Legal provisions of COM(2022)120 - Amendment of Regulation 909/2014 as regards a number of provisions for third-country central securities depositories

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dossier COM(2022)120 - Amendment of Regulation 909/2014 as regards a number of provisions for third-country central securities depositories.
document COM(2022)120 EN
date December 13, 2023

Contents

Article 1 - Amendments to Regulation (EU) No 909/2014

Regulation (EU) No 909/2014 is amended as follows:

(1) in Article 2 the following point (25a) is inserted:

‘(25a) ‘group’ means a group within the meaning of Article 2(11) of Directive 2013/34/EU;’;

(2) Article 7 is amended as follows:

(a)in paragraph 2, the third subparagraph is replaced by the following:

‘The penalty mechanism referred to in the first subparagraph shall include cash penalties for participants that cause settlement fails (‘failing participants’) except where those settlement fails are caused by factors not attributable to the participants to the transaction or for operations that do not involve two trading parties. Cash penalties shall be calculated on a daily basis for each business day that a transaction fails to be settled after its intended settlement date until the end of the buy-in process referred to in paragraphs 3 to 8 that is to be applied pursuant to paragraph 2a, or the actual settlement day, whichever is the earlier. The cash penalties shall not be configured as a revenue source for the CSD.’;

(b)the following paragraph 2a is inserted:

‘2a. Without prejudice to the penalty mechanism referred to in paragraph 2 of this Article and the right to bilaterally cancel the transaction, the Commission may, by means of an implementing act, decide to which of the financial instruments referred to in Article 5(1) or categories of transactions in those financial instruments the settlement discipline measures referred to in paragraphs 3 to 8 of this Article are to be applied where the Commission considers that those measures constitute a proportionate means to address the level of settlement fails in the Union and that, based on the number and volume of settlement fails, any of the following conditions is met:

(a) the application of the cash penalty mechanism referred to in paragraph 2 has not resulted in a long-term, continuous reduction of settlement fails in the Union;

(b) settlement efficiency in the Union has not reached appropriate levels considering the situation in third-country capital markets that are comparable in terms of size, liquidity as well as instruments traded and types of transactions executed on such markets;

(c) the level of settlement fails in the Union has or is likely to have a negative effect on the financial stability of the Union.

The implementing act shall be adopted in accordance with the examination procedure referred to in Article 68(2).’;

(c)paragraph 3 is replaced by the following:

‘3. Where the Commission has adopted an implementing act pursuant to paragraph 2a and where a failing participant has not delivered financial instruments covered by that implementing act to the receiving participant within a period after the intended settlement date (‘extension period’) equal to 4 business days, a buy-in process shall be initiated whereby those instruments shall be available for settlement and delivered to the receiving participant within an appropriate timeframe.

Where the transaction relates to a financial instrument traded on an SME growth market, the extension period shall be 15 calendar days unless the SME growth market decides to apply a shorter period.’

(d)the following paragraph 3a is inserted:

‘3a. Where a receiving participant (the ‘intermediate receiving participant’) does not receive the financial instruments by the date referred to in paragraph 3 leading to a failing onward delivery of those financial instruments to another receiving participant (the ‘end receiving participant’), the intermediate receiving participant shall be considered as complying with the obligation to execute a buy-in against the failing participant where the end receiving participant executes the buy-in for those financial instruments. Similarly, the intermediate receiving participant may pass-on to the failing participant its obligations toward the end receiving participant pursuant to paragraphs 6, 7 and 8.’;

(e)paragraph 4 is replaced by the following:

‘4. Without prejudice to paragraph 3a, the following derogations from the requirement referred to in paragraph 3 shall apply:

(a) based on asset type and liquidity of the financial instruments concerned, the extension period may be increased from 4 business days up to a maximum of 7 business days where a shorter extension period would affect the smooth and orderly functioning of the financial markets concerned;

(b) for operations composed of several transactions including securities repurchase or lending agreements, the buy-in process referred to in paragraph 3 shall not apply where the timeframe of those operations is sufficiently short and renders the buy-in process ineffective;

(c) for settlement fails that occurred for reasons not attributable to the participants, the buy-in process referred to in paragraph 3 shall not apply;

(d) for transactions that do not involve two trading parties the buy-in process referred to in paragraph 3 shall not apply.’;

(f)paragraph 6 is replaced by the following:

‘6. Without prejudice to the penalty mechanism referred to in paragraph 2, where the price of the financial instruments agreed at the time of the trade is different from the price paid for the execution of the buy-in, the corresponding difference shall be paid by the participant benefitting from such price difference to the other participant no later than on the second business day after the financial instruments have been delivered following the buy-in.’;

(g)paragraph 11 is replaced by the following:

‘11. Paragraphs 2 to 9 shall not apply to failing participants which are CCPs, except for transactions entered into by a CCP where it does not interpose itself between counterparties.

