The reporting on internalised settlements is a very important issue for EBF members in the context of the CSDR implementation and we fully appreciate the clarifications proposed by ESMA in this CP. At the same time, we also believe there is still need for some further refinement on certain points, both conceptually and technically. The EBF sees two major issues in the ESMA proposed guidelines, and two other major issues that are not covered by the consultation paper.
The two major issues in the ESMA consultation paper are:
1. Account holder reporting
i.e. the ruling, set out in paragraph 12 (d) and paragraph 15, that in cases of transfers in the books of an account provider between two accounts of the same account holder the account holder – and not, as in all other cases, the account provider – should report; this inconsistency will be a major source of confusion, will place a great burden on both account holders and account providers (as both will need to determine whether they should report), and – because of the multiplicity of different scenarios, for which the Guidelines give no guidance - will inevitably generate cases both of under- and of over-reporting; the EBF believes that there should be a consistent application of the simple rule that in the event of transfers between accounts in the books of an account provider then the account provider (and only the account provider) reports.
2. Non-EU securities
The reporting obligation as it applies to securities issued in CSDs outside the EU; the reporting obligation, as set out in paragraph 13 (b), is confusingly drafted, is far too broad, and in practice would be very difficult to meet; the proposed rule should be replaced by a practical, operational rule; in this response, the EBF is making a proposal for such a rule (so called “PSET rule”).
The two major issues that are not covered explicitly in the consultation paper are:
3. Source of pricing information
As set out in our answer to question 6, EBA believes that rules set out in the Level 2 text with respect to the source of pricing information for free of payment transfers are both unnecessary and very burdensome. They are unnecessary as in the context of three monthly aggregated reports the problem of very minor pricing differences for some limited types of transfer would appear to be very marginal. They are very burdensome as each financial institution may need to change its process for sourcing and updating price information in its securities database, and would appear to need a “pre-determined” methodology that is “approved” by the NCA. EBA believes that there is a need for ESMA to develop a workable process that can be set out in the Guidelines. It believes that synergies are possible with the pricing information that will be needed for the calculation of CSDR late settlement penalties.
4. Clarification regarding the legal prerequisites of a reporting obligation
In the draft guidelines, ESMA clarifies which transactions are deemed to be in scope of the reporting obligation. The reporting obligation, however, is triggered by a movement of securities in the books of a settlement internaliser rather than by a certain type of transaction. In fact, the underlying cause of that movement is irrelevant for the question if the transaction is in scope of the reporting obligation. Consequently, misunderstandings could arise that certain kinds of transactions would determine the scope of the reporting obligation. To avoid such misunderstandings, the EBF believes that a summary of the legal prerequisites for the reporting obligation should be included in the guidelines.
Full EBA response
AFME would like to highlight at this stage, that given the required time to implement the reporting requirement, it would be highly appreciated if the Guidelines could be finalised as early as possible and ahead of Q1 2018 to give Settlement Internalisers sufficient time and clarity to finalise their projects ahead of the reporting deadlines. Furthermore, the industry would need to have clarity on required fields and formats much in advance to accommodate own development, test and release cycles. A proposed XML Schema will not only help SI but also National Competent Authorities (NCA) with their preparations towards the reporting deadline.
Considering that the spirit of Settlement Internalisation reporting aims to give a complementary view of the CSDR Settlement Discipline Regime, it shall be highlighted that the “Place of Settlement” concept (“PSET”) should be considered as one of the main triggers to determine if securities/a financial instrument is in or out of scope of the reporting. As the PSET indicates the CSD where an instrument should settle, it permits to detect if this CSD is in or out of scope of the CSDR application.
Full AFME response
Deutsche Bank AG
Deutsche Bank asks that ESMA provides further clarification on the internalisation criteria to be used in determining whether a settlement instruction is in scope of internalisation reporting.
It requests confirmation that there should be a consistent application of the simple rule that, in the event of transfers between accounts in the books of an account provider, then the account provider is subject to the reporting obligation. This interpretation would then be aligned with the general approach ESMA has adopted in its introductory sentence to paragraph 15.
Reporting requirements should only apply to apply to transactions in European financial instruments and non-EU financial instruments which can be settled in an EU CSD.
Lastly it asks that ESMA considers finalising the guidelines as early as possible and ahead of Q1 2018 in order to give institutions sufficient time and clarity to finalise their projects ahead of the reporting deadlines.
Full Deutsche Bank response
German Banking Industry Committee
GBIC welcomes ESMA’s intention to issue guidelines to ensure consistent supervisory practices by clarifying questions of interpretation and providing assistance in completing the proposed reporting templates.
To make the guidelines as clear as possible, GBIC would suggest starting by summarising the requirements of the CSD Regulation1 (Levels 1 and 2) which have to be met in order for a reporting obligation to be triggered in the first place. This new section could be placed before section 4.1 and entitled something along the lines of “4.0 Scope of reporting obligations”. Spelling out these legal prerequisites would probably be enough in itself to clear up a lot of the questions covered in the proposed guidelines regarding their scope and to indicate relevant categories with respect to the reporting templates. The following sections could then address any remaining problems and interpretation issues in a more targeted manner.
Full GBIC response
Full consultation paper
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