Central Securities Depositories Regulation
Central Securities Depositories Regulation (CSDR) harmonizes the authorization and supervision of Central Securities Depositories (CSDs) within the EU, but will also introduce obligations for CSD-participants such as Northern Trust in areas including settlement discipline and account segregation, which will likely affect our clients.
Although CSDR came into force in 2014, many of its provisions are phased in their application, meaning several key requirements are yet to take effect.
On March 10, the CSDR technical standards on CSD authorization were published in the Official Journal. CSDs have six months from March 30 to apply for the required authorizations. On receipt of the application the national competent authorities will have 30 days to confirm whether the application is complete, then a six-month timeframe will begin within which authorization may be granted or refused. The requirement for direct-CSD participants to offer the choice between omnibus and individually segregated accounts is linked to the date on which the CSD in which they are a participant is authorized, meaning the exact deadlines for the obligation remain unclear. Several CSDs have publicly expressed their aim to submit applications to the local regulators in September 2017 with the expectation authorization will be granted by mid-May 2018.
On July 10, ESMA published a consultation paper on the guidelines regarding internalized settlement reporting in CSDR. Responses submitted by September 14 will be reviewed.
Entry into force of the settlement discipline requirements is expected 24 months after the Commission adopts the technical standards, which are to be published later in the year.
RELATIONSHIP WITH OTHER REGULATORY INITIATIVES TIMELINE
The extent to which assets should be segregated remains an ongoing discussion point between regulatory bodies and financial entities. Last September, ESMA’s call for evidence on asset segregation and custody services under AIFMD and UCITS V came to an end. On July 21, ESMA published an opinion on asset segregation and custody services, setting out its views on: the approach to segregation under AIFMD and UCITS V, as well as how the depositary delegation rules should apply to CSDs.
NORTHERN TRUST ACTIONS TIMELINE
Northern Trust has a CSDR implementation program to ensure we meet all our compliance obligations. Members of this program have met with regulatory and industry bodies to discuss various implications of the provisions contained within the legislation. In order to comply with the account segregation aspects of CSDR, we will offer individual segregated accounts in markets where we are a direct CSD participant. Further detail in relation to account segregation will be circulated in accordance with the regulatory requirements. As discussed above, the timeline for the requirement to offer these different accounts is based on the date of CSD authorization.
All market operators in the context of securities settlement and all CSDs
KEY TAKEAWAY TIMELINE
The RTS on CSD authorization have now been published in the Official Journal
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This information is not intended to be and should not be treated as legal advice, investment advice, or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. The information in this report has been obtained from sources believed to be reliable however Northern Trust accepts no liability in respect of the accuracy and completeness of this information. All information contained herein is subject to change at any time without notice. Any person relying upon information in this report shall be solely responsible for the consequences of such reliance.