REGULATORY SCRUTINY BOARD OPINION Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 909/2014 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories

EUROPEAN COMMISSION
SEC(2022) 160
29.10.2021
REGULATORY SCRUTINY BOARD OPINION
Proposal for a Regulation of the European Parliament and of the Council
amending Regulation (EU) No 909/2014 as regards settlement discipline,
cross-border provision of services, supervisory cooperation, provision of
banking-type ancillary services and requirements for third-country central
securities depositories
COM(2022) 120
SWD(2022) 75-76
Offentligt
KOM (2022) 0120 - SEK-dokument
Europaudvalget 2022
________________________________
This opinion concerns a draft impact assessment which may differ from the final version.
Commission européenne, B-1049 Bruxelles - Belgium. Office: BERL 08/010. E-mail: regulatory-scrutiny-board@ec.europa.eu
EUROPEAN COMMISSION
Regulatory Scrutiny Board
Brussels,
RSB
Opinion
Title: Impact assessment / Central securities depositories – review of EU rules
Overall opinion: POSITIVE
(A) Policy context
Central Securities Depositories (CSDs) play an essential role in financing the EU
economy. They record issuance of securities and subsequent changes in the legal
ownership of securities transactions, where they ensure exchange of securities against cash
(settlement). At the end of 2019, EU CSDs held EUR 53 trillion in securities and recorded
transactions to the amount of EUR 1120 trillion.
The CSD Regulation came into force in 2014 and aimed to facilitate cross-border
settlement and enhance the safety and efficiency of the settlement markets. However, an
evaluation reveals (i) limited progress in cross-border services, (ii) disproportionate
compliance costs in certain areas and (iii) insufficient surveillance of third-country CSDs.
The report considers that if these problems are not addressed, the EU post-trade landscape
will remain fragmented, and they will impair the growth of the EU capital market.
(B) Summary of findings
The Board notes the useful additional information provided in advance of the
meeting and commitments to make changes to the report.
The Board gives a positive opinion. The Board also considers that the report could
further improve with respect to the following aspects:
(1) The report does not fully explain the background of some of the problems
identified.
(2) The set of options is not sufficiently complete and for some options the report is
not clear enough on how they would function.
(C) What to improve
(1) The report should clarify the interplay between this initiative and the Communication
on open strategic autonomy in the financial field. It should explain better how the initiative
would ensure that also less advanced markets in the EU would have access to competitive
2
CSD services.
(2) The report should explain better why passporting, which is an established practice in
many financial markets, does not seem to work properly in this segment. It should clarify
why these cumbersome rules were introduced and what has changed since then.
(3) The report should better explain the origin of the introduction of mandatory buy-ins. It
should explain how the benefit-to-cost assessment of the settlement discipline measures
has changed compared to what was initially envisaged and what new evidence has
emerged since then. Additionally, the report should clarify what the preferred option – the
two-step approach – on mandatory buy-ins concretely entails, when and on what basis the
second step could kick-in, and how this would be triggered.
(4) The report should consider all relevant options or sub-options, in particular on the
supervision of CSDs. It should also clarify which options are complementary and which
are mutually exclusive. The analysis should identify combined options as separate options
upfront and subsequently assess and compare them along the other options.
The Board notes the estimated costs and benefits of the preferred option(s) in this
initiative, as summarised in the attached quantification tables.
Some more technical comments have been sent directly to the author DG.
(D) Conclusion
The DG may proceed with the initiative.
The DG must take these recommendations into account before launching the
interservice consultation.
If there are any changes in the choice or design of the preferred option in the final
version of the report, the DG may need to further adjust the attached quantification
tables to reflect this.
Full title Central securities depositories – review of EU rules
Reference number PLAN/2020/8721
Submitted to RSB on 29 September 2021
Date of RSB meeting 27 October 2021
3
ANNEX – Quantification tables extracted from the draft impact assessment report
The following tables contain information on the costs and benefits of the initiative on
which the Board has given its opinion, as presented above.