If a CCP incurs losses from the application of Article 7(2), third subparagraph, the CCP may establish in its rules a mechanism to cover such losses.’;

(h)the following paragraph 13a is inserted:

‘13a. ESMA may recommend that the Commission suspend in a proportionate way the buy-in mechanism referred to in paragraphs 3 to 8 for specific categories of financial instruments where necessary to avoid or address a serious threat to financial stability or to the orderly functioning of financial markets in the Union. Such recommendation shall be accompanied by a fully reasoned assessment of its necessity and shall not be made public.

Before making the recommendation, ESMA shall consult the ESRB and the ESCB.

The Commission shall, without undue delay after receipt of the recommendation, on the basis of the reasons and evidence provided by ESMA, either suspend the buy-in mechanism referred to in paragraph 3 for the specific categories of financial instruments by means of an implementing act, or reject the recommended suspension. Where the Commission rejects the requested suspension, it shall provide the reasons thereof in writing to ESMA. Such information shall not be made public.

The implementing act shall be adopted in accordance with the procedure referred to in Article 68(3).

The suspension of the buy-in mechanism shall be communicated to ESMA and shall be published in the Official Journal of the European Union and on the Commission's website.

The suspension of the buy-in mechanism shall be valid for an initial period of no more than 6 months from the date of application of that suspension.

Where the grounds for the suspension continue to apply, the Commission may, by way of an implementing act, extend the suspension referred to in the third subparagraph for additional periods of no more than 3 months, with the total period of the suspension not exceeding 12 months. Any extensions of the suspension shall be published in accordance with the fifth subparagraph.

The implementing act shall be adopted in accordance with the procedure referred to in Article 68(3). ESMA shall, in sufficient time before the end of the suspension period referred to in the sixth subparagraph or of the extension period referred to in the seventh subparagraph, issue an opinion to the Commission on whether the grounds for the suspension continue to apply.’;

(i)paragraph 14 is replaced by the following:

‘14. The Commission shall be empowered to supplement this Regulation by adopting delegated acts in accordance with Article 67 specifying parameters for the calculation of a deterrent and proportionate level of the cash penalties referred to in paragraph 2, third subparagraph, of this Article based on asset type, liquidity of the financial instrument, type of transaction and the effect that low or negative interest rates could have on the incentives of counterparties and fails. The parameters used for the calculation of cash penalties shall ensure a high degree of settlement discipline and the smooth and orderly functioning of the financial markets concerned.’;

(j)the following paragraph 14a is inserted:

‘14a. The Commission may adopt delegated acts in accordance with Article 67 to supplement this Regulation specifying the reasons for settlement fails that are to be considered as not attributable to the participants to the transaction and the transactions that are not to be considered to involve two trading parties under paragraph 2 and paragraph 4, points (c) and (d), of this Article.’;

(k)in paragraph 15, the second subparagraph is replaced by the following:

‘ESMA shall submit those draft regulatory technical standards to the Commission by … [PO please insert the date = 1 year after the entry into force of this Regulation].’;

(3) in Article 12(1), points (b) and (c) are replaced by the following:

‘(b) the central banks in the Union issuing the most relevant currencies in which settlement takes or will take place;

(c) where relevant, the central bank in the Union in whose books the cash leg of a securities settlement system operated by the CSD is or will be settled.’;

(4) Article 17 is amended as follows:

(a)in paragraph 2, the following subparagraph is added:

’By way of derogation from the first subparagraph, where an applicant CSD does not comply with all requirements of this Regulation, but where it may be reasonably assumed that it will do so when it will have actually launched its activities, the competent authority may grant the authorisation subject to the condition that that CSD has all the necessary arrangements in place to comply with the requirements of this Regulation when it actually launches its activities.”;

(b)paragraph 4 is replaced by the following:

‘4. From the moment when the application is considered to be complete, the competent authority shall transmit all information included in the application to the relevant authorities and consult those authorities concerning the features of the securities settlement system operated by the applicant CSD.

Each relevant authority may issue a reasoned opinion to the competent authority within 3 months of the receipt of the information by the relevant authority. Where a relevant authority does not provide an opinion within that timeframe it shall be deemed to have issued a positive opinion.

Where at least one of the relevant authorities issues a negative reasoned opinion, the competent authority wishing to grant the authorisation shall within 30 calendar days provide the relevant authorities with a reasoned decision addressing the negative opinion.

Where within 30 calendar days after the competent authority has issued the reasoned decision referred to in the third subparagraph, any of the relevant authorities issues another negative opinion and the competent authority disagrees it shall inform those relevant authorities. Any of the authorities that issued a negative opinion may refer the matter to ESMA for assistance under Article 31(2) point (c), of Regulation (EU) No 1095/2010.

Where 30 calendar days after referral to ESMA the issue is not settled, the competent authority wishing to grant the authorisation shall take the final decision and provide a detailed explanation of its decision in writing to the relevant authorities.

Where the competent authority wishes to refuse authorisation, the matter shall not be referred to ESMA.

