03 November 2003

FBE Response to the ESCB/CESR Consultation on Clearing and Settlement

Three main points of criticism are in the centre of the European Banking Federation (FBE) response to the consultation on Clearing and Settlement, which are the inappropriate form of a standard, the definition of function, the functional approach is based on, and the possible danger of over-regulation.

According to the FBE, the form of a “standard” is not appropriate for all of the issues covered. Consideration should be given to adopting certain items – such as those related to efficiency – as recommendations, rather than standards.

The functional approach should be based on a different definition of functions, which is infrastructure versus intermediary. Instead of using book-entry settlement, FBE recommends using infrastructure and intermediary functions as the basis of differentiation for public policy and risk management purposes.

At times, FBE argues, the paper subjects the banks to standards related to the systems of which the intermediaries are only participants. In these cases the standards should not apply to them. For example, the standards endorse credit extension by infrastructures and require such credit to be fully collateralized. It is inappropriate to subject custodian banks to the same requirement, because banks are in the business of providing liquidity to the market and are duly regulated. Forced collateralization will impose unnecessary cost to all market participants.

Finally, it is necessary to ensure that there is no over-regulation or overlapping regulation, particularly as custodian banks are regulated on the basis of a range of legislation, including Basel I and ISD

Full response

© FBE