On 31 March 2017, The European Securities and Markets Authority (“ESMA”) published an update of its Questions and Answers (“Q&As”) regarding the implementation of the Central Securities Depository Regulation (“CSDR”). The first version of the Q&As was published on 13 March 2017.
The Q&As document has been adopted as part of ESMA’s role in building common supervisory approaches and is expected to be edited and amended as and when new questions are received or posed by the general public, market participants and national competent authorities (“NCA”), in relation to the practical application of CSDR.
NEW QUESTIONS POSED
ESMA has provided an update in relation to the following questions that have recently been posed following publication of the first version of the Q&As:
Question 1: Additional national requirement: Can member states set additional requirements for central securities depositories (“CSD”) to those set out in CSDR under national legislation?
Answer: No, Article 1(1) and (2) of CSDR state that CSDR lays down uniform requirements for settlement and rules on the organisation and conduct of CSDs, and it applies to settlement in all financial instruments and activities of CSDs.
Question 2: Organisational requirements: general: Are there any staff or category of staff that a CSD may not share with another entity of the same group of companies?
Answer: No, however the sharing of staff is subject to certain conditions:
– a CSD should have adequate staff to meet its obligations;
– a CSD should not share staff with other group entities, unless it does so under the terms of a written outsourcing arrangement;
– it is up to the competent authority to assess the appropriateness of staff sharing;
– the functions of chief risk officer, chief compliance officer, chief technology officer or internal audit may be shared with other entities of the same group, provided that conflicts of interest are managed.
Question 3: Organisational requirements: record keeping: Under rules implementing Articles 22 and 29 of CSDR, CSDs must record the LEIs of the issuers pertaining to the financial instruments in respect of which CSDs provide notary or central maintenance services. What action should be taken by CSDs in order to obtain LEIs of issuers?
Answer: CSDs should require in their rules that all issuers obtain and provide current LEI codes.
Question 4: Protection of securities of participants and those of their clients: In accordance with Article 38(5) of CSDR, should all clients (existing and new) be offered the choice between omnibus client segregation and individual client segregation, and be informed of the costs and risks associated with each option, or just new clients?
Answer: All clients (both existing and new) should be offered the choice between omnibus client segregation and individual client segregation, and be informed of the costs and risks associated with each option.
Question 5: Provision of banking-type ancillary services: Which are the participants’ competent authorities responsible for the supervision of the participants of the CSD that are established in the three Member States with the larges settlement values in the CSD’s securities settlement system?
Answer: A CSD’s NCA should firstly identify the three relevant Member States and then identify the competent authorities of the participant in each of these Member States. Where more than one competent authority is established for the participant, they are all entitled to receive the relevant information and issue reason opinions.
ESMA intends for this document to help investors and other market participants by providing clarity on the CSDR requirements through their responses.
If firms have any further questions on the application of CSDR to be included in the next update, they should email: CSDR.Questions@esma.europa.eu
To access the Q&As in full, please click here.
For more information, and any guidance or advice on CSDR requirements, Cleveland & Co, your External in-house counsel, are here to help.