Negative opinions shall state in writing the full and detailed reasons why the requirements laid down in this Regulation or other requirements of Union law are not met.’;

(c)the following paragraph 7a is inserted:

‘7a. The competent authority shall inform without undue delay the authorities consulted pursuant to paragraphs 4 to 7 of the results, including any remedial actions, of the authorisation process.’;

(5) in Article 20, paragraph 5 is replaced by the following:

‘5. A CSD shall establish, implement and maintain adequate procedures ensuring the timely and orderly settlement and transfer of the assets of clients and participants to another CSD in the event of a withdrawal of authorisation referred to in paragraph 1. Such procedures shall include the transfer of issuance accounts and records linked to the provision of core services referred to in Section A, points 1 and 2, of the Annex.’;

(6) Article 22 is amended as follows:

(a)paragraphs 1 to 4 are replaced by the following:

‘1. The competent authority shall, at least every 2 years, review the arrangements, strategies, processes and mechanisms implemented by a CSD with respect to compliance with this Regulation and evaluate the risks to which the CSD is, or might be, exposed to or which it creates for the smooth functioning of securities markets or stability of the financial markets.

2. The CSD shall identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down. Those scenarios shall take into account the various independent and related risks to which the CSD is exposed. Using that analysis, the CSD shall prepare and submit to the competent authority appropriate plans for its recovery or orderly wind-down.

3. The plans referred to in paragraph 2 shall contain at least the following:

(a) a substantive summary of the key recovery or orderly wind-down strategies;

(b) an identification of the CSD’s critical operations and services;

(c) adequate procedures ensuring the timely and orderly settlement and transfer of the assets of clients and participants to another CSD in the event it became permanently impossible for the CSD to restore its critical operations and services;

(d) a description of the measures needed to implement the key strategies.

The CSD shall have the capacity to identify and provide to related entities the information needed to implement the plans on a timely basis during stress scenarios.

The CSD shall review and update the plans regularly and a least every 2 years. The plans shall have regard to the size, systemic importance, nature, scale and complexity of the activities of the CSD concerned and any relevant recovery or resolution plan established in accordance with Directive 2014/59/EU.

Where a resolution plan is established and maintained for a CSD with the aim of ensuring its core functions, the competent authority shall inform ESMA thereof.

4. The competent authority shall establish the frequency and depth of the review and evaluation referred to in paragraph 1 having regard to the size, systemic importance, nature, scale and complexity of the activities of the CSD concerned. The review and evaluation shall be updated at least every 2 years.’;

(b)paragraphs 6 and 7 are replaced by the following:

‘6. When performing the review and evaluation referred to in paragraph 1, the competent authority shall, at an early stage, transmit necessary information to the relevant authorities and, where applicable, the authority referred to in Article 67 of Directive 2014/65/EU, and consult them in particular concerning the functioning of the securities settlement systems operated by the CSD.

The consulted authorities may issue a reasoned opinion within 3 months of the receipt of the information by the competent authority.

Where an authority does not provide an opinion within that deadline it shall be deemed to have issued a positive opinion.

Where at least one of the relevant authorities issues a negative reasoned opinion, the competent authority shall within 30 calendar days provide the relevant authorities with a reasoned decision addressing the negative opinion.

Where within 30 calendar days after the reasoned decision referred to in the fourth subparagraph of this paragraph is issued, any of the relevant authorities issues another negative opinion and the competent authority disagrees, the competent authority shall inform that relevant authority. Any of the authorities that issued a negative opinion may refer the matter to ESMA for assistance under Article 31(2), point (c), of Regulation (EU) No 1095/2010.

Where 30 calendar days after referral to ESMA the issue is not settled, the competent authority shall take the final decision on the review and evaluation and provide a detailed explanation of its decision in writing to the relevant authorities.

Negative opinions shall state in writing the full and detailed reasons why the requirements laid down in this Regulation or other requirements of Union law are not met.

7. The competent authority shall regularly, and at least once every 2 years, inform the relevant authorities and, where applicable, the colleges referred to in Article 24a of this Regulation and the authority referred to in Article 67 of Directive 2014/65/EU of the results, including any remedial actions or penalties, of the review and evaluation referred to in paragraph 1 of this Article.’;

(c)in paragraph 11, the second subparagraph of is replaced by the following:

‘ESMA shall submit those draft implementing technical standards to the Commission by [PO please insert 1 year after the entry into force of this Regulation].’;

(7) in Article 23, paragraphs 2 to 7 are replaced by the following:

‘2. An authorised CSD or a CSD that has applied for authorisation pursuant to Article 17 that intends to provide the core services referred to in Section A, points 1 and 2, of the Annex in relation to financial instruments constituted under the laws of another Member State referred to in Article 49(1), second subparagraph, or to set up a branch in another Member State shall be subject to the procedure referred to in paragraphs 3 to 7 of this Article. The CSD may provide such services only after it has been authorised pursuant to Article 17 but not earlier than the relevant date applicable in accordance with paragraph 6.

