On 5 November 2020, the European Securities and Markets Authority (ESMA) issued its first two reports on the implementation of the Central Securities Depositories Regulation (CSDR). The reports cover:

  • Central securities depositories’ (CSDs) cross-border services and handling of applications. The report presents two aspects of the provision of cross-border services by CSDs as specified by paragraphs (d) and (f) of Article 74(1) of the CSDR: the cross-border provision of services covered by the CSDR based on the number and types of CSD links, number of foreign participants in the securities settlement systems operated by CSDs, number and volume of transactions involving such participants, number of foreign issuers recording their securities in a CSD in accordance with Article 49 CSDR and any other relevant criteria and the handling of applications submitted in accordance with the procedures referred to in Article 23(3) to (7) of the The report provides that CSDs’ cross-border activity has been measured through a study of the links established between EEA CSDs and of the services provided to participants and issuers from other Member States. The study detected no major variations in the provision of cross-border services since the entry into force of the CSDR, but most respondents do foresee a potential increase in the coming years. Respondents also pointed out challenges, in particular linked to the application process to provide notary and central maintenance services in relation to securities constituted under the laws of other Member States, as set out under Article 23 of the CSDR. The report includes suggestions to simplify the existing process.
  • Internalised settlement. The report covers internalised settlement in accordance with Article 74(1)(c) of the CSDR, by assessing the extent of the settlement activity in the EEA which does not take place through a securities settlement system, based on the data reported by settlement internalisers under Article 9 of the The report analyses the trends and potential risks related to internalised settlement, as well as the process for internalised settlement reporting under the CSDR. While no major risks have been identified during the period covered by the report, Member State competent authorities have identified some risks related to this activity, the most common being operational risk and custody risk, which could be mitigated through adequate identification of the clients’ accounts involved, and the improvement of operational processes. ESMA also highlights the importance of continuing to monitor internalised settlement, in order to assess if this activity should be regulated in the future, in particular considering the extremely high values and volumes of internalised settlement, as well as the high level of concentration shown by the data reported by settlement internalisers under Article 9 of the CSDR. ESMA believes that, as a minimum, custodians’ clients should be informed of the risks and costs associated with the place of settlement (at the level of a securities settlement system operated by a CSD versus internalised settlement).

ESMA expects these reports to contribute to the upcoming review of CSDR by the European Commission.