If the draft report has been revised in line with the Board’s recommendations, the content
of these tables may be different from those in the final version of the impact assessment
report, as published by the Commission.
Summary of costs and benefits
I. Overview of Benefits (total for all provisions) – Preferred Option
Description Amount Comments
Direct benefits
Simplified passporting
process and easier provision
of cross-border services by
CSDs.
One-off reduction of administrative costs for
CSDs: estimated at ca. EUR 5 850 000 for CSDs.
Ongoing reduction of compliance costs for
CSDs: estimated at ca. EUR 390 000 for CSDs
per year for CSDs.
One-off reduction of administrative costs for
NCAs: estimated at ca. EUR 590 000 for all
NCAs.
Clarified and simplified passporting process,
lowering administrative costs for both CSDs
and NCAs.
It is estimated that this can bring about one-
off savings of, on average, EUR 585 000 per
CSD. The total figure assumes that at least
10 other CSDs passport in 26 Member
States.
Savings of, on average, EUR 39 000 per
year per CSD. It is estimated that the
notification process would reduce by 75%
the costs of passporting. The total figure
assumes that 10 CSDs would benefit from
the new regime for passporting in 26
Member States.
Total saving of, on average, ca. EUR 59 000
per NCA. Assumptions: the notification
process would reduce by 75% the costs of
passporting The total figure also assumes
that 26 NCAs benefit from these savings for
10 CSDs passporting into their respective
Member States.
Direct increase of cross-
border competition between
CSDs, benefiting to
investors and issuers.
No estimate available. The replacement of the passporting
procedure with a notification reduces the
costs of cross-border entry and thereby
facilitates competition. In addition, an
improved framework for the cross-border
provision of services through the
establishment of mandatory colleges could
lead to increased supervisory convergence,
4
thus removing additional barriers to cross-
border competition. This will benefit both
investors and issuers and will increase
market efficiency.
Enhanced supervisory
convergence.
No estimate available. The introduction of mandatory colleges
would benefit EU CSDs operating cross-
border due to the legal certainty related to
the enhancement of supervisory
convergence and reduction of the level of
interactions of CSDs with various national
competent authorities across the EU. This
would also enhance supervision of CSDs
operating cross-border preventing spill-over
effects and allow for better management of
systemic risk.
Reinforced level playing
field for CSDs, both within
the EU and outside the EU.
No estimate available. Within the EU: mandatory colleges would
help ensuring consistency of supervision
across Member States, thus ensuring level
playing field and benefiting EU CSDs.
Outside the EU: end date of the
grandfathering clause for third-country
CSDs would ensure level playing field with
third-country CSDs, benefiting EU CSDs.
Additional opportunities for
CSDs that do not hold a
banking license.
It is estimated that additional EUR 16 billion
settlement in foreign currencies could be
expected annually1
. If extrapolated to the total
number of EEA non-banking CSDs, this could
mean an additional annual possible offering of
at least EUR 80 billion2
of settlement in
foreign currencies.
Increasing the threshold could enable some
CSDs to develop their services to investors
both domestically and cross-border,
benefitting investors and issuers through a
more competitive offering.
More proportionate
approach to the treatment of
settlement fails.
Delayed implementation costs for investors
and issuers with a postponement in the
introduction of the mandatory buy-in: estimated
at ca. EUR 1.5 billion.3
Reduction of annual operational/ subscription
fees for connecting to a buy-in agent to handle
government bond fails in one CSD, estimated
Average cost per market participant to set up
a connection to a buy-in agent is estimated,
on average to be EUR 1 million, based on
stakeholder input. This results in a total
figure of EUR 1.5 billion for all in-scope EU
market participants7
. Such costs savings
could be temporary (i.e. until the buy-in
regime enters into force) or permanent (e.g.
1
Based on anonymised confidential information provided to DG FISMA services. This figure is based on the
current total absolute value of settlement of CSDs and applied to potential growth in settlement of CSDs.