3. Any CSD wishing to provide the services referred to in paragraph 2 of this Article in relation to financial instruments constituted under the law of another Member State referred to in Article 49(1), second subparagraph, for the first time, or to change the range of those services provided shall submit documents with the following information to the competent authority of the home Member State:

(a) the host Member State;

(b) a programme of operations stating in particular the services which the CSD intends to provide;

(c) the currency or currencies that the CSD intends to process;

(d) where there is a branch, the organisational structure of the branch and the names of those responsible for the management of the branch;

(e) an assessment of the measures the CSD intends to take to allow its users to comply with the national law referred to in Article 49(1).

4. Within 1 month from the receipt of the information referred to in paragraph 3, the competent authority of the home Member State shall communicate that information to the competent authority of the host Member State unless, by taking into account the provision of services envisaged, it has reasons to doubt the adequacy of the administrative structure or the financial situation of the CSD wishing to provide its services in the host Member State. Where the CSD already provides services to other host Member States, the competent authority of the home Member State shall also inform the passporting college referred to in Article 24a.

The competent authority of the host Member State shall without delay inform the relevant authorities of that Member State of any communication received under the first subparagraph.

5. Where the competent authority of the home Member State decides in accordance with paragraph 4 not to communicate all the information referred to in paragraph 3 to the competent authority of the host Member State, it shall give reasons for its refusal to the CSD concerned within 3 months of receiving all the information and inform the competent authority of the host Member State and the passporting college referred to in Article 24a of its decision.

6. The CSD may start providing the services referred to in paragraph 2 in the host Member State at the earliest of the following dates:

(a) after 1 month from the date of transmission of the communication referred to in paragraph 4;

(b) on receipt of a communication from the competent authority of the host Member State approving the provision of services in the host Member State.

The competent authority of the home Member State shall immediately inform the CSD of the date of transmission of the communication referred to in paragraph 4.

7. In the event of a change of the information set out in the documents submitted in accordance with paragraph 3 of this Article, a CSD shall give written notice of that change to the competent authority of the home Member State at least 1 month before implementing the change. The competent authority of the host Member State and the passporting college referred to in Article 24a shall also be informed of that change without delay by the competent authority of the home Member State.’;

(8) Article 24 is amended as follows:

(a)in paragraph 1, the following subparagraphs are added:

‘Upon the request of any member of the passporting college referred to in Article 24a, the competent authority of the home Member State may invite staff from competent authorities of the host Member States and ESMA to participate in on-site inspections.

The competent authority of the home Member State may transmit to ESMA any information received from the CSDs during or in relation to on-site inspections.’;

(b)paragraph 4 is deleted;

(c)paragraph 5 is replaced by the following:

‘5. Where the competent authority of the host Member State has clear and demonstrable grounds for believing that a CSD providing services within its territory in accordance with Article 23 is in breach of the obligations arising from the provisions of this Regulation, it shall inform the competent authority of the home Member State, ESMA and the passporting college referred to in Article 24a of those findings.

Where, despite measures taken by the competent authority of the home Member State, the CSD persists in acting in infringement of the obligations arising from the provisions of this Regulation, the competent authority of the host Member State shall, after informing the competent authority of the home Member State, take all the appropriate measures needed in order to ensure compliance with the provisions of this Regulation within the territory of the host Member State. ESMA and the passporting college referred to in Article 24a shall be informed of such measures without delay.

The competent authority of the host Member State and of the home Member State may refer the matter to ESMA, which may act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No 1095/2010.’;

(d)paragraphs 7 and 8 are deleted;

(9) in Title III, the following Section 4a is inserted:

‘Section 4a

Cooperation of authorities through colleges

Article 24 - a Colleges of Supervisors for CSDs providing services in another Member State and for CSDs that are part of a group with two or more CSDs

1. Colleges of supervisors shall be established to carry out the tasks referred to in paragraph 6 in the following cases:

(a) where a CSD is subject to the procedure referred to in Article 23(3) to (7) (‘passporting college’);

(b) where a CSD is part of a group that comprises two or more CSDs authorised in at least two Member States (‘group-level college’).

In the case referred to in the first subparagraph, point (a), the CSD’s home competent authority shall establish, manage and chair the passporting college. That college shall be established within 1 month from the date referred to in Article 23(6). Where the CSD submits subsequent notifications pursuant to Article 23(3), the competent authority of the home Member State shall invite the competent authorities of the relevant host Member States to the passporting college within 1 month from the date referred to in Article 23(6).

In the case referred to in the first subparagraph, point (b), where the parent undertaking is a CSD authorised in the Union, the competent authority of the home Member State of that CSD shall establish, manage and chair the group-level college. Where the parent undertaking is not a CSD authorised in the Union, the competent authority of the home Member State of the CSD with the largest balance sheet total shall establish, manage and chair the group-level college.

