The European Commission has proposed changes to the Central Securities Depositories Regulation to enhance the efficiency of the EU’s settlement markets, while safeguarding financial stability. Today’s proposal is a key component of the 2020 Capital Markets Union Action Plan.
Central Securities Depositories operate the infrastructure that enables the settlement of securities (such as shares or bonds) in financial markets. Settlement refers to the delivery of securities to a buyer in exchange for the delivery of cash to a seller. It can take up to two business days to settle a transaction, which can result in both credit and legal risks during that period. Ensuring that these transactions are settled in a safe and efficient manner is therefore essential for the EU’s financial system.
Central Securities Depositories play a central role in the EU’s capital markets and financial system. For example, transactions settled by EU Central Securities Depositories in 2019 reached around €1,120 trillion. Their key role was also highlighted recently in the context of EU sanctions against Russia. On 25 February 2022, the EU agreed that the holding of accounts of Russian clients by EU Central Securities Depositories was prohibited, demonstrating the centrality of Central Securities Depositories in the EU’s financial system.
The overall aim of this proposal is to make securities settlement in the EU safer and more efficient, thereby improving the attractiveness of the EU’s capital markets and ultimately contributing to the financing of our economy. Given the large amounts of money that pass through Central Securities Depositories, it is essential that they work well for our financial system. This proposal will ensure more proportionate and effective rules to reduce compliance costs and regulatory burdens for Central Securities Depositories, as well as facilitating their ability to offer a broader range of services cross-border, and improving their cross-border supervision.
In more detail
This proposal contains the following key improvements to the Central Securities Depositories Regulation:
- Improving the passporting regime: It simplifies passporting for Central Securities Depositories, through which they can operate across the EU with one single licence. It notably removes costly and duplicative procedures, facilitating the cross-border provision of services and competition.
- Improving cooperation between supervisory authorities: It improves cooperation between supervisors by requiring the establishment of colleges for certain Central Securities Depositories to increase consistent and convergent supervision.
- Improving banking-type ancillary services: It adjusts the conditions under which Central Securities Depositories can access banking services, enabling them to offer settlement services for a broader range of currencies and offering businesses the opportunity to obtain financing from a larger pool of investors, including cross-border.
- Improving settlement discipline: It amends certain elements of the settlement discipline regime, changing the process under which mandatory buy-ins could become applicable and certain technical aspects of the settlement discipline regime to make it more effective and proportionate.
- Improving the oversight of third-country Central Securities Depositories: It ensures that supervisors have better information about the activities of third-country Central Securities Depositories in the EU.
The proposal will now be submitted to the European Parliament and the Council for their consideration and adoption.
Members of the College said:
Valdis Dombrovskis, Executive Vice-President responsible for an economy that works for the people said: “Europe needs a strong financial system to make our recovery effective and to support long-term growth, underpinned by deep, integrated and well-functioning capital markets. By simplifying the EU’s rules to make the settlement of transactions in securities, such as shares and bonds, more efficient, we will improve how financial market infrastructure operates between EU countries. Today, we are taking another step forward to create more efficient and attractive European capital markets to benefit investors and businesses, including small and medium-sized enterprises.”
Mairead McGuinness, Commissioner for Financial Stability, Financial Services and Capital Markets Union said: “Europe’s capital markets are central to financing our economy, including the green and digital transitions, but obstacles remain to unlocking their full potential. We want to make our Central Securities Depositories more efficient and competitive, while preserving financial stability. Today’s review does just that – by reducing red tape for Central Securities Depositories that want to expand their activities cross-border, we are creating a truly single market for securities settlement in the EU, and promoting competition in the market. This contributes to our ultimate goal of building up the Capital Markets Union.”
Background
The Central Securities Depositories Regulation was adopted in 2014 following the financial crisis to improve the safety and efficiency of settlement as well as to provide a set of common requirements for Central Securities Depositories across the EU. Today’s reforms to the Central Securities Depositories Regulation build on the results of the Commission’s targeted consultation on the mandated review of the Central Securities Depositories Regulation, as well as input received from various stakeholders, including the European Securities and Markets Authority. It is also part of the Commission’s efforts to ensure that EU legislation delivers results for citizens and businesses effectively and at minimum cost (REFIT).
The 2020 Capital Markets Union Action Plan and the 2021 Commission Work Programme announced the Commission’s intention to come forward with a legislative proposal to amend the Central Securities Depositories Regulation to improve its efficiency and effectiveness and contribute to the development of more efficient settlement markets in the EU.
Market infrastructures were also part of a legislative package published by the Commission on digital finance in September 2020, in line with the Commission priorities to make Europe fit for the digital age and to build a future-ready economy that works for people.
*Source: European Commission
By: N. Peter Kramer
