Regulation (EU) No 909/2014 of the European Parliament and of the Council
of 23 July 2014
on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012
(Text with EEA relevance)
Regulation (EU) No 909/2014 of the European Parliament and of the Council
of 23 July 2014
on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Central Bank,
Having regard to the opinion of the European Economic and Social Committee,
Acting in accordance with the ordinary legislative procedure,
Whereas:
(1) Central securities depositories (CSDs), together with central counterparties (CCPs) contribute to a large degree in maintaining post-trade infrastructures that safeguard financial markets and give market participants confidence that securities transactions are executed properly and in a timely manner, including during periods of extreme stress.
(2) Due to their key position in the settlement process, the securities settlement systems operated by CSDs are of a systemic importance for the functioning of securities markets. Playing an important role in the securities holding systems through which their participants report the securities holdings of investors, the securities settlement systems operated by CSDs also serve as an essential tool to control the integrity of an issue, hindering the undue creation or reduction of issued securities, and thereby play an important role in maintaining investor confidence. Moreover, securities settlement systems operated by CSDs are closely involved in securing collateral for monetary policy operations as well as in securing collateral between credit institutions and are, therefore, important actors in the collateralisation process.
(3) While Directive 98/26/EC of the European Parliament and of the Council reduced the disruption to a securities settlement system caused by insolvency proceedings against a participant in that system, it is necessary to address other risks that securities settlement systems are facing, as well as the risk of insolvency or disruption in the functioning of the CSDs that operate securities settlement systems. A number of CSDs are subject to credit and liquidity risks deriving from the provision of banking services ancillary to settlement.
(4) The increasing number of cross-border settlements as a consequence of the development of link agreements between CSDs calls into question the resilience, in the absence of common prudential rules, of CSDs when importing the risks encountered by CSDs from other Member States. Moreover, despite the increase in cross-border settlements, market-driven changes towards a more integrated market for CSD services have proven to be very slow. An open internal market in securities settlement should allow any investor in the Union to invest in all Union securities with the same ease as in, and using the same processes as for, domestic securities. However, the settlement markets in the Union remain fragmented across national borders and cross-border settlement remains more costly, due to different national rules regulating settlement and the activities of CSDs and limited competition between CSDs. That fragmentation hinders and creates additional risks and costs for cross-border settlement. Given the systemic relevance of CSDs, competition between them should be promoted so as to enable market participants a choice of provider and reduce reliance on any one infrastructure provider. In the absence of identical obligations for market operators and common prudential standards for CSDs, divergent measures likely to be taken at national level will have a direct negative impact on the safety, efficiency and competition in the settlement markets in the Union. It is necessary to remove those significant obstacles in the functioning of the internal market and avoid distortions of competition and to prevent such obstacles and distortions from arising in the future. The creation of an integrated market for securities settlement with no distinction between national and cross-border securities transactions is needed for the proper functioning of the internal market. Consequently, the appropriate legal basis for this Regulation should be Article 114 of the Treaty on the Functioning of the European Union (TFEU), as interpreted in accordance with the consistent case law of the Court of Justice of the European Union.
(5) It is necessary to lay down in a regulation a number of uniform obligations to be imposed on market participants regarding certain aspects of the settlement cycle and discipline and to provide a set of common requirements for CSDs operating securities settlement systems. The directly applicable rules of a regulation should ensure that all market operators and CSDs are subject to identical directly applicable obligations, standards and rules. A regulation should increase the safety and efficiency of settlement in the Union by preventing any diverging national rules as a result of the transposition of a directive. A regulation should reduce the regulatory complexity for market operators and CSDs resulting from different national rules and should allow CSDs to provide their services on a cross-border basis without having to comply with different sets of national requirements such as those concerning the authorisation, supervision, organisation or risks of CSDs. A regulation imposing identical requirements on CSDs should also contribute to eliminating competitive distortions.
(6) On 20 October 2010, the Financial Stability Board called for more robust core market infrastructures and asked for the revision and enhancement of the existing standards. In April 2012, the Committee on Payments and Settlement Systems (CPSS) of the Bank of International Settlements (BIS) and the International Organisation of Securities Commissions (IOSCO) adopted global standards for financial market infrastructures. Those standards have replaced the BIS recommendations of 2001, which were adapted through non-binding guidelines at European level in 2009 by the European System of Central Banks (ESCB) and the Committee of European Securities Regulators. Taking into account the global nature of financial markets and the systemic importance of CSDs, it is necessary to ensure international convergence of the prudential requirements to which they are subject. This Regulation should follow the existing principles for financial market infrastructures developed by CPSS-IOSCO. The Commission and the European Supervisory Authority (European Securities and Markets Authority) (‘ESMA’), established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council, in close cooperation with the members of the ESCB, should ensure consistency with the existing standards and their future developments when drawing up or proposing to revise the regulatory technical standards and the implementing technical standards as well as the guidelines and recommendations referred to in this Regulation.
(7) The Council, in its conclusions of 2 December 2008, emphasised the need to strengthen the safety and soundness of the securities settlement systems, and to address legal barriers to post-trading in the Union.
(8) One of the basic tasks of the ESCB is to promote the smooth operation of payment systems. In this respect, the members of the ESCB execute oversight by ensuring efficient and sound clearing and payment systems. The members of the ESCB often act as settlement agents for the cash leg of securities transactions. They are also significant clients of CSDs, which often manage the collateralisation of monetary policy operations. The members of the ESCB should be closely involved, by being consulted, in the authorisation and supervision of CSDs, the recognition of third-country CSDs and the approval of certain CSD links. To prevent the emergence of parallel sets of rules, they should also be closely involved by being consulted in the setting of regulatory and implementing technical standards as well as of guidelines and recommendations although primary responsibility for the setting of such technical standards, guidelines and recommendations should rest with the Commission and ESMA, as laid down in this Regulation. This Regulation should be without prejudice to the responsibilities of the European Central Bank (ECB) and the national central banks to ensure efficient and sound clearing and payment systems within the Union and other countries. This Regulation should not prevent the members of the ESCB from accessing the information relevant for the performance of their duties, including the oversight of CSDs and other financial market infrastructures.
(9) The members of the ESCB, any other bodies performing similar functions in certain Member States or other public bodies charged with or intervening in the management of the public debt in the Union may themselves provide a number of services, such as operating a securities settlement system, which would qualify them as a CSD. Such entities, when acting as CSDs without establishing a separate entity, should be exempt from the authorisation and supervision requirements, certain organisational requirements and capital and investment policy requirements, but should remain subject to the remaining prudential requirements for CSDs. Where such Member State entities act as CSDs, they should not provide their services in other Member States. Since the members of the ESCB act as settlement agents for the purpose of settlement, they should also be exempt from the requirements set out in Title IV of this Regulation.
(10) This Regulation should apply to the settlement of transactions in all financial instruments and activities of CSDs unless specified otherwise. This Regulation should also be without prejudice to other legislation of the Union concerning specific financial instruments such as Directive 2003/87/EC of the European Parliament and of the Council and measures adopted in accordance with that Directive.
(11) The recording of securities in book-entry form is an important step towards increasing the efficiency of settlement and ensuring the integrity of a securities issue, especially in a context of increasing complexity of holding and transfer methods. For reasons of safety, this Regulation provides for the recording in book-entry form of all transferable securities admitted to trading or traded on the trading venues regulated by Directive 2014/65/EU of the European Parliament and of the Council and by Regulation (EU) No 600/2014 of the European Parliament and of the Council. This Regulation should not impose one particular method for the initial book-entry recording, which should be able to take the form of immobilisation or of immediate dematerialisation. This Regulation should not impose the type of institution that is to record securities in book-entry form upon issuance but, rather, should permit different actors, including registrars, to perform that function. However, once transactions in such securities are executed on trading venues regulated by Directive 2014/65/EU and Regulation (EU) No 600/2014 or provided as collateral under the conditions laid down in Directive 2002/47/EC of the European Parliament and of the Council, such securities should be recorded in a CSD book-entry system in order to ensure, inter alia, that all such securities can be settled in a securities settlement system. Immobilisation and dematerialisation should not imply any loss of rights for the holders of securities and should be achieved in a way that ensures that holders of securities can verify their rights.
(12) In order to ensure the safety of settlement, any participant in a securities settlement system buying or selling certain financial instruments, namely transferable securities, money-market instruments, units in collective investment undertakings and emission allowances, should settle its obligation on the intended settlement date.
(13) Longer settlement periods for transactions in transferable securities cause uncertainty and increased risk for securities settlement systems participants. Different durations of settlement periods across Member States hamper reconciliation and are sources of errors for issuers, investors and intermediaries. It is therefore necessary to provide a common settlement period which would facilitate the identification of the intended settlement date and facilitate the implementation of settlement discipline measures. The intended settlement date of transactions in transferable securities which are executed on trading venues regulated by Directive 2014/65/EU and Regulation (EU) No 600/2014 should be no later than on the second business day after the trading takes place. For complex operations composed of several transactions such as securities repurchase or lending agreements, that requirement should apply to the first transaction involving a transfer of securities. Given their non-standardised character, that requirement should not apply to transactions that are negotiated privately by the relevant parties, but executed on the trading venues regulated by Directive 2014/65/EU and Regulation (EU) No 600/2014 or to transactions that are executed bilaterally, but reported to a trading venue regulated by Directive 2014/65/EU and Regulation (EU) No 600/2014. Moreover, that requirement should not apply to the first transaction where the transferable securities concerned are subject to initial recording in book-entry form.
(14) CSDs and other market infrastructures should take measures to prevent and address settlement fails. It is essential that such rules be uniformly and directly applied in the Union. In particular, CSDs and other market infrastructures should be required to put in place procedures enabling them to take appropriate measures to suspend any participant that systematically causes settlement fails and to disclose its identity to the public, provided that that participant has the opportunity to submit observations before such a decision is taken.
(15) One of the most efficient ways to address settlement fails is to require failing participants to be subject to a compulsory enforcement of the original agreement. This Regulation should provide for uniform rules concerning penalties and certain aspects of the buy-in transaction for all transferable securities, money-market instruments, units in collective investment undertakings and emission allowances, such as timing and pricing. Those rules should be adapted to the specificities of different securities markets, certain trading venues such as SME growth markets as defined in Directive 2014/65/EU and certain complex operations such as very short-term securities repurchase or lending agreements, in order to avoid adversely impacting on the liquidity and efficiency of securities markets. The rules on settlement discipline should be applied in a manner that provides an incentive for the settlement of transactions in all relevant financial instruments by their intended settlement date.
(16) The procedures and penalties relating to settlement fails should be commensurate with the scale and seriousness of such fails whilst being scaled in such a way that maintains and protects the liquidity of the relevant financial instruments. In particular, market-making activities play a crucial role in providing liquidity to markets within the Union, particularly to less liquid securities. Measures to prevent and address settlement fails should be balanced against the need to maintain and protect liquidity in those securities. Cash penalties imposed on failing participants should, where possible, be credited to the non-failing clients as compensation and should not, in any event, become a source of revenue for the CSD concerned. CSDs should consult the market infrastructures in respect of which they provide CSD services on the implementation of settlement discipline measures laid down in this Regulation.
(17) In most cases a buy-in process should be initiated where the financial instruments are not delivered within four business days of the intended settlement date. However, for illiquid financial instruments it is appropriate that the period before initiating the buy-in process should be increased to a maximum of seven business days. The basis for determining when financial instruments are deemed to be illiquid should be established through regulatory technical standards, taking account of the assessments already made in Regulation (EU) No 600/2014. Where such a determination is made the extension of the deadline for initiating the buy-in process should be up to seven business days.
(18) It is appropriate to allow SME growth markets the flexibility not to apply the buy-in process until up to 15 days after the trade has taken place so as to take into account the liquidity of such markets and to allow, in particular, for activity by market-makers in those less liquid markets. The settlement discipline measures specific to SME growth markets should apply only to transactions executed on such markets. As identified in the Commission Staff Working Paper of 7 December 2011 accompanying the Commission communication entitled, ‘An action plan to improve access to finance for SMEs’, access to capital markets should be developed as an alternative to bank lending to SMEs and it is therefore appropriate to tailor the rules to better serve the needs of those SME growth markets.
(19) CSDs should be allowed to monitor the execution of a buy-in with respect to multiple settlement instructions on the same financial instruments and with the same date of expiry of the extension period with the aim of minimising the number of buy-ins to the extent compatible with the requirements of this Regulation.