By way of derogation from the third subparagraph, where the application of the criteria referred to in that subparagraph would be inappropriate, the competent authorities may waive by common agreement those criteria and appoint a different CSD’s competent authority to manage and chair the college, taking into account the CSDs concerned and the relative importance of their activities in the relevant Member States. In such cases, the parent CSD or the CSD with the largest balance sheet total, as applicable, shall have the right to be heard before the competent authorities take the decision.

The competent authorities shall notify the Commission and ESMA without delay of any agreement made pursuant to the fourth subparagraph.

2. The college referred to in paragraph 1 shall consist of:

(a) ESMA;

(b) the competent authority of the CSD’s home Member State;

(c) the relevant authorities referred to in Article 12;

(d) in the case of a passporting college, the competent authority of the host Member States;

(e) in the case of a group-level college, the competent authority and the relevant authorities of each CSD in the group;

(f) EBA, where a CSD has been authorised pursuant to Article 54(3).

3. Where a CSD subject to the procedure referred to in Article 23(3) to (7) is also part of a group that comprises two or more CSDs and its competent authority is the chair of the group-level college, that competent authority may decide that only one college shall be established for the purposes of paragraph 1, points (a) and (b), of this Article for that CSD. Where any of the other CSDs within the group are also subject to the procedure referred to in Article 23(3) to (7), the chair of the college may make that decision only with the agreement of the competent authorities of those CSDs.

Where a college established pursuant to the first subparagraph:

(a)convenes for the exercise of the tasks referred to in paragraph 6, points (a) to (d), of this Article , the authorities referred to in paragraph 2, points (a) to (f) of this Article in relation to each CSD within the group shall participate to that meeting of the college;

(b)convenes for the exercise of the tasks referred to in paragraph 6, point (e), of this Article only the authorities referred to, in paragraph 2, points (a), (b), (c), (e) and, where applicable, (f) of this Article shall participate to that meeting of the college.

4. The chair shall notify the composition of the college to ESMA within 30 calendar days of the college's establishment and any change in its composition within 30 calendar days of that change. ESMA shall publish on its website without undue delay the list of the members of that college and keep that list up-to-date.

5. The competent authority of a Member State which is not a member of the college may request from the college any information relevant for the performance of its supervisory duties.

6. The college shall, without prejudice to the responsibilities of competent authorities under this Regulation, ensure:

(a)the exchange of information, including requests for information pursuant to Articles 13, 14 and 15 and information on the review and evaluation process pursuant to Article 22;

(b)more efficient supervision by avoiding unnecessary duplicative supervisory actions, such as information requests ;

(c)agreement on the voluntary entrustment of tasks among its members.

(d)in the case of a passporting college, the cooperation of the home and host Member State pursuant to Article 24 and regarding the measures referred to in Article 23(4), point (e) and on any issues encountered in the provision of services in other Member States;

(e)in the case of a group-level college, the exchange of information on resources shared and outsourcing arrangements in place within a group of CSDs pursuant to Article 19, on significant changes to the structure and ownership of the group, and on changes in the organisation, senior management, processes or arrangements where those changes have a significant impact on governance or risk management for the CSDs belonging to the group.

The chair shall convene a meeting of the college at least once a year.

In order to facilitate the performance of the tasks assigned to colleges pursuant to the first subparagraph of this paragraph, members of the college referred to in paragraph 2 may add points to the agenda of a meeting.

7. The establishment and functioning of the college shall be based on a written agreement between all its members.

That agreement shall determine the practical arrangements for the functioning of the college, including the modalities of communication amongst college members, and may determine tasks to be entrusted to the CSD’s competent authority or another member of the college.

8. ESMA shall develop draft regulatory technical standards specifying the details of the practical arrangements referred to in paragraph 7.

ESMA shall submit those draft regulatory technical standards to the Commission by … [PO please insert the date = 1 year after the date of entry into force of this Regulation].

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

(10) Article 25 is amended as follows:

(a)the following paragraph 2a is inserted:

“2a. A third-country CSD that intends to provide the core service referred to in point (3) of Section A of the Annex in relation to financial instruments constituted under the law of a Member State referred to in Article 49(1), second subparagraph, shall submit a notification to ESMA.”;

(b)in paragraph 6, the fifth subparagraph is replaced by the following:

‘Within 6 months from the submission of a complete application or from the adoption of an equivalence decision by the Commission in accordance with paragraph 9, whichever is later, ESMA shall inform the applicant CSD in writing with a fully reasoned decision whether the recognition has been granted or refused.’;

(c)the following paragraph 13 is added:

‘13. ESMA shall develop draft regulatory technical standards to specify the information that the third-country CSD is to provide to ESMA in the notification referred to in paragraph 2a. Such information shall be limited to what is strictly necessary, including, where applicable and available:

(a)the number of Union participants to whom the third-country CSD provides the services referred to in paragraph 2a; 

(b)the number and volume of transactions in financial instruments constituted under the law of a Member State settled during the previous year;

(c)the number and volume of transactions settled by Union participants during the previous year.

ESMA shall submit those draft regulatory technical standards to the Commission by … [PO please insert the date = 1 year after the date of entry into force of this Regulation].

