EC proposes regulatory changes to safeguard financial stability

The European Commission has proposed changes to the Central Securities Depositories Regulation to boost efficiency of the EU’s settlement markets and protect financial stability.

The Central Securities Depositories manage the infrastructure that enables the settlement of securities in financial markets. The EC said settlement refers to the delivery of securities to a buyer in exchange for the delivery of cash to a seller. With this process sometimes taking two business days to settle a transaction, legal and credit risks can ensue. Ensuring these transactions are settled safely is therefore essential to financial system of the EU.

According to the EC, the overall aim of this proposal is to make securities settlement in the EU safer and more efficient, thereby improving the attractiveness of the EU’s capital markets and ultimately contributing to the financing of the economy.

The EC said, “Given the large amounts of money that pass through Central Securities Depositories, it is essential that they work well for our financial system. Today’s proposal will ensure more proportionate and effective rules to reduce compliance costs and regulatory burdens for Central Securities Depositories, as well as facilitating their ability to offer a broader range of services cross-border and improving their cross-border supervision.”

The improvements that will take place through the changes include improving the passporting regime by removing costly and duplicative procedures, facilitating the cross-border provision of securities and competition. In addition, cooperation between supervisory authorities will be improved by requiring the establishment of colleges for certain CSD’s to increase consistent and convergent supervision.

Banking-type ancillary services will also be bolstered as the EC plans to adjust the conditions under which CSDs can access banking services, enabling them to offer settlement services for a broader range of currencies and offering firms the opportunity to obtain financing from a larger pool of investors. Settlement discipline will be improved by amending specific elements of the settlement discipline regime, changing the process under which mandatory buy-ins could become applicable and certain aspects of the settlement discipline regime to make it more effective. Finally, the EC seeks to improve the oversight of third-country CSDs.

EU Commissioner for Financial Stability, Financial Services and Capital Markets Union Mairead McGuinness said, “Europe’s capital markets are central to financing our economy, including the green and digital transitions, but obstacles remain to unlocking their full potential. We want to make our Central Securities Depositories more efficient and competitive, while preserving financial stability.

“Today’s review does just that  – by reducing red tape for Central Securities Depositories that want to expand their activities cross-border, we are creating a truly single market for securities settlement in the EU, and promoting competition in the market. This contributes to our ultimate goal of building up the Capital Markets Union.”

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