(20) As the main purpose of this Regulation is to introduce a number of legal obligations imposed directly on market operators consisting, inter alia, of the recording in book-entry form in CSDs of all transferable securities once such securities are traded on trading venues regulated by Directive 2014/65/EU and Regulation (EU) No 600/2014 or provided as collateral under the conditions of Directive 2002/47/EC and in the settling of their obligations no later than on the second business day after trading takes place and as CSDs are responsible for the operation of securities settlement systems and the application of measures to provide timely settlement in the Union, it is essential to ensure that all CSDs are safe and sound and comply at all times with stringent organisational, conduct of business and prudential requirements laid down in this Regulation, including by taking all reasonable steps to mitigate fraud and negligence. Uniform and directly applicable rules regarding the authorisation and ongoing supervision of CSDs are therefore an essential corollary of and are interrelated with the legal obligations imposed on market participants by this Regulation. It is, therefore, necessary to include rules regarding the authorisation and supervision of CSDs in the same act as the legal obligations imposed on market participants.
(21) Taking into account that CSDs should be subject to common requirements and in order to dismantle the existing barriers to cross-border settlement, any authorised CSDs should enjoy the freedom to provide services within the territory of the Union, including through setting up a branch. In order to ensure an appropriate level of safety in the provision of services by CSDs in another Member State, such CSDs should be subject to a specific procedure laid down in this Regulation where they intend to provide certain core services as provided for in this Regulation or set up a branch in a host Member State.
(22) Within a borderless Union settlement market, it is necessary to establish the competences of the different authorities involved in the application of this Regulation. Member States should specifically designate the competent authorities responsible for the application of this Regulation, which should be afforded the supervisory and investigatory powers necessary for the exercise of their functions. A CSD should be subject to authorisation and supervision by the competent authority of its home Member State, which is well placed and should be empowered to examine how CSDs operate on a daily basis, to carry out regular reviews and to take appropriate action when necessary. The competent authority concerned should however consult at the earliest stage and cooperate with other relevant authorities, which include the authorities responsible for the oversight of each securities settlement system operated by the CSD, the central banks that issue the most relevant settlement currencies, where applicable, the relevant central banks that act as settlement agent for each securities settlement system, and, also, where applicable, the competent authorities of other group entities. Such cooperation also implies exchanges of information between the authorities concerned and the immediate notification of those authorities in the case of an emergency situation affecting the liquidity and stability of the financial system in any of the Member States where the CSD or any of its participants is established.
(23) Where a CSD provides its services in another Member State, the competent authority of the host Member State should be able to request from the competent authority of the home Member State all information concerning the activities of the CSD that is of relevance to the requesting authority. In order to enable effective coordination of supervision, that information could concern in particular the services provided to CSD users established in the host Member State or the instruments or currencies processed and may include information on adverse developments, results of risk assessments and remedial measures. The competent authority of the home Member State should also have access to any information periodically reported by the CSD to the competent authority of the host Member State.
(24) Where a CSD provides its services in a Member State other than the Member State where it is established, including through setting up a branch, the competent authority of its home Member State is mainly responsible for the supervision of that CSD. When the activities of a CSD in a host Member State have become of substantial importance for the functioning of the securities markets and the protection of the investors in that host Member State, the competent authorities and relevant authorities of the home Member State and of the host Member State should establish cooperation arrangements for the supervision of the activities of that CSD in the host Member State. The competent authority of the home Member State should also be able to decide that those cooperation arrangements envisage multilateral cooperation, including cooperation of a collegial nature, between the competent authority of the home Member State and the competent authorities and relevant authorities of the host Member States concerned. Such cooperation arrangements, however, should not be considered to be colleges of supervisors as referred to in Regulation (EU) No 1095/2010. No Member State or group of Member States should be discriminated against directly or indirectly, as a location for CSD and settlement services. While performing its duties under this Regulation no authority should directly or indirectly discriminate against any undertaking from another Member State. Subject to this Regulation, a CSD from one Member State should not be restricted in or prevented from settling financial instruments in the currency of another Member State or in the currency of a third country.
(25) This Regulation should not prevent Member States from requiring in their national law a specific legal framework for day-to-day cooperation at national level between the competent authority of the CSD and relevant authorities. Such a national legal framework should be consistent with the guidelines concerning supervisory practices and cooperation between authorities that ESMA may issue under this Regulation.
(26) Any legal person falling within the scope of the definition of a CSD needs to be authorised by the competent national authorities before starting its activities. Taking into account different business models, a CSD should be defined by reference to certain core services, which consist of settlement, implying the operation of a securities settlement system, notary and central securities accounts maintenance services. A CSD should at least operate a securities settlement system and provide one other core service. This combination is essential for CSDs to play their role in securities settlement and in ensuring the integrity of a securities issue. Entities that do not operate securities settlement systems such as registrars, transfer agents, public authorities, bodies in charge of a registry system established under Directive 2003/87/EC, or CCPs that are regulated by Regulation (EU) No 648/2012 of the European Parliament and of the Council do not fall within the scope of the definition of a CSD.
(27) CSDs should have in place recovery plans to ensure continuity of their critical operations. Without prejudice to Directive 2014/59/EU of the European Parliament and of the Council, the competent authorities should ensure that an adequate resolution plan is established and maintained for each CSD in accordance with the relevant national law.
(28) In order to provide reliable data on the scale of securities settlement outside securities settlement systems and to ensure that the risks arising can be monitored and addressed, any institutions other than CSDs that settle securities transactions outside a securities settlement system should report their settlement activities to the competent authorities concerned. The recipient competent authorities should subsequently transmit that information to ESMA and should inform ESMA of any potential risk resulting from such settlement activities. Furthermore, ESMA should monitor such settlement activities and take into account the potential risks that they might create.
(29) In order to avoid any risk-taking by CSDs in activities other than those subject to authorisation under this Regulation, the activities of authorised CSDs should be limited to the provision of services covered by their authorisation or notified under this Regulation and they should not hold any participation, as defined in this Regulation by reference to the Directive 2013/34/EU of the European Parliament and of the Council, or any ownership, direct or indirect, of 20 % or more of the voting rights or capital in any institutions other than those providing similar services unless such a participation is approved by CSDs’ competent authorities on the basis that it does not significantly increase the CSDs’ risk profile.
(30) In order to ensure the safe functioning of the securities settlement systems, they should be operated only by the CSDs or by central banks acting as CSDs, subject to this Regulation.
(31) Without prejudice to specific requirements of Member State tax law, CSDs should be authorised to provide services ancillary to their core services that contribute to enhancing the safety, efficiency and transparency of the securities markets and that do not create undue risks to their core services. A non-exhaustive list of those services is set out in this Regulation in order to enable CSDs to respond to future market developments. Where the provision of such services relates to withholding and reporting obligations to the tax authorities, it will continue to be carried out in accordance with the law of the Member States concerned. In accordance with Article 114(2) TFEU, the power to adopt measures under Article 114(1) does not apply to fiscal provisions. In its judgement of 29 April 2004 in Case C-338/01 Commission v Council , the Court of Justice of the European Union held that the words ‘fiscal provisions’ are to be interpreted as ‘covering not only the provisions determining taxable persons, taxable transactions, the basis of imposition, and rates of and exemptions from direct and indirect taxes, but also those relating to arrangements for the collection of such taxes.’ This Regulation does not therefore cover arrangements for the collection of taxes for which a different legal basis would need to be used.
(32) A CSD intending to outsource a core service to a third party or to provide a new core service or an ancillary service not listed in this Regulation, to operate another securities settlement system, to use another settlement agent or to set up any CSD links that involve significant risks should apply for authorisation following the same procedure as that required for initial authorisation, save that the competent authority should inform the applicant CSD within three months whether authorisation has been granted or refused. However, CSD links not involving significant risks or interoperable links of CSDs that outsource their services relating to those interoperable links to public entities, such as the members of the ESCB, should not be subject to prior authorisation, but should be notified by the relevant CSDs to their competent authorities.
(33) Where a CSD intends to extend its services to non-banking type ancillary services explicitly listed in this Regulation which do not entail an increase in its risk profile, it should be able to do so following notification to the competent authority of its home Member State.
(34) CSDs established in third countries should be able to offer their services in the Union, including through the setting-up of a branch. In order to ensure an appropriate level of safety in the provision of CSD services by third-country CSDs, such CSDs should be subject to recognition by ESMA where they intend to provide certain services listed in this Regulation or to set up a branch in the Union. Third-country CSDs should be able to set up links with CSDs established in the Union in the absence of such recognition provided that the relevant competent authority does not object. In view of the global nature of financial markets, ESMA is best placed to recognise third-country CSDs. ESMA should be able to recognise third-country CSDs only if the Commission concludes that they are subject to a legal and supervisory framework effectively equivalent to the one provided in this Regulation, if they are effectively authorised, supervised and subject to oversight in their country of establishment and cooperation arrangements have been established between ESMA, the competent authorities and relevant authorities of CSDs. Recognition by ESMA should be subject to an effective equivalent recognition of the prudential framework applicable to CSDs established in the Union and authorised under this Regulation.
(35) Taking into account the complexity as well as the systemic nature of the CSDs and of the services they provide, transparent governance rules should ensure that senior management, members of the management body, shareholders and participants, who are in a position to exercise control, as defined by reference to the Directive 2013/34/EU, over the operation of the CSD are suitable to ensure the sound and prudent management of the CSD.
(36) Different governance structures are used across Member States. In most cases a unitary or a dual board structure is used. The definitions used in this Regulation are intended to embrace all existing structures without advocating any particular structure. They are purely functional for the purpose of setting out rules aiming to achieve a particular outcome irrespective of the national company law applicable to an institution in each Member State. The definitions should therefore not interfere with the general allocation of competences in accordance with national company law.
(37) Transparent governance rules should ensure that the interests of the shareholders, the management and staff of the CSD, on the one hand, and the interests of their users whom CSDs are ultimately serving, on the other, are taken into account. Those governance rules should apply without prejudice to the ownership model adopted by the CSD. User committees should be established for each securities settlement system operated by the CSD to give users the opportunity to advise the management body of the CSD on the key issues that impact them and should be given the tools to perform their role. The interests of different users of CSDs, including those of holders of different types of securities, should be represented in the user committee.
(38) CSDs should be able to outsource the operation of their services provided that the risks arising from such outsourcing arrangements are managed. Taking into account the significance of the tasks entrusted to CSDs, this Regulation should provide that CSDs do not transfer their responsibilities to third parties through the outsourcing by contract of their activities to third parties. Outsourcing of such activities should be subject to strict conditions that maintain the responsibility of CSDs for their activities and ensure that the supervision and oversight of the CSDs are not impaired. It should be possible to exempt outsourcing by a CSD of its activities to a public entity from those requirements under certain conditions.
(39) This Regulation should not prevent Member States allowing direct securities holding systems from providing in their national law that parties other than CSDs shall or may perform certain functions, which in some other types of securities holding systems are typically performed by CSDs and specifying how those functions should be exercised. In particular, in some Member States account operators or participants in the securities settlement systems operated by CSDs record entries into securities accounts maintained by CSDs without necessarily being account providers themselves. In view of the need for legal certainty on the entries made into accounts at the CSD level, the specific role played by such other parties should be recognised by this Regulation. It should therefore be possible, under specific circumstances and subject to strict rules laid down by law, to share the responsibility between a CSD and the relevant other party or to provide for exclusive responsibility by that other party for certain aspects related to maintaining of securities accounts at the top tier level provided that such other party is subject to appropriate regulation and supervision. There should be no restrictions on the extent to which responsibility is shared.
(40) Conduct of business rules should provide transparency in the relations between CSDs and their users. In particular, CSDs should have publicly disclosed, transparent, objective and non-discriminatory criteria for participation in the securities settlement system, which would allow restriction of access by participants only on the basis of the risks involved. A quick and appropriate remedy should be made available to competent authorities to address any unjustified refusal of CSDs to provide their services to participants. CSDs should publicly disclose prices and fees for their services. In order to provide open and non-discriminatory access to their services and in view of the significant market power that CSDs still enjoy in the territory of their respective Member States, CSDs should not be able to diverge from their published pricing policy for their core services and should maintain separate accounts for the costs and revenues associated with each of their core services and with their ancillary services. Those participation provisions complement and reinforce the right of market participants to use a settlement system in another Member State provided for in Directive 2014/65/EU.
(41) In order to facilitate efficient recording, settlement and payment, CSDs should accommodate in their communication procedures with participants and with the market infrastructures they interface with, the relevant international open communication procedures and standards for messaging and reference data.