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

(11) in Article 27, the following paragraph 3a is inserted:

“3a. For the purposes of paragraphs 2 and 3, independent member of the management body shall mean a member of the management body who has no business, family or other relationship that raises a conflict of interests regarding the CSD concerned or its controlling shareholders, its management or its participants, and who has had no such relationship during the five years preceding his membership of the management body;”

(12) in Article 28, paragraph 3 is replaced by the following:

‘3. User committees shall advise the management body on key arrangements that impact on their members, including the criteria for accepting issuers or participants in their respective securities settlement systems and on service level, which includes the choice of a clearing and settlement arrangement, operating structure of the CSD, scope of products settled or recorded, and the use of technology and procedures for the operations of the CSD .’;

(13) Article 36 is replaced by the following:

“Article 36

General provisions

For each securities settlement system it operates a CSD shall have appropriate rules and procedures, including robust accounting practices and controls, to help ensure the integrity of securities issues, and minimise and manage the risks associated with the safekeeping and settlement of transactions in securities.”;

(14) in Article 40, paragraph 2 is replaced by the following:

‘2. Where it is not practical and available to settle in central bank accounts as provided in paragraph 1, a CSD may offer to settle the cash payments for all or part of its securities settlement systems through accounts opened with a credit institution, through a CSD that is authorised to provide the services listed in Section C of the Annex whether within the same group of undertakings ultimately controlled by the same parent undertaking or not, or through its own accounts. If a CSD offers to settle in accounts opened with a credit institution, through its own accounts or the accounts of another CSD, it shall do so in accordance with the provisions of Title IV.’;

(15) in Article 49(1), the second and the third subparagraphs are replaced by the following:

‘Without prejudice to the issuer’s right referred to in the first subparagraph, the corporate or similar law of the Member State under which the securities are constituted shall continue to apply. The corporate or similar law of the Member State under which the securities are constituted includes:

(a)the corporate or similar law of the Member State where the issuer is established; and

(b)the governing corporate or similar law under which the securities are issued.

Member States shall compile a list of key relevant provisions of their law, as referred to in the second subparagraph. Competent authorities shall communicate that list to ESMA by 18 December 2014. ESMA shall publish the list by 18 January 2015. Member States shall update that list regularly and at least every 2 years. They shall communicate the updated list at those regular intervals to ESMA. ESMA shall publish the updated list.’;

(16) in Article 52, paragraph 1 is replaced by the following:

‘1. When a CSD submits a request for access to another CSD pursuant to Articles 50 and 51, the receiving CSD shall treat such request promptly and shall provide a response to the requesting CSD within 3 months. If the receiving CSD agrees to the request, the link shall be implemented within a reasonable timeframe, but no longer than 12 months.’;

(17) Article 54 is amended as follows:

(a)in paragraph 2, point (b) is replaced by the following:

‘(b) to designate for that purpose one or more credit institutions authorised in accordance with Article 8 of Directive 2013/36/EU or a CSD authorised to provide banking-type ancillary services pursuant to paragraph 3 of this Article’.

(b)in paragraph 4, the first subparagraph is amended as follows:

(i) the introductory wording is replaced by the following:

“Where a CSD seeks to designate a credit institution or use a CSD that is authorised pursuant to paragraph 3 to provide any banking-type ancillary services from within a separate legal entity, which may be part of the group to which the former CSD belongs, whether or not ultimately controlled by the same parent undertaking, the authorisation referred to in paragraph 2 shall be granted only where the following conditions are met:”;

(ii) point (c) is deleted;

(c)paragraph 5 is replaced by the following:

‘5. Paragraph 4 shall not apply to credit institutions referred to in paragraph 2, point (b), that offer to settle the cash payments for part of the CSD’s securities settlement system, if the total value of such cash settlement through accounts opened with those credit institutions does not exceed a maximum amount calculated over a one-year period. That threshold shall be determined in accordance with paragraph 9.

The competent authority shall monitor at least once per year that the threshold referred to in the first subparagraph is respected and report its findings to ESMA, ESCB and EBA. Where the competent authority determines that the threshold has been exceeded, it shall require the CSD concerned to seek authorisation in accordance with paragraph 4. The CSD concerned shall submit its application for authorisation within 6 months.’;

(d)the following paragraph 9 is added:

‘9. EBA shall, in close cooperation with ESMA and the members of the ESCB, develop draft regulatory technical standards to determine the maximum amount referred to in paragraph 5, taking into account the need to balance the credit and liquidity risks for CSDs that result from the settlement of cash payments through accounts opened with credit institutions and the need to allow CSDs to settle in foreign currencies through accounts opened with such credit institutions. When developing these draft regulatory technical standards the EBA shall also determine, where necessary, any accompanying appropriate risk management and prudential mitigating requirements.

EBA shall submit those draft regulatory technical standards to the Commission by [PO please insert the date= 1 year after the date of entry into force of this Regulation].

