06 November 2003

ESF response to ESCB-CESR Consultation on Clearing and Settlement

The European Securities Forum (ESF) welcomes the ESCB-CESR Report on Standards for Clearing and Settlement Systems in the European Union as the harmonisation of the regulatory environment is deemed an essential part of an overall integrated clearing and settlement environment in Europe.

ESF fully concurs with the functional approach which calls for a clear definition of the function(s) intended to be addressed by the Standards. Such clarity may, however, be lacking, as exemplified by the absence of any underlying functional basis for including custodians within the Standards.

Certain financial institutions may perform settlement-like functions by transferring securities between two customer accounts at their respective “omnibus accounts” at a CSD. Such functions are performed by the financial institution qua financial institution, not qua custodian. It is, therefore, unsound to identify custodians as a class of organisation that may potentially be subject to the Standards.

If, as ESF believes, it is ESCB-CESR’s objective that the Standards should apply to financial institutions that perform the above described function to a significant extent, ESCB-CESR should so articulate unambiguously, so that the impacted financial institutions and national authorities can properly address all relevant issues. For even when a financial institution provides such services, the central securities depositories remain the ultimate book of record.

An immediate and appropriate consequence of such an articulation would be that most bank custodians would properly be excluded from the application of the Standards and would continue to be subject to all the risk management and highly sophisticated regulation which currently apply to them.

ESF endorses the objectives of the standards, however, takes the view, as outlined in the specific comments, that partly they are not adequately reflected in the work of the ESCB-CESR Joint Working Group, taking into account the dual objective of reducing risk and cost.

Document
See also the comment made on Pan-European Securities Market Conference – Madrid (slide-show)

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