(42) Taking into account the central role of securities settlement systems in the financial markets, CSDs should, when providing their services, make best efforts to ensure the timely settlement of securities transactions and the integrity of the securities issue. This Regulation should not interfere with the national law of the Member States regulating the holdings of securities and the arrangements maintaining the integrity of securities issues. However, in order to enhance the protection of the assets of their participants and those of their clients, this Regulation should require CSDs to segregate the securities accounts maintained for each participant and offer, upon request, further segregation of the accounts of the participants’ clients which in some cases might be available only at a higher cost to be borne by the participants’ clients requesting further segregation. CSDs and their participants should be required to provide for both omnibus client segregation and individual client segregation so clients can choose the level of segregation they believe is appropriate to their needs. The only exclusion from this should be where due to other public policy requirements, in particular in relation to efficient and transparent collection of taxation, a CSD and its participants are required to provide individual client segregation for citizens and residents of and legal persons established in a Member State where, at the date of entry into force of this Regulation, such individual client segregation is required under the national law of the Member State under which the securities are constituted and only for citizens, residents of and legal persons established in that Member State. CSDs should ensure that those requirements apply separately to each securities settlement system operated by them. Without prejudice to the provision of ancillary services, CSDs should not use on their own account any securities that belong to a participant unless explicitly authorised by that participant and should not otherwise use on their own account the securities that do not belong to them. In addition the CSD should require the participants to obtain any necessary prior consent from their clients.
(43) Directive 98/26/EC provides that transfer orders entered into securities settlement systems in accordance with the rules of those systems should be legally enforceable and binding on third parties. However, since Directive 98/26/EC does not specifically refer to CSDs that operate securities settlement systems, for clarity, this Regulation should require CSDs to define the moment or moments when transfer orders are entered into their systems and become irrevocable in accordance with the rules of that Directive. In addition, in order to increase legal certainty, CSDs should disclose to their participants the moment when the transfer of securities and cash in a securities settlement system is legally enforceable and binding on third parties in accordance, as the case may be, with national law. CSDs should also take all reasonable steps to ensure that transfers of securities and cash are legally enforceable and binding on third parties no later than at the end of the business day of the actual settlement date.
(44) In order to avoid settlement risks due to the insolvency of the settlement agent, a CSD should settle, whenever practical and available, the cash leg of the securities transaction through accounts opened with a central bank. If this option is not practical and available, a CSD should be able to settle through accounts opened with a credit institution established under the conditions provided in Directive 2013/36/EU of the European Parliament and of the Council and subject to a specific authorisation procedure and prudential requirements provided in Title IV of this Regulation.
(45) Banking services ancillary to settlement involving credit and liquidity risks should only be undertaken by CSDs or outsourced to entities authorised to provide the banking services ancillary to the CSD activities as laid down in this Regulation.
(46) In order to secure efficiencies resulting from the provision of both CSD and banking services within the same group of undertakings, the requirements of this Regulation should not prevent credit institutions from belonging to the same group of undertakings as the CSD. It is appropriate to provide for arrangements under which CSDs could be authorised to provide to their participants and to other entities ancillary services from within the same legal entity or from within a separate legal entity which may be part of the same group of undertakings ultimately controlled by the same parent undertaking or not. Where a credit institution other than a central bank acts as a settlement agent, the credit institution should be able to provide to the CSD participants the services set out in this Regulation, which are covered by the authorisation, but should not provide other banking services from the same legal entity in order to limit the settlement system’s exposure to the risks resulting from the failure of the credit institution.
(47) Since Directive 2013/36/EU does not specifically address intra-day credit and liquidity risks resulting from the provision of banking services ancillary to settlement, credit institutions and CSDs providing such services should also be subject to specific enhanced credit and liquidity risk mitigation requirements, including a risk-based capital surcharge which reflects the relevant risks. Such enhanced credit and liquidity risk mitigation requirements should follow the global standards for financial market infrastructures and the principles for ‘Monitoring tools for intra-day liquidity management’ published in April 2013 by the Basel Committee on Banking Supervision.
(48) Some CSDs also operating as credit institutions are subject to own funds and reporting requirements relevant for credit institutions and laid down in Regulation (EU) No 575/2013 of the European Parliament and of the Council and in Directive 2013/36/EU. Given the systemic importance of such CSDs it is appropriate that the strictest requirements provided in Union law apply in order to avoid the cumulative application of various Union rules, for example in relation to the reporting of own funds requirements. In any areas where potential duplication of requirements is identified, the European Supervisory Authority (European Banking Authority) (‘EBA’) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council and ESMA should provide an opinion on the appropriate application of the Union acts in accordance with Article 34 of Regulation (EU) No 1093/2010 and of Regulation (EU) No 1095/2010.
(49) In addition to the own funds requirements provided for in Regulation (EU) No 575/2013 and in Directive 2013/36/EU, credit institutions and CSDs should be subject to a capital surcharge that reflects the risks, such as credit and liquidity risks, resulting from the provision of intra-day credit, inter alia, to the participants in a securities settlement system or other users of CSD services.
(50) In order to ensure full compliance with specific measures aimed at mitigating credit and liquidity risks, the competent authorities should be able to require CSDs to designate more than one credit institution whenever they can demonstrate, based on the available evidence, that the exposures of one credit institution to the concentration of credit and liquidity risks is not fully mitigated. CSDs should also be able to designate more than one credit institution.
(51) Supervision of the compliance of designated credit institutions or CSDs authorised to provide banking services ancillary to settlement with the requirements of Regulation (EU) No 575/2013 and of Directive 2013/36/EU and the specific relevant prudential requirements of this Regulation should be entrusted to the competent authorities referred to in Regulation (EU) No 575/2013. In order to ensure consistent application of supervisory standards, it is desirable that the banking services of CSDs which are of a scale and nature to pose a significant risk to the financial stability of the Union are directly supervised by the ECB under the conditions provided for in Council Regulation (EU) No 1024/2013 concerning policies relating to the prudential supervision of credit institutions. This Regulation should be without prejudice to Regulation (EU) No 1024/2013.
(52) A credit institution or a CSD authorised to provide banking services ancillary to settlement should comply with any present or future Union legislation applicable to credit institutions. This Regulation should be without prejudice to Directive 2014/59/EU and any future Union legislative act regarding the framework for the recovery and resolution of credit institutions, investment firms and other financial institutions.
(53) In order to provide a sufficient degree of safety and continuity of services provided by CSDs, CSDs should be subject to specific uniform and directly applicable prudential and capital requirements which mitigate their legal, operational and investment risks.
(54) The safety of the link arrangements set up between CSDs should be subject to specific requirements to enable the access of their respective participants to other securities settlement systems. The provision of banking-type ancillary services from within a separate legal entity should not prevent CSDs from receiving such services, in particular when they are participants in a securities settlement system operated by another CSD. It is particularly important that any potential risks resulting from the link arrangements such as credit, liquidity, organisational or any other relevant risks for CSDs are fully mitigated. For interoperable links, it is important that linked securities settlement systems have identical moments of entry of transfer orders into the system and irrevocability of such transfer orders and use equivalent rules concerning the moment of finality of transfers of securities and cash. The same principles should apply to CSDs that use a common settlement information technology (IT) infrastructure.
(55) In order to allow competent authorities to supervise the activities of CSDs effectively, CSDs should be subject to strict record-keeping requirements. CSDs should maintain for at least 10 years all the records and data on all the services that they may provide, including transaction data on collateral management services that involve the processing of securities repurchase or lending agreements. CSDs might need to specify a common format in which their clients provide transaction data so as to allow this record-keeping requirement to be met, in conformity with any relevant regulatory and implementing technical standards adopted under this Regulation.
(56) In many Member States issuers are required by national law to issue certain types of securities, notably shares, within their national CSDs. In order to remove this barrier to the smooth functioning of the Union post-trading market and to allow issuers to opt for the most efficient way of managing their securities, issuers should have the right to choose any CSD established in the Union for recording their securities and receiving any relevant CSD services. Since harmonisation of national corporate law is beyond the scope of this Regulation, such national corporate or similar law under which the securities are constituted should continue to apply and arrangements be made to ensure that the requirements of such national corporate or similar law can be met where the right of choice of CSD is exercised. Such national corporate and similar law under which the securities are constituted govern the relationship between their issuer and holders or any third parties, and their respective rights and duties attached to the securities such as voting rights, dividends and corporate actions. A refusal to provide services to an issuer should be permissible only based on a comprehensive risk assessment or if that CSD does not provide any issuance services in relation to securities constituted under the corporate or similar law of the relevant Member State. A quick and appropriate remedy should be made available to competent authorities to address any unjustified refusal of CSDs to provide their services to issuers.
(57) In view of the increasing cross-border holdings and transfers of securities enhanced by this Regulation, it is of the utmost urgency and importance to establish clear rules on the law applicable to proprietary aspects in relation to the securities held in the accounts maintained by CSDs. Nevertheless, this is a horizontal issue which goes beyond the scope of this Regulation and could be dealt with in future Union legislative acts.
(58) The European Code of Conduct for Clearing and Settlement of 7 November 2006 created a voluntary framework to enable access between CSDs and other market infrastructures. However, the post-trade sector remains fragmented along national lines, making cross-border trade unnecessarily costly. It is necessary to lay down uniform conditions for links between CSDs and of access between CSDs and other market infrastructures. In order to enable CSDs to offer their participants access to other markets, they should have a right to become a participant in another CSD or request another CSD to develop special functions for having access to the latter. Such access should be granted on fair, reasonable and non-discriminatory terms and should be refused only where it threatens the smooth and orderly functioning of the financial markets or causes systemic risk. A quick and appropriate remedy should be made available to competent authorities to address any unjustified refusal of a CSD to grant access to another CSD. Where CSD links introduce significant risks for settlement, they should be subject to authorisation and increased supervision by the relevant competent authorities.
(59) CSDs should also have access to transaction feeds from a CCP or a trading venue and those market infrastructures should have access to the securities settlement systems operated by CSDs. Such access may be refused only where it threatens the smooth and orderly functioning of the financial markets or causes systemic risk and may not be denied on the grounds of loss of market share.
(60) A quick and appropriate remedy should be made available to competent authorities to address any unjustified refusal of CSDs or market infrastructures to provide access to their services. This Regulation completes the access arrangements between trading venues, CCPs, and CSDs as laid down in Regulation (EU) No 648/2012 and in Regulation (EU) No 600/2014 necessary to establish a competitive internal market in post-trade services. ESMA and the Commission should continue to monitor closely the evolution of post-trade infrastructure and the Commission should, where necessary, intervene in order to prevent competitive distortions from occurring in the internal market.
(61) A sound prudential and conduct of business framework for the financial sector should rest on strong supervisory and sanctioning regimes. To that end, supervisory authorities should be equipped with sufficient powers to act and should be able to rely on deterrent sanctioning regimes to be used against any unlawful conduct. A review of existing sanctioning powers and their practical application aiming to promote convergence of sanctions across the range of supervisory activities has been carried out in the Commission Communication of 8 December 2010 entitled ‘Reinforcing sanctioning regimes in the financial services sector’.
(62) Therefore, in order to ensure effective compliance by CSDs, credit institutions designated as settlement agents, the members of their management bodies and any other persons who effectively control their business or any other persons with the requirements of this Regulation, competent authorities should be able to apply administrative sanctions and other measures which are effective, proportionate and dissuasive.
(63) In order to provide deterrence and consistent application of the sanctions across Member States, this Regulation should provide a list of key administrative sanctions and other measures that need to be available to the competent authorities, for the power to impose those sanctions and other measures on all persons, whether legal or natural, responsible for an infringement, for a list of key criteria when determining the level and type of those sanctions and other measures and for levels of administrative pecuniary sanctions. Administrative fines should take into account factors such as any identified financial benefit resulting from the infringement, the gravity and duration of the infringement, any aggravating or mitigating factors, the need for administrative fines to have a deterrent effect and, where appropriate, include a discount for cooperation with the competent authority. The adoption and publication of sanctions should respect fundamental rights as laid down in the Charter of Fundamental Rights of the European Union (‘the Charter’), in particular the rights to respect for private and family life (Article 7), the right to the protection of personal data (Article 8) and the right to an effective remedy and to a fair trial (Article 47).
(64) In order to detect potential infringements, effective mechanisms to encourage reporting of potential or actual infringements of this Regulation to the competent authorities should be put in place. Those mechanisms should include adequate safeguards for the persons who report potential or actual infringements of this Regulation and the persons accused of such infringements. Appropriate procedures should be established to comply with the accused person’s right to protection of personal data, with the right of defence and to be heard before the adoption of a final decision affecting that person as well as with the right to seek effective remedy before a tribunal against any decision or measure affecting that person.
