Central Securities Depositories: Council and Parliament reach agreement

The Council has reached a provisional agreement with the European Parliament on an update to the rules on central securities depositories (CSDs). The new law will reduce the financial and regulatory burden on CSDs and improve their ability to operate across borders, while also strengthening financial stability.

Central securities depositories are vital to the EU’s financial system and for the Capital Markets Union, yet they still face obstacles in terms of high costs and excessive red tape. Today’s agreement will help us unlock the full potential of the EU’s capital markets, making them more attractive to investors.

Elisabeth Svantesson, Swedish Minister for Finance

Aim of the review

CSDs are national or international financial organisations that manage the ‘settlement’ (transfer of ownership) of securities such as shares and bonds. They play a key role in the EU’s capital markets and financial system.

The new regulation will improve the efficiency of securities settlement in the EU by reducing compliance costs and regulatory burdens for CSDs. It will make it easier for CSDs to offer services across borders, while also improving cooperation among supervisors.

Today’s agreement updates the Central Securities Depositories Regulation adopted in 2014, which established a set of common requirements for CSDs operating securities settlement systems across the EU.

A simpler passporting regime

‘Passporting’ refers to the procedure via which a CSD based in one EU member state can provide services in another member state. The current passporting regime is lengthy and burdensome and discourages cross-border services. The text agreed on today clarifies and simplifies the rules, thus reducing the barriers to cross-border settlement and easing the administrative and financial burden.

Better supervision

The agreement reached today will also make supervision of CSDs more effective by improving cooperation between supervisors. In cases where a CSD’s activities in at least two other member states are considered to be of substantial importance to the functioning of the securities markets and investor protection, a college will be set up to facilitate cooperation and information exchange between member state authorities. Supervisors will also have access to better information about the activities of non-EU CSDs operating in the EU.

Improved settlement efficiency

While ‘settlement efficiency’ (the rate at which securities transactions settle on the intended date) has slowly improved since the adoption of the 2014 regulation, it is still lower than in other developed capital markets.

The new regulation contains measures to improve efficiency by amending certain elements of the settlement discipline regime, including the preconditions for applying so-called mandatory buy-ins. These occur when a transaction has failed to settle at the end of an agreed period and the buyer of the securities is forced to repurchase them elsewhere. Under the revised regulation, such buy-ins will only be introduced as a measure of last resort, where the rate of settlement fails in the EU is not improving and is presenting a threat to financial stability.

Banking-type ancillary services

The text agreed between the Council and the Parliament also includes provisions adjusting the conditions under which CDSs can access banking-type services, including through other CSDs. As a result, offering services for a broader range of currencies as well as across borders will be facilitated.

Next steps

Today’s provisional agreement still needs to be formally approved by the EU’s member state ambassadors. It will then be adopted by the Council at a forthcoming meeting following legal and linguistic revision of the text. The regulation will enter into force following publication in the EU’s official journal.

Background

The Central Securities Depositories Regulation was adopted in 2014 in the wake of the financial crisis. Its aim was to improve the safety and efficiency of settlements and provide a set of common requirements for CDSs across the EU.

In July 2021 the Commission reported that, while the regulation was broadly successful in achieving its objectives, feedback from stakeholders indicated that significant barriers continued to exist in a number of areas, including passporting and settlement discipline.

As a result, on 16 March 2022 the Commission published a proposal for a review of the CSDR, focusing on five main areas: the passporting regime, cooperation between supervisory authorities, banking-type ancillary services, settlement discipline and the oversight of third country CSDs.

The Council agreed its negotiating position on 22 December 2022, and negotiations with the European Parliament began on 18 April 2023.