What is the CSDR?
Together with the European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive II (MiFID
II), the CSDR
completes the post-financial crisis regulation of the EU’s securities and capital markets. It came into force in September 2014 and its provisions have been steadily taking effect ever since.
What’s next for CSDR?
Article 38(5) of CSDR
requires any firm that is a participant of a central securities depository (CSD
) within the EU to offer their clients the choice between an omnibus client segregation account and an individual client segregation account at EU CSDs
. An omnibus client segregation account is used to hold the securities of a number of clients on a collective basis. An individual client segregation account is used to hold the securities of a single client, so they are stored away from the securities of other clients and the firm’s own securities.
About the experts
Michelle McNamara and Jon Butcher are part of the Pershing EMEA CSDR programme at the global financial business solutions provider, Pershing, a BNY Mellon company
, the world’s largest CSD
, submitted its application to become an approved CSD
to the Bank of England in September 2017. The Bank has up to six months to grant authorisation
. When this is granted, firms must be ready to offer new and existing clients a choice of segregated or omnibus accounts at a reasonable cost. Firms should be ready to communicate these choices to clients as soon as Euroclear
receives its authorisation
What is the background to Article 38(5)? What benefits does this bring to investors and/or their custodians?CSDR
is about helping to safeguard client assets and harmonise
all aspects of securities settlement by introducing new measures for the authorisation
and supervision of CSDs
. The general perception of the financial services sector, however, is that segregated accounts do not offer any further asset protection over omnibus accounts. This is largely due to the existing client asset protection regime that already provides a level of protection to securities held in an omnibus account. In the event of a CSD
’s insolvency, it is not expected that the investor’s entitlement to their securities at that CSD
would be affected regardless of whether the securities are held in an individual client segregation account or an omnibus client segregation account.
What should firms be doing to prepare?
Firms should be in a position to offer their investors these choices once each EU CSD
, including Euroclear
, becomes authorised
. Client communication will be key. Firms are required to publicly disclose the levels of protection associated with the different levels of segregation that they provide – in respect of securities that they hold directly for clients with EU CSDs
– and to inform their clients of the costs and risks associated with these different levels of protection. We might begin to see minimum fees per account introduced. Firms should be preparing these disclosures, particularly as any market confusion caused by multiple accounts may also lead to future fines imposed by the settlement discipline, which comes into effect towards the end of 2020. This is a regime designed to introduced standardised
penalty fees for failing transactions.
What are the costs likely to be?CSDs
and their participants should offer their services on reasonable commercial terms. There are no prescribed costs detailed in CSDR
itself. In general, the costs are likely to be higher for maintaining an individual client segregation account over an omnibus client segregation account due to the increased operational complexity and the costs associated with setting up and maintaining an individual client segregation account. The costs are likely to be driven from the set-up charge of an individual client segregation account, the ongoing maintenance fee and any third-party charges, including any charges passed on by the CSD
. Each CSD
and its participants are required to publicly disclose the costs associated with the different levels of protection associated with the different types of accounts.
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