(65) This Regulation should be without prejudice to any provisions in the law of Member States relating to criminal sanctions.
(66) Directive 95/46/EC of the European Parliament and of the Council governs the processing of personal data carried out in the Member States pursuant to this Regulation. Any exchange or transmission of personal data by competent authorities of the Member States should be undertaken in accordance with the rules on the transfer of personal data as laid down in Directive 95/46/EC. Regulation (EC) No 45/2001 of the European Parliament and of the Council governs the processing of personal data carried out by ESMA pursuant to this Regulation. Any exchange or transmission of personal data carried out by ESMA should be in accordance with the rules on the transfer of personal data as laid down in Regulation (EC) No 45/2001.
(67) This Regulation complies with the fundamental rights and observes the principles recognised in particular by the Charter, notably the rights to respect for private and family life, the right to the protection of personal data, the right to an effective remedy and to a fair trial, the right not to be tried or punished twice for the same offence, and the freedom to conduct a business, and has to be applied in accordance with those rights and principles.
(68) ESMA should play a central role in the application of this Regulation by ensuring consistent application of Union rules by national competent authorities and by settling disagreements between them.
(69) ESMA should submit annual reports to the Commission assessing the trends and potential risks in the markets covered by this Regulation. Those reports should include at least an assessment of settlement efficiency, internalised settlement, cross-border provision of services, the reasons for the rejection of access rights and any other substantive barriers to competition in post-trade financial services including any barriers arising from the inappropriate use of licensing arrangements, appropriateness of penalties for settlement fails, in particular the need for additional flexibility in relation to penalties for settlement fails in relation to illiquid financial instruments, the application of Member States’ rules on civil liability to losses attributable to CSDs, the conditions relating to the provision of banking-type ancillary services, requirements regarding the protection of securities of participants and those of their clients, and the sanctions regime and may contain, where necessary, recommendations of preventative or remedial actions. ESMA should also conduct peer reviews covering the activities of the competent authorities under this Regulation within an appropriate time-frame and in accordance with Regulation (EU) No 1095/2010. Given the systemic importance of CSDs and the fact that they are being regulated for the first time at Union level, it is appropriate to require that such peer reviews should initially occur every three years at least in relation to the supervision of CSDs which make use of the freedom to provide services or participate in an interoperable link.
(70) As a body with highly specialised expertise regarding securities and securities markets, it is efficient and appropriate to entrust ESMA with the development of draft regulatory and implementing technical standards which do not involve policy choices, for submission to the Commission. Where specified, ESMA should also closely cooperate with the members of the ESCB and EBA.
(71) The Commission should be empowered to adopt regulatory technical standards in accordance with Article 290 TFEU and with Articles 10 to 14 of Regulation (EU) No 1093/2010 and of Regulation (EU) No 1095/2010 with regard to the detailed elements of the settlement discipline measures; the reporting of internalised settlement; information and other elements to be included by a CSD in its application for authorisation; conditions under which the competent authorities of CSDs may approve their participations in the capital of certain legal entities, the information that different authorities shall supply each other when supervising CSDs; the information that the applicant CSD shall provide ESMA in its application for recognition; the elements of the governance arrangements for CSDs; the details of the records to be kept by CSDs; the risks to be taken into account by CSDs when carrying out a comprehensive risk assessment, and competent authorities assessing the reasons for refusal of requests for access; the elements of the procedure for access of participants and issuers to CSDs, access between CSDs and between CSDs and other market infrastructures; the details of the measures to be taken by CSDs so that the integrity of the issue is maintained; the mitigation of the operational and investment risks and of the risks derived from the CSD links; the details of the capital requirements for CSDs; the details of the application for authorisation to provide banking-type ancillary services; the capital surcharge and the prudential requirements on credit and liquidity risks for CSDs and designated credit institutions that are authorised to provide banking-type ancillary services.
(72) The Commission should also be empowered to adopt implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010 with regard to standard forms and templates for reporting on internalised settlement; for the application for authorisation by CSDs; for the provision of information between different competent authorities for the purposes of supervision of CSDs; for the relevant cooperation arrangements between authorities of home and host Member States; for formats of records to be kept by CSDs; for the procedures in cases where a participant or an issuer is denied access to a CSD, CSDs are denied access between themselves or between CSDs and other market infrastructures; and for the consultation of different authorities prior to granting authorisation to a settlement agent.
(73) In order to attain the objectives set out in this Regulation, the power to adopt acts in accordance with Article 290 of the TFEU should be delegated to the Commission in respect of specific details concerning some definitions, parameters for the calculation of cash penalties for the participants that cause settlement fails, the criteria under which the operations of a CSD in a host Member State should be considered to be of substantial importance for that Member State. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.
(74) In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission to take decisions on the assessment of rules from third countries for the purposes of recognition of third-country CSDs. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council.
(75) When assessing the relevant rules of third countries, a proportionate, outcomes-based approach should be taken, focusing on compliance with applicable Union rules and, where relevant, international standards. Conditional or interim recognition may also be granted where there are no areas of substantive difference that would have foreseeable detrimental effects on Union markets.
(76) Since the objectives of this Regulation, namely to lay down uniform requirements for settlement as well as for CSDs, cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.
(77) It is necessary to amend Directive 98/26/EC to bring it in line with the Directive 2010/78/EU of the European Parliament and of the Council, whereby designated securities settlement systems are no longer notified to the Commission but to ESMA.
(78) Taking into account the fact that this Regulation harmonises at Union level the measures to prevent and address settlement fails and has a wider scope of application for such measures than Regulation (EU) No 236/2012 of the European Parliament and of the Council, it is necessary to repeal Article 15 of that Regulation.
(79) CSDs should be exempt from the application of Directive 2014/65/EU and Regulation (EU) No 600/2014 where they provide services that are explicitly listed in this Regulation. However, in order to ensure that any entities providing investment services and activities are subject to Directive 2014/65/EU and Regulation (EU) No 600/2014 and to avoid competitive distortions between different types of providers of such services, it is necessary to require CSDs that provide investment services and activities in the course of their ancillary services to be subject to the requirements of Directive 2014/65/EU and Regulation (EU) No 600/2014.
(80) The application of the authorisation and recognition requirements of this Regulation should be deferred in order to provide CSDs established in the Union or in third countries with sufficient time to apply for authorisation and recognition of their activities provided for in this Regulation. Until a decision is made under this Regulation on the authorisation or recognition of CSDs and of their activities, including CSD links, the respective national rules on authorisation and recognition of CSDs should continue to apply.
(81) It is also necessary to defer the application of the requirements concerning settlement discipline and requirements concerning reporting obligation of settlement internalisers until all the necessary delegated or implementing acts further specifying such requirements are in place, and of the requirements for recording certain transferable securities in book-entry form and settling obligations in securities settlement systems no later than on the second business day after the trading in order to provide market participants, holding securities in paper form or using longer settlement periods, with sufficient time to comply with those requirements,
HAVE ADOPTED THIS REGULATION:
TITLE I
SUBJECT MATTER, SCOPE AND DEFINITIONS
Article 1
1.This Regulation lays down requirements for the settlement of financial instruments in Gibraltar and rules on the organisation and conduct of central securities depositories (CSDs) to promote safe, efficient and smooth settlement.
2.This Regulation applies to the settlement of all financial instruments and activities of CSDs unless otherwise specified in this Regulation.
3.Omitted
4.Articles 10 to 20, 22 to 24 and 27, Article 28(6), Article 30(4) and Articles 46 and 47, the provisions of Title IV and the requirements to report to the competent authority or to comply with its orders under this Regulation, do not apply to the central bank or any other public bodies charged with or intervening in the management of public debt in Gibraltar in relation to any CSD which they directly manage under the responsibility of the same management body, which has access to the funds of those bodies and which is not a separate entity.
Article 2
Definitions
1.For the purposes of this Regulation, the following definitions apply:
- means:
- an arrangement between CSDs or third-country CSDs whereby a CSD or third-country CSD becomes a participant in the SSS of a CSD or third-country CSD in order to facilitate the transfer of securities from the participants of the latter CSD or third-country CSD to the participants of the former CSD or third-country CSD; or
- an arrangement whereby a CSD or third-country CSD accesses a CSD or third-country CSD indirectly via an intermediary; and
- includes standard links, customised links, indirect links, and interoperable links;
Where, according to the law of Gibraltar, a management body comprises different bodies with specific functions, the requirements of this Regulation shall apply only to members of the management body to whom the law of Gibraltar assigns the respective responsibility;
(47) references to the “central bank”, in relation to Gibraltar, are to be read as references to the Ministry of Finance;
(48)the “data protection legislation” has the meaning in the Data Protection Act 2004;
(49)“financial collateral arrangement” means a financial collateral arrangement as defined in section 2(1) of the Financial Collateral Arrangements Act 2004;
(50)references to “the law of Gibraltar on markets in financial instruments” are to the law of Gibraltar which was relied on immediately before IP completion day to implement Directive 2014/65/EU and its implementing measures, as amended from time to time;
(51)“Minister” means the Minister with responsibility for financial services;
(52)“Part 7 permission” means permission given under Part 7 of the Financial Services Act 2019;
(53) references to a “third country” (including in expressions including the words “third country”) are to be read as references to a country or territory other than Gibraltar.2.The Minister may by regulations further specify the non-banking-type ancillary services set out in points (1) to (4) of Section B of the Annex and the banking-type ancillary services set out in Section C of the Annex.
TITLE II
SECURITIES SETTLEMENT
CHAPTER I
Book-entry form
Article 3
1.Without prejudice to paragraph 2, any issuer established in Gibraltar that issues or has issued transferable securities which are admitted to trading or traded on trading venues, shall arrange for such securities to be represented in book-entry form as immobilisation or subsequent to a direct issuance in dematerialised form.
2.Where a transaction in transferable securities takes place on a Gibraltar trading venue the relevant securities shall be recorded in book-entry form in a CSD or third-country CSD on or before the intended settlement date, unless they have already been so recorded.
Where transferable securities are transferred following a financial collateral arrangement as defined in section 2(1) of the Financial Collateral Arrangements Act 2004, those securities shall be recorded in book-entry form in a CSD or third-country CSD on or before the intended settlement date, unless they have already been so recorded.
Article 4
1.Omitted
2.The competent authority shall ensure that the first sub-paragraph of Article 3(2) of this Regulation is applied where transferable securities are admitted to trading or traded on Gibraltar trading venues.
3.The competent authority shall ensure that the second sub-paragraph of Article 3(2) of this Regulation is applied where transferable securities admitted to trading or traded on Gibraltar trading venues are transferred following a financial collateral arrangement.
CHAPTER II
Settlement periods
Article 5
1.Any participant in a securities settlement system that settles in that system on its own account or on behalf of a third party transactions in transferable securities, money-market instruments, units in collective investment undertakings and emission allowances shall settle such transactions on the intended settlement date.
2.As regards transactions in transferable securities referred to in paragraph 1 which are executed on Gibraltar trading venues, the intended settlement date shall be no later than on the second business day after the trading takes place. That requirement shall not apply to transactions which are negotiated privately but executed on a Gibraltar trading venue, to transactions which are executed bilaterally but reported to a Gibraltar trading venue or to the first transaction where the transferable securities concerned are subject to initial recording in book-entry form pursuant to Article 3(2).
3.The competent authority shall ensure that paragraphs 1 and 2 are applied.
CHAPTER III
Settlement discipline
Article 6
Measures to prevent settlement fails
1. Gibraltar trading venues must establish procedures that enable the confirmation of relevant details of transactions in financial instruments referred to in Article 5(1) on the date when the transaction has been executed.
2. Despite paragraph 1, investment firms must, where applicable, take measures to limit the number of settlement fails.
Those measures must at least consist of arrangements between the investment firm and its professional clients as referred to in Schedule 1 to the Financial Services Investment Services) Regulations 2020 to ensure the prompt communication of an allocation of securities to the transaction, confirmation of that allocation and confirmation of the acceptance or rejection of terms in good time before the intended settlement date.
The competent authority may issue guidance on the standardised procedures and messaging protocols to be used for complying with the second sub-paragraph.
3. For each securities settlement system it operates, a CSD must establish procedures that facilitate the settlement of transactions in financial instruments referred to in Article 5(1) on the intended settlement date with a minimum exposure of its participants to counterparty and liquidity risks and a low rate of settlement fails. It must promote early settlement on the intended settlement date through appropriate mechanisms.
