05 August 2015

ESMA advises Commission on implementation of CSD Regulation

ESMA has delivered the Technical Advice on the level of penalties for settlement fails, and the substantial importance of a CSD for the functioning of the securities markets and the protection of the investors in a host Member State.

This Final Report covers the feedback following the public consultation, the technical advice on penalties for settlement fails and on the substantial importance of a CSD, as well as an impact assessment regarding the proposed measures.

On penalties for settlement fails

The CSDR introduces an obligation to settle instructions on the intended settlement date and provides for the application of a daily cash penalty for failed settlement instructions.

On the substantial importance of a CSD

One of the objectives of CSDR is to complete the internal market by also fostering an internal market for CSD services. To achieve this, Article 23 CSDR allows any EU-registered CSD to provide its services in any Member State of the Union (EU passport).

Article 24 CSDR provides for various cooperation measures between home and host Member States’ competent authorities where a CSD provides its services cross-border. More specifically, Article 24(4) of CSDR provides that home and host competent authorities shall establish formal cooperation arrangements for the supervision of a CSD where the activities of such CSD have become “of substantial importance for the functioning of the securities markets and the protection of the investors” in the host Member State.

In order to implement this, Article 24(7) CSDR requires the EC to adopt delegated acts concerning measures for establishing the criteria under which the operations of a CSD in a host Member State could be considered “of substantial importance for the functioning of the securities markets and the protection of the investors” in the host Member State.

On this basis, the EC has asked ESMA to consider its own experience and from that of national authorities concerning the provision of CSD services and provide the EC with technical advice on:

i. initial recording of securities in a book-entry system ('notary service');

ii. providing and maintaining securities accounts at the top tier level ('central maintenance service'); and

iii. operating a securities settlement system ('settlement service').

The EC has also asked ESMA to consider the three core services in the cases of:

i. market consolidation affecting host Member States; and

ii. branching into host Member States.

The EC provided ESMA with a number of principles and details on the above bullet-points, copied in the Annex and analysed under each appropriate section of the technical advice.

Next Steps

ESMA is aware of the need to use consistent data at EU level for the calculation of the indicators for determining substantial importance. It may therefore be necessary to establish a mechanism for the collection, processing and aggregation of the data necessary for the calculation of the indicators. ESMA is currently analysing the most appropriate way to establish such a mechanism.

Full Final Report

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