Council adopts regulation on Central Securities Depositories

The Council adopted a regulation that updates 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.

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. As such they play a key role on financial markets.

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

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 new regulation will clarify and simplify the rules, thus reducing the barriers to cross-border settlement and easing the administrative and financial burden.

Better supervision

The regulation 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

The new regulation contains measures to improve ‘settlement efficiency’ (the rate at which securities transactions settle on the intended date) 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 regulation provides 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.

Background and next steps

The law adopted today updates the Central Securities Depositories Regulation, which established a set of common requirements for CSDs operating securities settlement systems across the EU.

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 CSDs 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.

For instance, the Commission found that the current passporting regime is lengthy and burdensome and discourages cross-border services. 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.

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 adoption today closes the decision-making procedure. The regulation will be published in the Official Journal and enter into force 20 days after its publication.