4. For each securities settlement system it operates, a CSD must put in place measures to encourage and incentivise the timely settlement of transactions by its participants. CSDs must require participants to settle their transactions on the intended settlement date.
5. The Minister may make technical standards to specify–
- the measures to be taken by investment firms in accordance with the first sub-paragraph of paragraph 2;
- the details of the procedures facilitating settlement referred to in paragraph 3; and
- the details of the measures to encourage and incentivise timely settlement referred to in paragraph 4.
Article 7
Measures to address settlement fails
1. For each securities settlement system it operates, a CSD must establish a system that monitors settlement fails of transactions in financial instruments referred to in Article 5(1). It must provide regular reports to the competent authority as to the number and details of settlement fails and any other relevant information, including the measures envisaged by CSDs and their participants to improve settlement efficiency. Those reports must be made public by CSDs in an aggregated and anonymised form on an annual basis.
2. For each securities settlement system it operates, a CSD must establish procedures that facilitate settlement of transactions in financial instruments referred to in Article 5(1) that are not settled on the intended settlement date. These procedures must provide for a penalty mechanism which will serve as an effective deterrent for participants that cause settlement fails.
Before establishing the procedures referred to in the first subparagraph, a CSD must consult the relevant trading venues and CCPs in respect of which it provides settlement services.
The penalty mechanism referred to in the first sub-paragraph must include cash penalties for participants that cause settlement fails (“failing participants”). Cash penalties must 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 a buy-in process referred to in paragraph 3, but no longer than the actual settlement day. The cash penalties must not be configured as a revenue source for the CSD.
3. Without limiting the penalty mechanism referred to in paragraph 2 and the right to bilaterally cancel the transaction, where a failing participant does not deliver the financial instruments referred to in Article 5(1) to the receiving participant within four business days after the intended settlement date (“extension period”) a buy-in process must be initiated by which those instruments are available for settlement and delivered to the receiving participant within an appropriate time-frame.
Where the transaction relates to a financial instrument traded on an SME growth market the extension period is 15 days unless the SME growth market decides to apply a shorter period.
4. The following exemptions from the requirement referred to in paragraph 3 apply:
- based on asset type and liquidity of the financial instruments concerned, the extension period may be increased from four business days up to a maximum of seven business days where a shorter extension period would affect the smooth and orderly functioning of the financial markets concerned;
- for operations composed of several transactions including securities repurchase or lending agreements, the buy-in process referred to in paragraph 3 does not apply where the timeframe of those operations is sufficiently short and renders the buy-in process ineffective.
5. Without limiting paragraph 7, the exemptions in paragraph 4 do not apply in relation to transactions for shares where those transactions are cleared by a CCP.
6. Without limiting the penalty mechanism referred to in paragraph 2, where the price of the shares agreed at the time of the trade is higher than the price paid for the execution of the buy-in, the corresponding difference must be paid to the receiving participant by the failing participant no later than on the second business day after the financial instruments have been delivered following the buy-in.
7. If the buy-in fails or is not possible, the receiving participant can choose to be paid cash compensation or to defer the execution of the buy-in to an appropriate later date (“deferral period”). If the relevant financial instruments are not delivered to the receiving participant at the end of the deferral period, cash compensation must be paid.
Cash compensation must be paid to the receiving participant no later than on the second business day after the end of either the buy-in process referred to in paragraph 3 or the deferral period, where the deferral period was chosen.
8. The failing participant must reimburse the entity that executes the buy-in for all amounts paid in accordance with paragraphs 3, 4 and 5, including any execution fees resulting from the buy-in. Such fees must be clearly disclosed to the participants.
9. CSDs, CCPs and trading venues must establish procedures that enable them:
- to suspend, in consultation with the competent authority, any participant that fails consistently and systematically to deliver the financial instruments referred to in Article 5(1) on the intended settlement date; and
- to disclose to the public the identity of any suspended participant, but only after:
- the participant has had the opportunity to submit its observations on the proposed disclosure; and
- the competent authority has been informed of the proposed disclosure.
In addition to consulting the competent authority before any suspension, CSDs, CCPs and trading venues must notify the competent authority without delay when a participant is suspended.
Public disclosure of suspensions must not contain personal data within the meaning of the data protection legislation.
10. Paragraphs 2 to 9 apply to all transactions of the financial instruments referred to in Article 5(1) which are admitted to trading or traded on a trading venue or cleared by a CCP as follows:
- for transactions cleared by a CCP, the CCP must be the entity that executes the buy-in according to paragraphs 3 to 8;
- for transactions not cleared by a CCP but executed on a trading venue, the trading venue must include in its internal rules an obligation for its members and its participants to apply the measures referred to in paragraphs 3 to 8;
- for all transactions other than those in points (a) and (b), CSDs must include in their internal rules an obligation for their participants to be subject to the measures referred to in paragraphs 3 to 8.
A CSD must provide the necessary settlement information to CCPs and trading venues to enable them to fulfil their obligations under this paragraph.
Without limiting points (a), (b) and (c) of the first sub-paragraph, CSDs may monitor the execution of buy-ins referred to in those points with respect to multiple settlement instructions, on the same financial instruments and with the same date of expiry of the execution period, with the aim of minimising the number of buy-ins to be executed and thus the impact on the prices of the relevant financial instruments.
11. Paragraphs 2 to 9 do not apply to failing participants which are CCPs.
12. Paragraphs 2 to 9 do not apply if insolvency proceedings are opened against the failing participant.
13. This Article does not apply where the principal venue for the trading of shares is located in a third country. The location of the principal venue for the trading of shares is to be determined in accordance with Article 16 of Regulation (EU) No 236/2012.
14. The Minister may by regulations specify parameters for the calculation of the cash penalties referred to in paragraph 2 at levels which are proportionate, based on asset type and liquidity of the financial instrument and type of transaction, and ensure a high degree of settlement discipline and the smooth and orderly functioning of the financial markets concerned.
15. The Minister may make technical standards to specify:
- the details of the system monitoring settlement fails and the reports on settlement fails referred to in paragraph 1;
- the processes for collection and redistribution of cash penalties and any other possible proceeds from such penalties in accordance with paragraph 2;
- the details of operation of the appropriate buy-in process referred to in paragraphs 3 to 8, including appropriate time-frames to deliver the financial instrument following the buy-in process referred to in paragraph 3. Such time-frames must be calibrated taking into account the asset type and liquidity of the financial instruments;
- the circumstances under which the extension period may be prolonged according to asset type and liquidity of the financial instruments, in accordance with the conditions referred to in paragraph 4(a) taking into account the criteria for assessing liquidity under Article 2.1(17) of Regulation (EU) No 600/2014;
- the type of operations and their specific time-frames referred to in paragraph 4(b) that renders buy-in ineffective;
- a methodology for the calculation of the cash compensation referred to in paragraph 7;
- the conditions under which a participant is to be treated as having consistently and systematically failed to deliver the financial instruments as referred to in paragraph 9; and
- the necessary settlement information referred to in the second sub-paragraph of paragraph 10.
Article 8
Enforcement
1. The competent authority is competent for ensuring that Articles 6 and 7 are applied by the institutions subject to its supervision and for monitoring the penalties imposed.
2. An infringement of the rules under this Title does not affect the validity of a private contract on financial instruments or the possibility for the parties to enforce the provisions of a private contract on financial instruments.
CHAPTER IV
Internalised settlement
Settlement internalisers
1.Settlement internalisers shall report to the competent authority on a quarterly basis the aggregated volume and value of all securities transactions that they settle outside securities settlement systems.
2. The Minister may make technical standards to:
- further specify the content of reports under paragraph 1; and
- specify the forms, templates and procedures to be used for such reporting.
TITLE III
CENTRAL SECURITIES DEPOSITORIES
CHAPTER I
Authorisation and supervision of CSDs
Authorities responsible for authorisation and supervision of CSDs
Article 10
Competent authority
A CSD must be authorised and supervised by the competent authority.
Omitted
Section 2
Conditions and procedures for authorisation of CSDs
Authorisation of a CSD
1.Any legal person that falls within the definition of CSD shall obtain an authorisation from the competent authority before commencing its activities.
2.The authorisation shall specify the core services listed in Section A of the Annex and non-banking-type ancillary services permitted under Section B of the Annex, which the CSD is authorised to provide.
3.A CSD shall comply at all times with the conditions necessary for authorisation.
4.A CSD as well as its independent auditors, shall, without undue delay, inform the competent authority of any substantive changes affecting the compliance with the conditions for authorisation.
Article 17
Procedure for granting authorisation
1.The applicant CSD shall submit an application for authorisation to the competent authority.
2.The application for authorisation shall be accompanied by all information necessary to enable the competent authority to satisfy itself that the applicant CSD has established, at the time of the authorisation, all the necessary arrangements to meet its obligations as laid down in this Regulation. The application for authorisation shall include a programme of operations setting out the types of business envisaged and the structural organisation of the CSD.
3.Within 30 working days from the receipt of the application, the competent authority shall assess whether the application is complete. If the application is not complete, the competent authority shall set a time limit by which the applicant CSD has to provide the additional information that the competent authority reasonably considers necessary to enable it to determine the application, in the form or verified in the manner that the competent authority may direct. The competent authority shall inform the applicant CSD when the application is considered to be complete.
4.Omitted
5.Omitted
7.Omitted
8.Within six months from the submission of a complete application, the competent authority shall inform the applicant CSD in writing with a fully reasoned decision whether the authorisation has been granted or refused.
9.The Minister may make technical standards to specify the information that the applicant CSD is to provide to the competent authority in the application for authorisation.
Article 18
Effects of the authorisation
1.The activities of the authorised CSD shall be limited to the provision of services covered by its authorisation or by notification in accordance with Article 19(8).
2.Securities settlements systems governed by the law of Gibraltar may be operated only by authorised CSDs, the central bank or any other public bodies charged with or intervening in the management of public debt in Gibraltar acting as a CSD and third-country CSDs that are recognised in accordance with Article 25.
3.An authorised CSD may have a participation only in a legal person whose activities are limited to the provision of services listed in Sections A and B of the Annex, unless such a participation is approved by its competent authority on the basis that it does not significantly increase the risk profile of the CSD.
4.The Minister may make technical standards to specify the criteria to be taken into account by the competent authority to approve the participation of CSDs in legal persons other than those providing the services listed in Sections A and B of the Annex. Such criteria may include whether the services provided by that legal person are complementary to the services provided by a CSD, and the extent of the CSD’s exposure to liabilities arising from such participation.
Article 19
Extension and outsourcing of activities and services
1.An authorised CSD shall submit an application for authorisation to the competent authority where it wishes to outsource a core service to a third party under Article 30 or extend its activities to one or more of the following:
- additional core services listed in Section A of the Annex, not covered by the initial authorisation;
- ancillary services permitted under, but not explicitly listed in Section B of the Annex, not covered by the initial authorisation;
- the operation of another securities settlement system;
- the settlement of all or part of the cash leg of its securities settlement system in the books of another settlement agent;
- setting up an interoperable link, including those with third-country CSDs.
2.The granting of authorisation under paragraph 1 shall follow the procedure laid down in Article 17.
The competent authority shall inform the applicant CSD whether the authorisation has been granted or refused within three months of the submission of a complete application.
3.CSDs that intend to establish an interoperable link shall submit an application for authorisation as required under point (e) of paragraph 1, to the competent authority.
4.The authority referred to in paragraph 3 shall refuse to authorise a link only where such a CSD link would threaten the smooth and orderly functioning of the financial markets or cause systemic risk.
5.Interoperable links of CSDs that outsource some of their services related to those interoperable links to a public entity in accordance with Article 30(5) and CSD links that are not referred to in point (e) of paragraph 1 shall not be subject to authorisation under that point but shall be notified to the competent authority prior to their implementation by providing all relevant information that allows the competent authority to assess compliance with the requirements provided in Article 48.
6.A CSD may maintain or establish a link with a third-country CSD in accordance with the conditions and procedures provided in this Article. Where links are established with a third-country CSD the information provided by the CSD shall allow the competent authority to evaluate whether such links fulfil the requirements provided in Article 48 or the requirements that are equivalent to those provided in Article 48.
7.The competent authority shall require a CSD to discontinue a CSD link that has been notified when such link does not fulfil the requirements provided for in Article 48 and thereby would threaten the smooth and orderly functioning of the financial markets or cause systemic risk.
8.The additional ancillary services explicitly listed in Section B of the Annex shall not be subject to authorisation, but shall be notified to the competent authority prior to their provision.
