Response to consultation on Regulatory Technical Standards on on the threshold of activity at which Central Securities Depositories (CSDs) providing ‘banking-type ancillary services’
Q1. Do you agree with the proposed approach for determining the threshold referred to in Art. 54(5) of the CSDR?
Generally, yes. Consideration of factors such as the liquidity of the currencies, the number of settlement agents, the creditworthiness of the settlement agents seems to be justified.
Q2. Do you think that other elements should be taken into account in the proposed approach? If yes, which ones?
Yes.
- The EBA proposal does not consider the situation where, as part of the DVP settlement in the CoBM through a credit institution, some of the services listed in CSDR ANNEX Section C, (b) (cash credits …) and (d) (guarantees and commitments …) are not offered. Such, situation significantly limits the risk profile of services offered by the credit institution and CSD. For example, in the case of cross-border links between CSDs, when the credit institution is responsible only for services related to cross-border payments and currency exchange, without providing cash credit for reimbursement and cash lending to pre-finance corporate actions and lending, the threshold y1 and y2 should be increased (e.g. at least 50% more), due to low risk profile of services provided by the credit institution.
- The EBA proposal also does not take into account the case in which, in addition to banking-type ancillary services provided by one credit institution, similar services are also provided by a CSD which has been authorized in accordance with Article 54 2a (b). In such a case, the limits for values y1_n_ SA and y2_n_SA, specified in the ANNEX of the proposed RTS should be increased to higher levels, than for 2 credit institutions, that have not obtained authorization in accordance with Art. 52 2a (a).
Q3. Do you agree with the proposed levels set out in the proposed approach for the different parameters?
- The minimum percentage threshold: “𝑦1 equals to 1.5 per cent of the total value of all securities transactions against cash” seems to be well defined, while the second value threshold: “𝑦2 equals to EUR 3.75 billion per year”, seems to be significantly underestimated compared to the percentage threshold y1.
In the case of KDPW (table below) the value of the percentage threshold (y1) is approximately 14.5 times higher than that of the value threshold (y2). Considering that KDPW is not a large depository for securities in UE, we propose to increase the value threshold y2 at least twice to 7,5 bn EUR.
Table: The comparison of y1 and y2 thresholds for KDPW
2024
mEUR
Value of settlement in KDPW 3 625 276
Threshold of CoMB
y1=1,50% 54 379
y2=mln EUR 3 750
y1/y2 14,5
2. It seems that the values of y1_n_ SA and y2_n_SA, depending on the number of credit institutions, were set too low for two credit institutions (0,2% and 0,5 bn EUR) and for 4 and more credit institutions (0.3% and 0,75 bn EUR), respectively.
Adding a second credit institution significantly reduces the credit risk in relation to one credit institution, while significantly increasing the fixed costs of settlement in foreign currencies for CSD. This creates a risk of unprofitability for CSD of settlement in foreign currencies above the percentage threshold y1 and value threshold y2, if two credit institutions are used. Therefore, we propose to increase these values y1_n_ SA and y2_n_SA, for two credit institutions at least 3 times (to 0,6% and 1,5 bn EUR).
In addition, in practice, it will be difficult to gain access to a credit institutions that are not a CSD participants. For this reason, we also propose to increase the applicable values of these indicators in the case where both credit institutions are also CSD participants.
Furthermore, it seems that the use of 3 or 4 credit institutions by CSDs that are not authorized to provide banking type of ancillary services seems unlikely due to the limited scale of settlement in foreign currencies. Therefore, the values y1_n_ SA and y2_n_SA, should be significantly higher than currently for the two credit institutions that are also CSD participants.
Q4. Do you agree with the proposed basic risk management and prudential requirements? If no, please provide rationale and an alternative proposal.
The EBA proposal regarding additional basic risk management and prudential requirements for credit institutions appears to be too restrictive in terms of thresholds below 1% and EUR 2.5 bn, as was the case in the previous CSDR regulation.
Additional requirements increase the fixed costs of settlement in foreign currencies, while does not pose a significant risk to the CSD and credit institution business, increasing the risk of settlement unprofitability. For this reason, we propose to remove the requirements set out in Article 2 (c), (d) and (e) for y1 below 1% and y2 below 2,5 bn EUR.
Q5. Do you agree with the proposed level of settlement activity, which determines whether only basic or both basic and advanced risk management and prudential requirements are applied?
It seems that the level of settlement activity, which determines whether only basic or both basic and advanced risk management and prudential requirements are applied, should be higher, at least for y1 = 2% and for y2 proportionally more, considering also the submitted proposals to increase the maximum values of thresholds. This will increase the profitability of settling in foreign currencies, while the risk is still low, due to the application of basic risk management and prudential requirements.
Q6. Do you agree with the proposed advanced risk management and prudential requirements? If no, please provide rationale and an alternative proposal.
Yes. We also propose to raise the maximum threshold value to 4% and the value threshold in line with the proposals submitted above.