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.’;

(18) in Article 55(5), the first subparagraph is replaced by the following:

‘The authorities referred to in paragraph 4, points (a) to (e), shall issue a reasoned opinion on the authorisation within 2 months of receipt of the information referred to in that paragraph. Where an authority does not provide an opinion within that deadline it shall be deemed to have a positive opinion.’;

(19) Article 59 is amended as follows:

(a) paragraph 4 is amended as follows:

(i) points (c), (d) and (e) are replaced by the following:

‘(c) it shall maintain sufficient qualifying liquid resources in all relevant currencies for a timely provision of settlement services under a wide range of potential stress scenarios including the liquidity risk generated by the default of at least two participants, including its parent undertakings and subsidiaries, to which it has the largest exposures;

(d) it shall mitigate the corresponding liquidity risks with qualifying liquid resources in each relevant currency such as cash at the central bank of issue and at other creditworthy financial institutions, committed lines of credit or similar arrangements and highly liquid collateral or investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in extreme but plausible market conditions and it shall identify, measure and monitor its liquidity risk stemming from the various financial institutions used for the management of its liquidity risks;

(e) where prearranged and highly reliable funding arrangements, committed lines of credit or similar arrangements are used, it shall select only creditworthy financial institutions as liquidity providers; it shall establish and apply appropriate concentration limits for each of the corresponding liquidity providers including its parent undertaking and subsidiaries;’;

(ii) point (i) is replaced by the following:

‘(i)    it shall have prearranged and highly reliable arrangements to ensure that it can convert in a timely fashion the collateral provided to it by a defaulting client into cash and where non-committed arrangements are used, establish that any associated potential risks have been identified and mitigated;’;

(iii) the following point (k) is added:

‘(k) it shall adequately monitor and manage any risks, including relevant netting arrangements in relation to the cash leg of their applied settlement model.’;

(b) in paragraph 5, the second subparagraph is replaced by the following:

‘EBA shall submit those draft regulatory technical standards to the Commission by … [PO please insert the date = 1 year after the date of entry into force of this Regulation].’;

(20) Article 60 is amended as follows:

(a)in paragraph 1, the third subparagraph is replaced by the following:

‘The competent authorities referred to in the first subparagraph shall regularly, and at least once a year, assess whether the designated credit institution or CSD authorised to provide banking-type ancillary services complies with Article 59 and shall inform the competent authority of the CSD which shall then inform the authorities referred to in Article 55(4) and, where applicable, the colleges referred to in Article 24a, of the results, including any remedial actions or penalties, of its supervision under this paragraph.’;

(b)in paragraph 2, the second subparagraph is replaced by the following:

‘The competent authority of the CSD shall regularly, and at least once a year, inform the authorities referred to in Article 55(4) and, where applicable, the colleges referred to in Article 24a, of the results, including any remedial actions or penalties, of its review and evaluation under this paragraph.’;

(21) Article 67 is amended as follows:

(a)the following paragraph 2a is inserted:

‘2a. The power to adopt delegated acts referred to in Articles 7(14a), 24a(8), 25(13) and 54(9) shall be conferred on the Commission for an indeterminate period of time from [PO please insert the date of entry into force of this Regulation].’;

(b)paragraph 3 is replaced by the following:

‘3. The delegation of power referred to in Articles 2(2), 7(14), 24(7), 7(14a), 24a(8), 25(13) and 54(9) may be revoked at any time by the European Parliament or by the Council. A decision of revocation shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force.’;

(c)paragraph 5 is replaced by the following:

‘5. A delegated act adopted pursuant to Articles 2(2), 7(14), 24(7), 7(14a), 24a(8), 25(13) and 54(9) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of three months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by three months at the initiative of the European Parliament or of the Council.’

(22) in Article 68, the following paragraph 3 is added:

“3. Where reference is made to this paragraph, Article 8 of Regulation (EU) No 182/2011, in conjunction with Article 5 thereof, shall apply.”;

(23) Article 69 is amended as follows:

(a)paragraph 4 is replaced by the following:

‘4. The national rules on the authorisation of CSDs shall continue to apply until the following date, whichever is earlier:

(a) the date when a decision is made under this Regulation on the authorisation of CSDs and of their activities, including CSD links; or

(b) … [PO please insert the date = 1 year after the date of entry into force of this Regulation].’;

(b)the following paragraphs 4a, 4b and 4c are inserted:

‘4a. The national rules on the recognition of third-country CSDs shall continue to apply until the following date, whichever is earlier:

(a) the date when a decision is made under this Regulation on the recognition of the respective third-country CSDs and of their activities; or

(b) … [PO please insert the date = 3 years after the date of entry into force of this Regulation].

A third-country CSD that provides the core services referred to in Section A, points (1) and (2), of the Annex in relation to financial instruments constituted under the law of a Member State referred to in Article 49(1), second subparagraph pursuant to the applicable national rules on the recognition of third-country CSDs shall submit a notification to ESMA within 2 years from [PO please insert the date of entry into force of this Regulation].

