The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published its first two reports on the implementation of the Central Securities Depositories Regulation (CSDR) covering central securities depositories’ (CSDs) cross-border services and handling of applications as well as internalised settlement.
Report on Cross-Border Services and Application Handling
The Report on cross-border services and handling of applications highlights the findings related to the provision of services by CSDs in other Member States, and considers the responses to the ESMA survey addressed to National Competent Authorities (NCAs), CSDR relevant authorities and trade associations, in June and July. The report also uses the data collected by ESMA to determine the substantial importance of a CSD for host Member States.
The CSDs’ cross-border activity has been measured through the study of the links established between European Economic Area (EEA) CSDs and of the services provided to participants and issuers from other Member States. No major variations in the provision of cross-border services have been detected since the entry into force of CSDR, but most respondents do foresee a potential increase in the coming years. They have also pointed out challenges, in particular linked to the application process to provide notary and central maintenance services in relation to securities constituted under the laws of other Member States, as set out under Article 23 of CSDR. The Report includes suggestions to simplify the existing process.
Report on Internalised Settlement
The Report on internalised settlement presents the findings related to the settlement activity which does not take place through a securities settlement system operated by a CSD in the EEA. It takes into account the responses to the ESMA survey on internalised settlement conducted in June and July, and also includes an analysis of the internalised settlement data based on the quarterly reports sent by settlement internalisers under Article 9 of CSDR for the period Q2 2019 – Q3 2020.
While no major risks have been identified during the period covered by the report, NCAs have identified some risks related to this activity, the most common being operational risk and custody risk, which could be mitigated through adequate identification of the clients’ accounts involved, and the improvement of operational processes.
The challenges encountered when implementing the internalised settlement reporting regime seem normal in terms of any new reporting requirements. ESMA, to support the implementation process, has provided additional clarifications through supervisory convergence measures, including the ESMA Guidelines on internalised settlement reporting, as well as Q&As.
ESMA considers that custodians’ clients should be informed of the risks and costs associated with internalised settlement, and highlights the importance of continuing to monitor internalised settlement, in order to assess if this activity should be regulated in the future.
ESMA expects these reports to contribute to the upcoming review of CSDR by the European Commission.