This gives an anticipated total of settlement in foreign currencies. The current absolute values in foreign
currencies are then subtracted, which gives the anticipated total net gain from the proposed CSDR changes.
2
This estimate of benefits does not take into account whether it would affect existing settlement in foreign
currencies undertaken by CSDs already authorised to provide ancillary banking services.
3
This is supported by confidential information provided to DG FISMA services.
5
between EUR 598 900 294 and EUR 1 197 800
588, according to one estimate.4
Introduction of a pass-on mechanism could
reduce costs by 37.5%, according to one
estimate5
.
Deferred introduction of mandatory buy-in will
prevent some trading volumes disappearing or
migrating outside the EU (Estimated at up to 4%
- 5% of trade volume, equal to EUR 7 trillion
annually6
).
if conditions for the entry into force of the
buy-in regime are never met).
The targeted amendments contemplated for
cash penalties and mandatory buy-in would
also bring necessary clarifications and
reduce the complexity and the burden of
managing a buy-in process, hence reducing
costs for investors, market infrastructure
providers and authorities alike.
Improved supervisory
capabilities for ESMA and
NCAs.
No estimate available. ESMA and NCAs would have more
information and would be able to better
identify and monitor risks.
Amendments to the pass-on mechanism
would mean fewer buy-ins and would
contribute to market stability.
Indirect benefits
Increased protection of
issuers and investors.
No estimate available. Enhanced supervision of EU CSDs through
the establishment of colleges and of third-
country CSDs through the end-date for the
grandfathering clause and the introduction
of the notification requirements would lead
to improved supervision of CSDs and thus a
better protection of issuers and investors.
7
Confidential information provided to DG FISMA.
4
Data provided by ICMA in its response the CSDR targeted consultation,
https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/CSDR-Settlement-
Regulation/ICMACSDR-Review-Targeted-ConsultationFeb-21Detailed-response-020221.pdf..
5
For explanation and calculation of costs savings see J.P. Morgan public consultation reply, Q. 34.1.
6
Based on confidential data provided to DG FISMA services indicated that 4%-5% of trade volume could cease
to occur. Annual equity and equity-like instrument trading volumes and bond trading volumes were equal to
EUR 128 trillion end-2019 (See chapter “1.3.2 Size of the market” of the Impact Assessment), giving a
figure of up to EUR 7 trillion.
6
Increased transparency in
the market.
No estimate available. The implementation of a notification
requirement by third-country CSDs
regarding the activities they carry out within
the EU and/or with EU participants would
also indirectly benefit market stability, as it
would help identify which third-country
CSDs provide services and in which
volumes, thus increasing transparency in the
market and help identify potential systemic
risk.
Increased competition
between CSDs regarding the
provision of settlement
services is foreign
currencies, benefitting
investors and issuers.
No estimate available. Issuers and investors would have more
choice in terms of financing arrangements,
issuance and risk diversification in their
cross-border investments.
Reduction of administrative
burden related to the
development of Q&As.
No estimate available. Clarifications regarding the settlement
discipline regime (penalties and buy-in)
would lessen the administrative burden on
ESMA related to replying to Q&A’s.
Streamlined cooperation of
authorities.
No estimate available. Ongoing costs will be reduced for NCAs
due to the streamlined cooperation of
authorities through the creation of colleges.
II. Overview of costs – Preferred option
Citizens/Consumers
[Investors/ Issuers]
Businesses [Market
Infrastructure providers,
CSDs]
Administrations
[NCAs, ESMA]
One-off Recurrent One-off Recurrent One-off Recurrent
Replacing of
passporting
with a
notification
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact apart
from
(neglible)
costs
changing
current
procedures.
Marginal
costs to
assess
notificatio
ns.