Article 20
Withdrawal of authorisation
1.Without prejudice to any remedial actions or measures under Title V, the competent authority shall withdraw the authorisation in any of the following circumstances, where the CSD:
- has not made use of the authorisation during 12 months, expressly renounces the authorisation or has provided no services or performed no activity during the preceding six months;
- has obtained the authorisation by making false statements or by any other unlawful means;
- no longer complies with the conditions under which authorisation was granted and has not taken the remedial actions requested by the competent authority within a set time-frame;
- has seriously or systematically infringed the requirements laid down in this Regulation or, where applicable, in the Financial Services (Investment Services) Regulations 2020 or Regulation (EU) No 600/2014.
2.Omitted
3.Omitted
4.The competent authority may limit the withdrawal of authorisation to a particular service, activity, or financial instrument.
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 or third-country CSD in the event of a withdrawal of authorisation referred to in paragraph 1.
CSD register
1.Omitted
2.Omitted
3.The name of each CSD or third-country CSD operating in compliance with this Regulation and to which authorisation or recognition has been granted pursuant to Article 16, 19 or 25 shall be entered in a register specifying the services and, where applicable, classes of financial instruments for which the CSD or third-country CSD has been authorised. The register shall include CSD links. The competent authority shall make the register available on its website and keep it up to date.
Section 3
Supervision of CSDs
Article 22
Review and evaluation
1.The competent authority shall, at least on an annual basis, 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 or which it creates for the smooth functioning of securities markets.
2.The competent authority shall require the CSD to submit to the competent authority an adequate recovery plan to ensure continuity of its critical operations.
3.The competent authority shall ensure that an adequate resolution plan is established and maintained for each CSD so as to ensure continuity of at least its core functions, having regard to the size, systemic importance, nature, scale and complexity of the activities of the CSD concerned and any relevant resolution plan established in accordance with the Financial Services (Recovery and Resolution) Regulations 2020.
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 on an annual basis.
5.The competent authority shall subject the CSD to on-site inspections.
6.Omitted
7.Omitted
9.The competent authority shall require a CSD that does not meet the requirements of this Regulation to take at an early stage the necessary actions or steps to address the situation.
10.The Minister may make technical standards to specify:
- the information that the CSD is to provide to the competent authority for the purposes of the review and evaluation referred to in paragraph 1; and
- the forms, templates and procedures to be used for the provision of that information.
Section 4
Provision of services in another member state
Articles 23 & 24
Omitted
Section 5
Relations with third countries
Article 25
Third countries
1.Third-country CSDs may provide services referred to in the Annex in Gibraltar, including through setting up a branch.
2.Notwithstanding paragraph 1, a third-country CSD that intends to provide the core services referred to in points (1) and (2) of Section A of the Annex in relation to financial instruments constituted under the law of Gibraltar or to set up a branch in Gibraltar is subject to the procedure referred to in paragraphs 4 to 11 of this Article.
3.A CSD may maintain or establish a link with a third-country CSD in accordance with Article 48.
4.After consulting the authorities referred to in paragraph 5, the competent authority may recognise a third-country CSD that has applied for recognition to provide the services referred to in paragraph 2, where the following conditions are met:
- the Minister has made regulations in accordance with paragraph 9;
- the third-country CSD is subject to effective authorisation, supervision and oversight or, if the securities settlement system is operated by a central bank, oversight, ensuring full compliance with the prudential requirements applicable in that third country;
- cooperation arrangements between the competent authority and the responsible authorities in that third country (‘responsible third-country authorities’) have been established pursuant to paragraph 10;
- where relevant, the third-country CSD takes the necessary measures to allow its users to comply with the law of Gibraltar and the adequacy of those measures has been confirmed by the competent authority.
5.When assessing whether the conditions referred to in paragraph 4 are met, the competent authority shall consult the responsible third-country authorities entrusted with the authorisation, supervision and oversight of the third-country CSD.
6.The third-country CSD referred to in paragraph 2 shall submit its application for recognition to the competent authority.
The applicant third-country CSD shall provide the competent authority with all information deemed to be necessary for its recognition. Within 30 working days from the receipt of the application, the competent authority shall assess whether the application is complete. If the application is not complete, the competent authority shall set a time limit by which the applicant third-country CSD has to provide additional information.
The recognition decision shall be based on the criteria laid down in paragraph 4.
Within six months from the submission of a complete application, the competent authority shall inform the applicant CSD in writing with a fully reasoned decision whether the recognition has been granted or refused.
Recognition under this Article must be granted only for services listed in the Annex and the decision granting recognition must specify the services which the third-country CSD is recognised to provide or perform.
The applicant third-country CSD must, without undue delay, notify the competent authority of any material changes affecting the condition for recognition in point (b) of paragraph 4.
6A.A third-country CSD recognised under paragraph 4 must, without undue delay, notify the competent authority of any material changes affecting the condition for recognition in point (b) of paragraph 4.
7.Where a third-country CSD recognised under paragraph 4 provides CSD services in Gibraltar, the competent authority may request the responsible third country authorities to:
- report periodically on the third-country CSD’s activities in Gibraltar, including for the purpose of collecting statistics;
- communicate, within an appropriate time-frame, the identity of the issuers and participants in the securities settlement systems operated by the third-country CSD which provides services in Gibraltar and any other relevant information concerning the activities of that third-country CSD in Gibraltar.
8.The competent authority shall, after consulting the authorities referred to in paragraph 5, review the recognition of the third-country CSD in the event of extensions by the third-country CSD in Gibraltar of its services under the procedure laid down in paragraphs 4, 5 and 6.
The competent authority shall withdraw the recognition of the third-country CSD where the conditions laid down in paragraph 4 are no longer met, or in the circumstances referred to in Article 20.
The competent authority may:
- limit the withdrawal to a particular service; and
- direct that the withdrawal is to have effect subject to such transitional arrangements as the competent authority considers necessary or expedient.
9.The Minister may by regulations specify a third country which, in the Minister’s opinion:
- has legal and supervisory arrangements which ensure that third-country CSDs authorised there comply with legally binding requirements which are in effect equivalent to those laid down in this Regulation;
- subjects those third-country CSDs to effective supervision, oversight and enforcement in that third country on an ongoing basis; and
- has a legal framework which provides an effective equivalent system for the recognition of CSDs authorised under the law of Gibraltar and third-country CSDs authorised under other third country legal regimes.
In making the determination referred to in the first subparagraph, the Minister may also consider whether the legal and supervisory arrangements of a third country reflect the internationally agreed CPSS-IOSCO standards, in so far as the latter do not conflict with the requirements laid down in this Regulation.
10.The competent authority shall establish cooperation arrangements with the responsible third-country authorities whose legal and supervisory frameworks have been recognised as equivalent to this Regulation in accordance with paragraph 9. Such arrangements shall specify at least:
- the mechanism for the exchange of information between the competent authority and the third-country responsible authorities, including access to all information regarding the third-country CSDs authorised in third countries that is requested by the competent authority and in particular access to information in the cases referred to in paragraph 7;
- the mechanism for prompt notification of the competent authority where a third-country responsible authority deems a third-country CSD that it is supervising to infringe the conditions of its authorisation or of other applicable law;
- the procedures concerning the coordination of supervisory activities including, where appropriate, on-site inspections.
Where a cooperation agreement provides for transfers of personal data by a public authority in Gibraltar, such transfers shall comply with the provisions of the data protection legislation.
11.Where a third-country CSD has been recognised, in accordance with paragraphs 4 to 8, it may provide services referred to in the Annex within Gibraltar, including by setting up a branch.
12.The Minister may make technical standards to specify the information that the applicant third-country CSD is to provide to the competent authority in its application for recognition under paragraph 6.
CHAPTER II
Requirements for CSDs
Section 1
Organisational requirements
Article 26
General provisions
1.A CSD shall have robust governance arrangements, which include a clear organisational structure with well-defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed, and adequate remuneration policies and internal control mechanisms, including sound administrative and accounting procedures.
2.A CSD shall adopt policies and procedures which are sufficiently effective so as to ensure compliance with this Regulation, including compliance of its managers and employees with all the provisions of this Regulation.
3.A CSD shall maintain and operate effective written organisational and administrative arrangements to identify and manage any potential conflicts of interest between itself, including its managers, employees, members of the management body or any person directly or indirectly linked to them, and its participants or their clients. It shall maintain and implement adequate resolution procedures where possible conflicts of interest occur.
4.A CSD shall make its governance arrangements and the rules governing its activity available to the public.
5.A CSD shall have appropriate procedures for its employees to report internally potential infringements of this Regulation through a specific channel.
6.A CSD shall be subject to regular and independent audits. The results of these audits shall be communicated to the management body and made available to the competent authority and, where appropriate taking into account potential conflicts of interest between the members of the user committee and the CSD, to the user committee.
7.Where a CSD is part of a group of undertakings including, third-country CSDs or credit institutions referred to in Title IV, it shall adopt detailed policies and procedures specifying how the requirements laid down in this Article apply to the group and to the different entities in the group.
8.The Minister may make technical standards specifying at the CSD level and at the group level as referred to in paragraph 7:
- the monitoring tools for the risks of the CSDs referred to in paragraph 1;
- the responsibilities of the key personnel in respect of the risks of the CSDs referred to in paragraph 1;
- the potential conflicts of interest referred to in paragraph 3;
- the audit methods referred to in paragraph 6; and
- the circumstances in which it would be appropriate, taking into account potential conflicts of interest between the members of the user committee and the CSD, to share audit findings with the user committee in accordance with paragraph 6.
Article 27
Senior management, management body and shareholders
1.The senior management of a CSD shall be of sufficiently good repute and experience so as to ensure the sound and prudent management of the CSD.
2.A CSD shall have a management body of which at least one third, but no less than two, of its members are independent.
3.The remuneration of the independent and other non-executive members of the management body shall not be linked to the business performance of the CSD.
4.The management body shall be composed of suitable members of sufficiently good repute with an appropriate mix of skills, experience and knowledge of the entity and of the market. The non-executive members of the management body shall decide on a target for the representation of the under-represented gender in the management body and prepare a policy on how to increase the number of the under-represented gender in order to meet that target. The target, policy and its implementation shall be made public.
5.A CSD shall clearly determine the role and responsibilities of the management body in accordance with the applicable law of Gibraltar. A CSD shall make the minutes of the meetings of the management body available to the competent authority and the auditor upon request.
6.The CSD’s shareholders and persons who are in a position to exercise, directly or indirectly, control over the management of the CSD shall be suitable to ensure the sound and prudent management of the CSD.
7.A CSD shall:
- provide the competent authority with, and make public, information regarding the ownership of the CSD, and in particular, the identity and scale of interests of any parties in a position to exercise control over the operation of the CSD;
- inform and seek approval from the competent authority of any decision to transfer ownership rights which give rise to a change in the identity of the persons exercising control over the operation of the CSD. After receiving approval from the competent authority, the CSD shall make public the transfer of ownership rights.
Any natural or legal person shall inform without undue delay the CSD and its competent authority of a decision to acquire or dispose of its ownership rights that give rise to a change in the identity of the persons exercising control over the operation of the CSD.
8.Within 60 working days from the receipt of the information referred to in paragraph 7, the competent authority shall take a decision on the proposed changes in the control of the CSD. The competent authority shall refuse to approve proposed changes in the control of the CSD where there are objective and demonstrable grounds for believing that they would pose a threat to the sound and prudent management of the CSD or to the ability of the CSD to comply with this Regulation.
Article 28
User committee
1.A CSD shall establish user committees for each securities settlement system it operates, which shall be composed of representatives of issuers and of participants in such securities settlement systems. The advice of the user committee shall be independent from any direct influence by the management of the CSD.
2.A CSD shall define in a non-discriminatory way the mandate for each established user committee, the governance arrangements necessary to ensure its independence and its operational procedures, as well as the admission criteria and the election mechanism for user committee members. The governance arrangements shall be publicly available and shall ensure that the user committee reports directly to the management body and holds regular meetings.
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.
4.User committees may submit a non-binding opinion to the management body containing detailed reasons regarding the pricing structures of the CSD.
5.Without prejudice to the right of the competent authority to be duly informed, the members of the user committees shall be bound by confidentiality. Where the chairman of a user committee determines that a member has an actual or a potential conflict of interest in relation to a particular matter, that member shall not be allowed to vote on that matter.
6.A CSD shall promptly inform the competent authority and the user committee of any decision in which the management body decides not to follow the advice of the user committee. The user committee may inform the competent authority of any areas in which it considers that the advice of the user committee has not been followed.