ESMA shall develop draft regulatory technical standards to specify the information that the third- country CSD shall provide to ESMA in the notification referred to in the second subparagraph. Such information shall be limited to what is strictly necessary including, where applicable and available:

(a)the number of participants to whom the third-country CSD provides the services referred to in the second subparagraph; 

(b)the categories of financial instruments in respect of which the third-country CSD provides such services; and 

(c)the total volume and value of such financial instruments.

ESMA shall submit those draft regulatory technical standards to the Commission by [PO please insert the date = 1 year after the date of entry into force of this Regulation].

Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

4b. A third-country CSD that provided the core service referred to in Section A, point (3), of the Annex in relation to financial instruments constituted under the law of a Member State referred to in Article 49(1), before … [PO please enter the date of entry into force of this Regulation] shall submit the notification referred to in Article 25(2a) within 2 years from …[PO please insert the date of entry into force of this Regulation].

4c. Where a CSD has submitted a complete application for recognition in accordance with Article 25(4), (5) and (6) before … [PO please insert the date = the date of entry into force of this Regulation] but ESMA has not issued a decision in accordance with Article 25(6) by that date, the national rules on recognition of CSDs shall continue to apply until the ESMA decision is issued.’;

(c)the following paragraph 6 is added:

‘6. Home competent authorities shall establish and manage colleges pursuant to Article 24a for all CSDs providing their services in relation to financial instruments constituted under the law of another Member State pursuant to Article 23(2) before … [PO please insert the date = the date of entry into force of this Regulation] or for CSDs that belong to a group that comprises other CSDs by … [PO please insert the date = 4 months after the date of entry into force of this Regulation].’;

(24) Article 74 is amended as follows:

(a)paragraph 1 is amended as follows:

(i) the introductory wording is replaced by the following:

‘ESMA shall, in cooperation with EBA and the competent authorities and the relevant authorities, submit reports to the Commission providing assessments of trends, potential risks and vulnerabilities, and, where necessary, recommendations of preventative or remedial action in the markets for services covered by this Regulation. Those reports shall include an assessment of the following:’;

(ii) point (a) is replaced by the following:

‘(a) settlement efficiency for domestic and cross-border operations for each Member State based on the number and volume of settlement fails and their evolution, including an analysis of the impact of cash penalties on settlement fails across instruments, the duration and main drivers of settlement fails, the categories of financial instruments and markets where the highest settlement fail rates are observed and an international comparison of settlement fail rates, including an assessment of the amount of penalties referred to in Article 7(2), and, where applicable, the number and volumes of buy-in transactions referred to in Article 7(3) and (4) as well as any other relevant criteria;’;

(iii) the following point (l) is added:

‘(l) the handling of notifications submitted in accordance with Article 25(2a);’;

(b)the following paragraph 1a is inserted:

‘1a. The reports referred to in paragraph 1 shall be submitted to the Commission as follows:

(a)at least every 2 years from … [PO please insert the date = the date of entry into force of this Regulation] for the report referred to in paragraph 1,point (a);

(b)every 2 years for the reports referred to in paragraph 1, points (b) and (c);

(c)on an annual basis until … [PO please insert the date = 1 year after the date of entry into force of this Regulation] and every 3 years from … [PO please insert the date = 1 year after the date of entry into force of this Regulation], for the reports referred to in paragraph 1, points (d) and (f);

(d)upon request from the Commission, for the reports referred to in paragraph 1, points (e), (h), (j) and (k);

(e)on an annual basis until … [PO please insert the date = 1 year after the date of entry into force of this Regulation] and every 2 years from … [PO please insert the date = 1 year after the date of entry into force of this Regulation] for the reports referred to in paragraph 1, points (i) and (l).’;

(c)paragraph 2 is replaced by the following:

‘2. The reports referred to in paragraph 1 shall be communicated to the Commission by 30 April of the relevant year as determined in accordance with the periodicity set out in paragraph 1a.’;

(25) Article 75 is replaced by the following:

‘Article 75

Review

By … [PO please insert the date = 5 years after the date of entry into force of this Regulation], the Commission shall review and prepare a general report on this Regulation. That report shall, in particular, assess the matters referred to in Article 74(1), points (a) to (l), establish whether there are substantive barriers to competition in relation to the services subject to this Regulation which are insufficiently addressed and set out the potential need to apply further measures to:

(a) improve settlement efficiency;

(b) limit the impact on taxpayers of the failure of CSDs;

(c) minimise barriers to cross-border settlement;

(d) ensure adequate powers and information for authorities to monitor risks.

The Commission shall submit the report to the European Parliament and to the Council, together with any appropriate proposals.’;

Article 2 - Entry into force and application

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

However, Article 1, point (2)(a), point (9), point (10)(a), point (17)(c), point (19)(a) and point (23)(b), second subparagraph, shall apply from …. [PO please insert the date = 24 months after the date of entry into force of this Regulation]. 

This Regulation shall be binding in its entirety and directly applicable in all Member States.