Indirect costs No cost No cost No cost No cost No cost No cost
7
impact impact impact impact impact impact
Establish
colleges
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Establish
ment of
colleges
EUR
260000
Indirect costs No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Targeted
amendment
to allow
banking
CSDs to
offer
services to
other CSDs
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact as
within
current
supervisory
arrangement
s
No cost
impact as
within
current
supervisor
y
arrangem
ents
Indirect costs No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Amend
threshold
for banking
services
Direct costs
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact as
within
current
supervisory
arrangement
s
No cost
impact as
within
current
supervisor
y
arrangem
ents
Indirect costs No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
No cost
impact
Targeted
amendment
to
settlement
discipline
regime
Direct costs
Marginal
adaptation
costs to the
clarified
rules, i.e.
removing
out-of-
scope
transactions
and setting
No cost impact. Marginal
adaptation
costs to the
clarified rules.
In case of
adaptation
costs to
amended buy-
in rules, these
can become
No cost impact. No cost
impact.
Reduction
of costs
related to
settlement
monitoring
and
compliance
, guidance
provided to
market
8
up a pass-
on
mechanism.
sunk cost (if
mandatory buy-
in will be
abandoned).
participant
s.
Indirect costs No cost
impact
No cost impact No cost impact No cost impact No cost impact No cost
impact
Deferred
introduction
of
mandatory
buy-in
Direct costs
No cost
impact
No cost impact Costs related to
the setting up
of a mandatory
buy-in (i.e.
setting up or
connecting to a
buy-in agent)
may prove to
be sunk costs if
mandatory buy-
in is
abandoned.
Some reporting
costs as CSDs
will need to
provide more
accurate and
timely data as
to the
evolution of
settlement
efficiency to
support
decision on the
implementatio
n of mandatory
buy-in.
No cost impact Some costs
related to
settlement
fail
monitoring,
occassional
ly going
beyond
current
requireme
nts, and
assessment
of the
evolution
of fail rate
to support
decision on
the
implement
ation of
mandatory
buy-in.
Indirect costs Setting up
cost for
collecting
cash
penalties,
but this is
largely
already
prepared by
the market
participants.
Higher cost of
financial
transactions
that enter
delayed
settlement
(Cash penalties
added to a
transaction
cost)8
. These
cost are
manageable for
the market.
Cost related to
the
implementatio
n of cash
penalties.
These costs are
marginal and
largely
implemented.
No cost impact No cost impact Potential
costs
related to
determinin
g the need
and terms
of
introductio
n of
mandatory
buy-in.
8
The initiative supported by this Impact Assessment does not introduce cash penalties, so its costs cannot be
directly attributed to it. However, the costs of cash penalties in terms of impact on market pricing have not
been incurred as cash penalties have not yet entered into force.
9
Ending the
grand-
fathering
clause
Direct costs
No cost
impact
No cost impact Third country
CSDs would
incur costs
attributed to
seeking
authorisation
from ESMA.
Third country
CSDs would
incur recurrent
additional costs
related to
compliance
with relevant
EU rules (in
case third
country rules
are deemed not
equivalent with
EU rules) and
potentially
operating two
settlement
regimes (a EU
one and a third
country one).
Marginal costs
for ESMA
related to
setting up
procedure for
handling
equivalence
decisions from
third-country
CSDs.
Marginally
increased
costs for
ESMA for
handling
authorizati
on
requests
from third
country
CSDs.
Indirect costs No cost
impact
No cost impact No cost impact No cost impact No cost impact No cost
impact
Notification
requirement
for third
country
CSDs
Direct costs
No cost
impact
No cost impact Third country
CSDs would
incur costs
attributed to
the notification
process with
ESMA.
No cost impact Marginal
costs for
ESMA related
to setting up
procedure
for handling
third-country
CSD
notifications.
Marginally
increased
costs
related to
handling
new
notificatio
ns. ESMA
estimated
costs for
one third-
country
CSD
notificatio
n would
amount to
ca. EUR 2
600 per
notificatio
n.
Indirect costs No cost
impact
No cost impact No cost impact No cost impact No cost impact No cost
impact
10
Electronically signed on 29/10/2021 10:31 (UTC+02) in accordance with article 11 of Commission Decision C(2020) 4482