement platform completely from the scope of CSDR.
It also advises that CSDR should be amended to enable better cooperation between key participants involved in oversight of T2S settlement activities — specifically, national regulators, along with the European Central Bank as lead overseer of the T2S platform, and ESMA in providing a “supervisory convergence” role, ensuring cooperation and consistency in financial supervision across EU Member States.
With Europe’s financial services industry still adjusting to the impact of Brexit, ESMA has called for the recognition regime for “third-country CSDs” (TC-CSDs) to be extended, requiring third-country CSDs to notify ESMA of all services that they provide in the European Economic Area (EEA).
This provision relates to the activities of non-EU CSDs that provide services into the EEA.
It notes that, under current arrangements, there is no information available on the activities of TC-CSDs, either at EEA level or at national level to regulatory authorities, unless this is provided on a voluntary basis by those CSDs.
Significantly, the current TC-CSD recognition regime does not cover the provision of settlement services in the EEA — rather it only applies to two out of the three CSDR core services, specifically notary and central maintenance activities.
As a result, “the provision of settlement services remains invisible to the EEA supervisors,” says ESMA. This only allows for “a very late and partial view of the activities of TC-CSDs in the EEA” and creates an unlevel playing field between third-country CSDs and EEA CSDs.
To address this point, ESMA indicates that the TC-CSD recognition regime should be extended to cover settlement services alongside notary and central maintenance services.
Perhaps surprisingly, there was little mention in the ESMA letter of its views on the CSDR settlement discipline regime, particularly the mandatory buy-in component, which is timetabled for February 2022 and has been subject to intensive industry scrutiny.
Prior to this submission, forwarded to the European Commission on 20 May, ESMA has already provided input to the Commission through two reports, one on CSD cross-border services and the other on internalised settlement, which were published in November 2020.
In coming months, it will provide additional recommendations in two further reports, one relating to technical innovation by CSDs and a second on banking-type ancillary services.
This recommends amendments to the regulation in a number of areas, including arrangements for the supervision of T2S and to the third-country CSD recognition regime.
T2S is the central settlement platform for EU securities settlement operated by the Eurosystem and launched through a phased release from 2015.
At the forefront of its recommendations, ESMA highlights a need to strengthen the capacity of T2S CSDs to manage risks that derive from outsourcing settlement activities to the T2S platform.
ESMA notes in its letter that T2S is currently monitored under a “light approach”, through provisions defined in the Principles for Financial Market Infrastructures (PFMIs) in the ECB Oversight Framework, and not through provisions directly embedded in CSDR.
Given the centrality of T2S to settlement operations across EU member states, ESMA believes it is “not appropriate” to exclude such a systemically-important settlement platform completely from the scope of CSDR.
It also advises that CSDR should be amended to enable better cooperation between key participants involved in oversight of T2S settlement activities — specifically, national regulators, along with the European Central Bank as lead overseer of the T2S platform, and ESMA in providing a “supervisory convergence” role, ensuring cooperation and consistency in financial supervision across EU Member States.
With Europe’s financial services industry still adjusting to the impact of Brexit, ESMA has called for the recognition regime for “third-country CSDs” (TC-CSDs) to be extended, requiring third-country CSDs to notify ESMA of all services that they provide in the European Economic Area (EEA).
This provision relates to the activities of non-EU CSDs that provide services into the EEA.
It notes that, under current arrangements, there is no information available on the activities of TC-CSDs, either at EEA level or at national level to regulatory authorities, unless this is provided on a voluntary basis by those CSDs.
Significantly, the current TC-CSD recognition regime does not cover the provision of settlement services in the EEA — rather it only applies to two out of the three CSDR core services, specifically notary and central maintenance activities.
As a result, “the provision of settlement services remains invisible to the EEA supervisors,” says ESMA. This only allows for “a very late and partial view of the activities of TC-CSDs in the EEA” and creates an unlevel playing field between third-country CSDs and EEA CSDs.
To address this point, ESMA indicates that the TC-CSD recognition regime should be extended to cover settlement services alongside notary and central maintenance services.
Perhaps surprisingly, there was little mention in the ESMA letter of its views on the CSDR settlement discipline regime, particularly the mandatory buy-in component, which is timetabled for February 2022 and has been subject to intensive industry scrutiny.
Prior to this submission, forwarded to the European Commission on 20 May, ESMA has already provided input to the Commission through two reports, one on CSD cross-border services and the other on internalised settlement, which were published in November 2020.
In coming months, it will provide additional recommendations in two further reports, one relating to technical innovation by CSDs and a second on banking-type ancillary services.
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