Article 29
Record keeping
1.A CSD shall maintain, for a period of at least 10 years, all its records on the services and activities, including on the ancillary services referred to in Sections B and C of the Annex, so as to enable the competent authority to monitor the compliance with the requirements under this Regulation.
2.A CSD shall make the records referred to in paragraph 1 available upon request to the competent authority and any other public authority which under the law of Gibraltar has a power to require access to such records for the purpose of fulfilling their mandate.
3.The Minister may make technical standards specifying:
- the details of the records referred to in paragraph 1 to be retained for the purpose of monitoring the compliance of CSDs with the provisions of this Regulation; and
- the format of those records.
Article 30
Outsourcing
1.Where a CSD outsources services or activities to a third party, it shall remain fully responsible for discharging all of its obligations under this Regulation and shall comply at all times with the following conditions:
- outsourcing does not result in the delegation of its responsibility;
- the relationship and obligations of the CSD towards its participants or issuers are not altered;
- the conditions for the authorisation of the CSD do not effectively change;
- outsourcing does not prevent the exercise of supervisory and oversight functions, including on-site access to acquire any relevant information needed to fulfil those functions;
- outsourcing does not result in depriving the CSD of the systems and controls necessary to manage the risks it faces;
- the CSD retains the expertise and resources necessary for evaluating the quality of the services provided, the organisational and capital adequacy of the service provider, for supervising the outsourced services effectively and for managing the risks associated with the outsourcing on an ongoing basis;
- the CSD has direct access to the relevant information of the outsourced services;
- the service provider cooperates with the competent authority in connection with the outsourced activities;
- the CSD ensures that the service provider meets the standards set down by the relevant data protection law which would apply if the service providers were established in Gibraltar. The CSD is responsible for ensuring that those standards are set out in a contract between the parties and that those standards are maintained.
2.The CSD shall define in a written agreement its rights and obligations and those of the service provider. The outsourcing agreement shall allow the CSD to terminate the agreement.
3.A CSD and a service provider shall make available upon request to the competent authority all information necessary to enable them to assess the compliance of the outsourced activities with the requirements of this Regulation.
4.The outsourcing of a core service shall be subject to authorisation under Article 19 by the competent authority.
5.Paragraphs 1 to 4 shall not apply where a CSD outsources some of its services or activities to a public entity and where that outsourcing is governed by a dedicated legal, regulatory and operational framework which has been jointly agreed and formalised by the public entity and the relevant CSD and agreed by the competent authority on the basis of the requirements established in this Regulation.
Omitted
Section 2
Article 32
General provisions
1.A CSD shall have clearly defined goals and objectives that are achievable, such as in the areas of minimum service levels, risk-management expectations and business priorities.
2.A CSD shall have transparent rules for the handling of complaints.
Article 33
Requirements for participation
1.For each securities settlement system it operates a CSD shall have publicly disclosed criteria for participation which allow fair and open access for all legal persons that intend to become participants. Such criteria shall be transparent, objective, and non-discriminatory so as to ensure fair and open access to the CSD with due regard to risks to financial stability and the orderliness of markets. Criteria that restrict access shall be permitted only to the extent that their objective is to justifiably control a specified risk for the CSD.
2.A CSD shall treat requests for access promptly by providing a response to such requests within one month at the latest and shall make the procedures for treating access requests publicly available.
3.A CSD shall deny access to a participant meeting the criteria referred to in paragraph 1 only where duly justified in writing and based on a comprehensive risk assessment.
In the event of a refusal, the requesting participant has the right to complain to the competent authority of the CSD that has refused access.
The competent authority shall duly examine the complaint by assessing the reasons for refusal and shall provide the requesting participant with a reasoned reply.
Where the refusal by the CSD to grant access to the requesting participant is deemed to be unjustified, the competent authority of the CSD that has refused access shall issue an order requiring that CSD to grant access to the requesting participant.
4.A CSD shall have objective and transparent procedures for the suspension and orderly exit of participants that no longer meet the criteria for participation referred to in paragraph 1.
5.The Minister may make technical standards specifying:
- the risks to be taken into account:
- by CSDs when carrying out a comprehensive risk assessment in accordance with paragraph 3; and
- by competent authorities when assessing the reasons for any refusal under that paragraph;
- the elements of the procedure referred to in that paragraph; and
- the forms and templates to be used for the procedures referred to in that paragraph.
Article 34
Transparency
1.For each securities settlement system it operates, as well as for each of the other core services it performs, a CSD shall publicly disclose the prices and fees associated with the core services listed in Section A of the Annex that they provide. It shall disclose the prices and fees of each service and function provided separately, including discounts and rebates and the conditions to benefit from those reductions. It shall allow its clients separate access to the specific services provided.
2.A CSD shall publish its price list so as to facilitate the comparison of offers and to allow clients to anticipate the price they shall have to pay for the use of services.
3.A CSD shall be bound by its published pricing policy for its core services.
4.A CSD shall provide its clients with information that allows reconciling invoices with the published price lists.
5.A CSD shall disclose to all clients information that allows them to assess the risks associated with the services provided.
6.A CSD shall account separately for costs and revenues of the core services provided and shall disclose that information to the competent authority.
7.A CSD shall account for the cost and revenue of the ancillary services provided as a whole and shall disclose that information to the competent authority.
8.In order to ensure effective application of Gibraltar competition rules and enable the identification, inter alia, of cross-subsidisation of ancillary services by core services, a CSD shall maintain analytical accounting for its activities. Such analytical accounts shall at least separate the costs and revenues associated with each of its core services from those associated with ancillary services.
Article 35
Communication procedures with participants and other market infrastructures
CSDs shall use in their communication procedures with participants of the securities settlement systems they operate, and with the market infrastructures they interface with international open communication procedures and standards for messaging and reference data in order to facilitate efficient recording, payment and settlement.
Section 3
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 reduce and manage the risks associated with the safekeeping and settlement of transactions in securities.
Article 37
Integrity of the issue
1.A CSD shall take appropriate reconciliation measures to verify that the number of securities making up a securities issue or part of a securities issue submitted to the CSD is equal to the sum of securities recorded on the securities accounts of the participants of the securities settlement system operated by the CSD and, where relevant, on owner accounts maintained by the CSD. Such reconciliation measures shall be conducted at least daily.
2.Where appropriate and if other entities are involved in the reconciliation process for a certain securities issue, such as the issuer, registrars, issuance agents, transfer agents, common depositories, other CSDs, third-country CSDs or other entities, the CSD and any such entities shall organise adequate cooperation and information exchange measures with each other so that the integrity of the issue is maintained.
3.Securities overdrafts, debit balances or securities creation shall not be allowed in a securities settlement system operated by a CSD.
4.The Minister may make technical standards specifying the reconciliation measures a CSD is to take under paragraphs 1, 2 and 3.
Article 38
Protection of securities of participants and those of their clients
1.For each securities settlement system it operates, a CSD shall keep records and accounts that shall enable it, at any time and without delay, to segregate in the accounts with the CSD, the securities of a participant from those of any other participant and, if applicable, from the CSD’s own assets.
2.A CSD shall keep records and accounts that enable any participant to segregate the securities of the participant from those of the participant’s clients.
3.A CSD shall keep records and accounts that enable any participant to hold in one securities account the securities that belong to different clients of that participant (‘omnibus client segregation’)
4.A CSD shall keep records and accounts that enable a participant to segregate the securities of any of the participant’s clients, if and as required by the participant (‘individual client segregation’).
5.A participant shall offer its clients at least the choice between omnibus client segregation and individual client segregation and inform them of the costs and risks associated with each option.
6.CSDs and their participants shall publicly disclose the levels of protection and the costs associated with the different levels of segregation that they provide and shall offer those services on reasonable commercial terms. Details of the different levels of segregation shall include a description of the main legal implications of the respective levels of segregation offered, including information on the insolvency law applicable in the relevant jurisdictions.
7.A CSD shall not use for any purpose securities that do not belong to it. A CSD may however use securities of a participant where it has obtained that participant’s prior express consent. The CSD shall require its participants to obtain any necessary prior consent from their clients.
Article 39
Settlement finality
1.A CSD shall ensure that the securities settlement system it operates offers adequate protection to participants. The competent authority shall designate and notify the securities settlement systems operated by CSDs according to the procedures in the Financial Services (Financial Markets and Insolvency: Settlement Finality) Regulations 2020.
2.A CSD shall ensure that each securities settlement system that it operates defines the moments of entry and of irrevocability of transfer orders in that securities settlement system in accordance with regulation 7 of the Financial Services (Financial Markets and Insolvency: Settlement Finality) Regulations 2020.
3.A CSD shall disclose the rules governing the finality of transfers of securities and cash in a securities settlement system.
4.Paragraphs 2 and 3 shall apply without prejudice to the provisions applicable to CSD links, and without prejudice to paragraph 8 of Article 48.
5.A CSD shall take all reasonable steps to ensure that, in accordance with the rules referred to in paragraph 3, finality of transfers of securities and cash referred to in paragraph 3 is achieved either in real time or intra-day and in any case no later than by the end of the business day of the actual settlement date.
6.Where the CSD offers the services referred to in Article 40(2), it shall ensure that the cash proceeds of securities settlements shall be available for recipients to use no later than by the end of the business day of the intended settlement date.
7.All securities transactions against cash between direct participants in a securities settlement system operated by a CSD and settled in that securities settlement system shall be settled on a DVP basis.
Article 40
1.For transactions denominated in the currency of the country where the settlement takes place, a CSD shall settle the cash payments of its securities settlement system through accounts opened with a central bank of issue of the relevant currency where practical and available.
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 or through its own accounts. If a CSD offers to settle in accounts opened with a credit institution or through its own accounts, it shall do so in accordance with the provisions of Title IV.
3.A CSD shall ensure that any information provided to market participants about the risks and costs associated with settlement in the accounts of credit institutions or through its own accounts is clear, fair and not misleading. A CSD shall make available sufficient information to clients or potential clients to allow them to identify and evaluate the risks and costs associated with settlement in the accounts of credit institutions or through its own accounts and shall provide such information on request.
Participant default rules and procedures
1.For each securities settlement system it operates, a CSD shall have effective and clearly defined rules and procedures to manage the default of one or more of its participants ensuring that the CSD can take timely action to contain losses and liquidity pressures and continue to meet its obligations.
2.A CSD shall make its default rules and relevant procedures available to the public.
3.A CSD shall undertake with its participants and other relevant stakeholders periodic testing and review of its default procedures to ensure that they are practical and effective.
Prudential requirements
Article 42
General requirements
A CSD shall adopt a sound risk-management framework for comprehensively managing legal, business, operational and other direct or indirect risks, including measures to mitigate fraud and negligence.
Article 43
1.For the purpose of its authorisation and supervision, as well as for the information of its clients, a CSD shall have rules, procedures, and contracts that are clear and understandable for all the securities settlement systems that it operates and all other services that it provides.
2.A CSD shall design its rules, procedures and contracts so that they are enforceable in all relevant jurisdictions, including in the case of the default of a participant.
3.A CSD conducting business in different jurisdictions shall take all reasonable steps to identify and mitigate the risks arising from potential conflicts of law across jurisdictions.
Article 44
General business risk
A CSD shall have robust management and control systems as well as IT tools in order to identify, monitor and manage general business risks, including losses from poor execution of business strategy, cash flows and operating expenses.
Article 45
Operational risks
1.A CSD shall identify sources of operational risk, both internal and external, and minimise their impact through the deployment of appropriate IT tools, controls and procedures, including for all the securities settlement systems it operates.
2.A CSD shall maintain appropriate IT tools that ensure a high degree of security and operational reliability, and have adequate capacity. IT tools shall adequately deal with the complexity, variety and type of services and activities performed so as to ensure high standards of security, and the integrity and confidentiality of the information maintained.
3.For services that it provides as well as for each securities settlement system that it operates, a CSD shall establish, implement and maintain an adequate business continuity policy and disaster recovery plan to ensure the preservation of its services, the timely recovery of operations and the fulfilment of the CSD’s obligations in the case of events that pose a significant risk of disrupting operations.
4.The plan referred to in paragraph 3 shall provide for the recovery of all transactions and participants’ positions at the time of disruption to allow the participants of a CSD to continue to operate with certainty and to complete settlement on the scheduled date, including by ensuring that critical IT systems can promptly resume operations from the time of disruption. It shall include the setting-up of a second processing site with sufficient resources, capabilities and functionalities and appropriate staffing arrangements.
