7 Financial services: central securities
depositaries and securities settlement
| (a)
(33761)
7619/12
+ ADDs 1-2
COM(12) 73
(b)
(34237)
13821/12
—
|
Draft Regulation on improving securities settlement in the European Union and on central securities depositories (CSDs) and amending Directive 98/26/EC
European Central Bank Opinion on a proposal for a regulation on improving securities settlement in the European Union and on central securities depositories
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| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) —
|
| Department | HM Treasury
|
| Basis of consideration | Minister's letter of 4 July 2013
|
| Previous Committee Reports | (a) HC 428-lvii (2010-12), chapter 6 (18 April 2012) and HC 86-ii (2012-13), chapter 15 (16 May 2012)
(b) HC 86-xvi (2012-13), chapter 15 (24 October 2012)
|
| Discussion in Council | Not known
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; further information requested
|
Background
7.1 The Commission has in recent years proposed a package
of legislative reforms to strengthen the EU post-trade financial
market infrastructure and to address barriers to the creation
of a truly competitive single market in post-trade financial services.
7.2 Securities settlement concerns the delivery
of securities between a buyer and a seller in order to settle
a trade agreed between two counterparties, typically on an exchange
and sometimes after being cleared by a central clearing party
(CCP).
7.3 Central Securities Depositories (CSDs) are
systemically important financial market infrastructures that support
the settlement of securities. They perform a number of crucial
services that support the issuance, safekeeping, and settlement
of securities, which support the efficient functioning of the
financial market.
7.4 In March 2012 the Commission presented this
draft Regulation on CSDs and securities settlement, document (a),
with the aim of increasing the safety and efficiency of cross
border transactions and ensuring a level playing field for CSDs
by establishing the core and ancillary services that a CSD can
provide, establishing new common rules for the authorisation and
ongoing supervision of CSDs, setting prudential, technical, legal
and organisational requirements for the operation of CSDs and
their services and harmonising securities settlement rules.
7.5 We have considered this proposal twice previously.
We learnt that the Government supports the general aims of the
Commission's proposals to ensure the robustness and efficiency
of CSDs as systemically important financial infrastructure, to
create a competitive single market in post-trade financial market
services and to increase the safety and efficiency of securities
settlement. But we were given only a brief outline of some of
the matters of concern to the Government and other Member States
or which might need further consideration. So we kept the document
under scrutiny pending further information.[18]
7.6 In August 2012 the European Central Bank
(ECB) published an Opinion, document (b), on the draft Regulation.
We heard that the ECB Opinion would be taken into account during
the continuing negotiation of the draft Regulation and asked to
be told of any significant issues arising from the Opinion during
that negotiation.[19]
The Minister's letter
7.7 The Financial Secretary to the Treasury (Greg
Clark) writes now to tell us that:
- the Irish Presidency has held
three working groups and tabled three compromise proposals over
the last few months, with the aim of reaching a general approach
on the draft Regulation before the end of its term;
- the Council has not yet, however, agreed a general
approach; and
- the Lithuanian Presidency will now continue work
on the proposal, with the objective of reaching a Council general
approach in the next few weeks.
7.8 The Minister says that there are three principal
outstanding issues in Council negotiations. The first is the process
for authorisation of banking services, on which he tells us that:
- Member States are divided on
the process which should apply where a CSD seeks authorisation
to provide banking services from the same entity as the CSD services;
and
- the Government continues to call for a system
in which there is close co-operation between relevant national
authorities and which ensures that the home national authority
plays a prominent role in authorisation decisions.
7.9 The second issue is the securities settlement
regime, on which the Minister says:
- Member States continue to discuss
the details of the regime of penalties which will apply where
a market participant fails to settle a trade; and
- this is a particularly technical issue, but the
Government's key aim is to ensure there is sufficient flexibility
in relation to less-liquid securities and markets.
7.10 The third issue is the third country regime,
on which the Minister says the Council will need to discuss further
the most appropriate regime for CSDs from non-EU jurisdictions.
7.11 The Minister tells us that on other issues
the Irish Presidency made progress towards consensus, for example,
the current Council text includes an extension for the deadline
for dematerialisation until 2025.
7.12 The Minister then says the outstanding issues
he mentions will be discussed further in the next few weeks and
asks whether we could, given the anticipated timetable, grant
a waiver, in terms of the Scrutiny Reserve Resolution of 17 November
1998, or clear the proposal from scrutiny, such that the Government
would be "in good position to support a favourable agreement
should the opportunity arise".
Conclusion
7.13 We are grateful to the Minister for this
report. However, whilst we recognise why the Government might
find the waiver or clearance the Minister requests useful, we
regret that we do not wish to grant either as things stand at
the moment. This is because:
- we are unclear as to what
might constitute acceptable outcomes on the outstanding issues
he mentions;
- we have little information on the resolution
of other issues, other than the deadline for dematerialisation,
the Minister alludes to; and
- we do not have confirmation that no significant
issues have arisen from the ECB Opinion.
7.14 We wish to have more information on these
matters and also on further developments in Council working party
negotiations before considering the draft Regulation further.
Meanwhile the documents remain under scrutiny.
18 See headnote. Back
19
Ibid. Back
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