5.The CSD shall plan and carry out a programme of tests of the arrangements referred to in paragraphs 1 to 4.
6.A CSD shall identify, monitor and manage the risks that key participants in the securities settlement systems it operates, as well as service and utility providers, and other CSDs or other market infrastructures might pose to its operations. It shall, upon request, provide the competent authority with information on any such risk identified.
It shall also inform the competent authority without delay of any operational incidents resulting from such risks.
7.The Minister may make technical standards specifying the operational risks referred to in paragraphs 1 and 6 and the methods to test, to address or to minimise those risks, including the business continuity policies and disaster recovery plans referred to in paragraphs 3 and 4 and the methods of assessment thereof.
Article 46
Investment policy
1.A CSD must hold its financial assets at any one or more of the following kinds of institution:
- central banks;
- credit institutions with Part 7 permission to accept deposits;
- CSDs and third-country CSDs recognised by the competent authority;
- third-country financial institutions that are subject to and comply with asset protection and prudential rules considered by the competent authority to be at least as stringent as those laid down in the Financial Services (Credit Institutions and Capital Requirements) Regulations 2020 and Regulation (EU) No 575/2013, and which the CSD assesses as having:
- robust accounting practices;
- safekeeping procedures;
- internal controls which ensure the full protection of those financial assets; and
- low credit risk based upon an internal assessment by the CSD; or
- third-country CSDs which comply with asset protection rules considered by the competent authority to be at least as stringent as those laid down in this Regulation, and which the CSD assesses as having:
- robust accounting practices;
- safekeeping procedures; and
- internal controls which ensure the full protection of those financial assets.
2.A CSD shall have prompt access to its assets, where required.
3.A CSD shall invest its financial resources only in cash or in highly liquid financial instruments with minimal market and credit risk. Those investments shall be capable of being liquidated rapidly with minimal adverse price effect.
4.The amount of capital, including retained earnings and reserves of a CSD which are not invested in accordance with paragraph 3 shall not be taken into account for the purposes of Article 47(1).
5.A CSD shall ensure that its overall risk exposure to any individual institution of a kind referred to in paragraphs 1(b) to 1(e) with which it holds its financial assets remains within acceptable concentration limits.
6.The Minister may make technical standards specifying the financial instruments that can be considered to be highly liquid with minimal market and credit risk as referred to in paragraph 3, the appropriate timeframe for access to assets referred to in paragraph 2 and the concentration limits as referred to in paragraph 5. Such draft regulatory technical standards shall, where appropriate, be aligned to the regulatory technical standards adopted in accordance with Article 47(8) of Regulation (EU) No 648/2012.
Article 47
Capital requirements
1.Capital, together with retained earnings and reserves of a CSD, shall be proportional to the risks stemming from the activities of the CSD. It shall be at all times sufficient to:
- ensure that the CSD is adequately protected against operational, legal, custody, investment and business risks so that the CSD can continue to provide services as a going concern;
- ensure an orderly winding-down or restructuring of the CSD’s activities over an appropriate time span of at least six months under a range of stress scenarios.
2.A CSD shall maintain a plan for the following:
- the raising of additional capital should its equity capital approach or fall below the requirements laid down in paragraph 1;
- ensuring the orderly winding-down or restructuring of its operations and services where the CSD is unable to raise new capital.
The plan shall be approved by the management body or an appropriate committee of the management body and updated regularly. Each update of the plan shall be provided to the competent authority. The competent authority may require the CSD to take additional measures or to make any alternative provision where the competent authority considers that the CSD’s plan is insufficient.
3.The Minister may make technical standards specifying requirements regarding the capital, retained earnings and reserves of a CSD referred to in paragraph 1.
Section 5
Requirements for CSD links
Article 48
CSD links
1.Before establishing a CSD link and on an ongoing basis once the CSD link is established, all CSDs concerned shall identify, assess, monitor and manage all potential sources of risk for themselves and for their participants arising from the CSD link and take appropriate measures to mitigate them.
2.CSDs that intend to establish links shall submit an application for authorisation to the competent authority as required under point (e) of Article 19(1) or notify the competent authority as required under Article 19(5).
3.A link shall provide adequate protection to the linked CSDs and their participants, in particular as regards possible credits taken by CSDs and the concentration and liquidity risks as a result of the link arrangement.
A link shall be supported by an appropriate contractual arrangement that sets out the respective rights and obligations of the linked CSDs and, where necessary, of the CSDs’ participants. A contractual arrangement with cross-jurisdictional implications shall provide for an unambiguous choice of law that govern each aspect of the link’s operations.
4.In the event of a provisional transfer of securities between linked CSDs, retransfer of securities prior to the first transfer becoming final shall be prohibited.
5.A CSD that uses an indirect link or an intermediary to operate a CSD link with another CSD or third-country CSD shall measure, monitor, and manage the additional risks arising from the use of that indirect link or intermediary and take appropriate measures to mitigate them.
6.Linked CSDs shall have robust reconciliation procedures to ensure that their respective records are accurate.
7.Links between CSDs and between CSDs and third-country CSDs shall permit DVP settlement of transactions between participants in linked CSDs, where practical and feasible. Detailed reasons for any CSD link not allowing for DVP settlement shall be notified to the competent authority.
8.Interoperable securities settlement systems and CSDs, which use a common settlement infrastructure shall establish identical moments of:
The securities settlement systems and CSDs referred to in the first subparagraph shall use equivalent rules concerning the moment of finality of transfers of securities and cash.
9.All interoperable links between CSDs and third-country CSDs operating in Gibraltar shall be, where applicable, DVP-settlement supporting links.
10.The Minister may make technical standards to specify the conditions provided for in paragraph 3 under which each type of link arrangement provides for adequate protection of the linked CSDs and of their participants, in particular where a CSD intends to participate in the securities settlement system operated by another CSD, the monitoring and managing of additional risks referred to in paragraph 5 arising from the use of intermediaries, the reconciliation methods referred to in paragraph 6, the cases where DVP settlement through CSD links is practical and feasible as provided for in paragraph 7 and the methods of assessment thereof.
CHAPTER III
Access to CSDs
Section 1
Access of issuers to CSDs or third-country CSDs
Article 49
Freedom to issue in a CSD or third-country CSD
1.A Gibraltar issuer shall have the right to arrange for its securities admitted to trading on regulated markets or MTFs or traded on trading venues to be recorded in any CSD or third-country CSD recognised by the competent authority.
1A.A third-country issuer shall have the right to arrange for its securities admitted to trading on regulated markets or MTFs or traded on trading venues to be recorded in any CSD.
1B.Without limiting the Gibraltar issuer’s or third-country issuer's rights under paragraphs 1 and 1A, the corporate or similar law of the country or territory under which the securities are constituted shall continue to apply.
1C.The CSD or third-country CSD recognised by the competent authority may charge a reasonable commercial fee for the provision of its services to issuers on a cost-plus basis, unless otherwise agreed by both parties.
2.Where an issuer submits a request for recording its securities in a CSD or third-country CSD referred to in paragraphs 1 or 1A, the CSD or third-country CSD shall treat such request promptly and in a non-discriminatory manner and provide a response to the requesting issuer within three months.
3.A CSD or third-country CSD referred to in paragraphs 1 or 1A may refuse to provide services to an issuer. Such a refusal shall be based only on a comprehensive risk assessment or if that CSD or third-country CSD referred to in paragraphs 1 or 1A does not provide the services referred to in point (1) of Section A of the Annex in relation to securities constituted under the corporate or similar law of the relevant country or territory.
4.Without prejudice to the law on the prevention of money laundering or terrorist or proliferation financing, where a CSD or third-country CSD referred to in paragraphs 1 or 1A refuses to provide services to an issuer, it shall provide the requesting issuer with full written reasons for its refusal.
In the case of a refusal, the requesting issuer shall have the right to complain to the competent authority.
The competent authority shall duly examine the complaint by assessing the reasons for refusal provided by the CSD and shall provide the issuer with a reasoned reply.
Where the refusal by the CSD to provide its services to an issuer is deemed to be unjustified, the responsible competent authority shall issue an order requiring the CSD to provide its services to the requesting issuer.
5.The Minister may make technical standards to:
- specify the risks to be taken into account by:
- CSDs when carrying out a comprehensive risk assessment in accordance with paragraphs 3; and
- the competent authority when assessing the reasons for any refusal in accordance with paragraph 4;
- specify the elements of the procedure referred to in paragraph 4; and
- establish standard forms and templates for the procedure referred to in paragraph 4.
Access between CSDs and between CSDs and third-country CSDs
Article 50
Standard link access
A CSD or third-country CSD shall have the right to become a participant of a CSD and set up a standard link with that CSD in accordance with Article 33 and subject to the prior notification of the CSD link provided under Article 19(5).
Customised link access
1.Where a CSD or third-country CSD requests a CSD to establish a customised link for having access to the latter, the receiving CSD shall reject such a request only on the basis of risk considerations. It shall not deny a request on the grounds of loss of market share.
2.The receiving CSD may charge a reasonable commercial fee on a cost-plus basis to the requesting CSD for making customised link access available, unless otherwise agreed by both parties.
Article 52
Procedure for CSD links
1.When a CSD or third-country CSD submits a request for access to a CSD pursuant to Articles 50 and 51, the latter shall treat such request promptly and shall provide a response to the requesting CSD within three months.
2.A CSD shall deny access to a requesting CSD only where such access would threaten the smooth and orderly functioning of the financial markets or cause systemic risk. Such a refusal shall be based only on a comprehensive risk assessment.
Where a CSD refuses access, it shall provide the requesting CSD with full reasons for its refusal.
In the case of a refusal, the requesting CSD has the right to complain to the competent authority of the CSD that has refused access.
The competent authority of the receiving CSD shall duly examine the complaint by assessing the reasons for refusal and shall provide the requesting CSD with a reasoned reply.
Where the refusal by the CSD to grant access to the requesting CSD is deemed to be unjustified, the competent authority of the receiving CSD shall issue an order requiring that CSD to grant access to the requesting CSD.
3.The Minister may make technical standards specifying:
- the risks to be taken into account by:
- CSDs when carrying out a comprehensive risk assessment in accordance with paragraph 2; and
- competent authorities when assessing the reasons for refusal under that paragraph;
- the elements of the procedure referred to in paragraph 2; and
- the forms and templates to be used for the procedures referred to in paragraphs 1 and 2.
Section 3
Access between a CSD or third-country CSD and another market infrastructure
Article 53
Access between a CSD or third-country CSD and another market infrastructure
1.A Gibraltar CCP and a Gibraltar trading venue shall provide transaction feeds on a non-discriminatory and transparent basis to a CSD or third-country CSD upon request by the CSD or third-country CSD and may charge a reasonable commercial fee for such transaction feeds to the CSD or third-country CSD on a cost-plus basis unless otherwise agreed by both parties.
A CSD shall provide access to its securities settlement systems on a non-discriminatory and transparent basis to a CCP or a trading venue and may charge a reasonable commercial fee for such access on a cost-plus basis, unless otherwise agreed by both parties.
2.When a party submits a request for access to another party in accordance with paragraph 1, such request shall be treated promptly and a response to the requesting party shall be provided within three months.
3.The receiving party shall deny access only where such access would affect the smooth and orderly functioning of the financial markets or cause systemic risk. It shall not deny a request on the grounds of loss of market share.
A party that refuses access shall provide the requesting party with full written reasons for such refusal based on a comprehensive risk assessment. In the case of a refusal, the requesting party has the right to complain to the competent authority.
The competent authority shall duly examine the complaint by assessing the reasons for refusal and shall provide the requesting party with a reasoned reply.
Where the refusal by a party to grant access is deemed to be unjustified, the competent authority shall issue an order requiring that party to grant access to its services within three months.
4.The Minister may make technical standards to specifying:
- the risks to be taken into account by:
- CSDs when carrying out a comprehensive risk assessment in accordance with paragraph 3; and
- the competent authority when assessing the reasons for refusal under that paragraph;
- the elements of the procedure referred to in paragraph 3; and
- the standard forms and templates for the procedure referred to in paragraphs 2 and 3.
TITLE IV
PROVISION OF BANKING-TYPE ANCILLARY SERVICES FOR CSD PARTICIPANTS
Article 54
Authorisation and designation to provide banking-type ancillary services
1.A CSD shall not itself provide any banking-type ancillary services set out in Section C of the Annex unless it has obtained an additional authorisation to provide such services in accordance with this Article.
2.A CSD that intends to settle the cash leg of all or part of its securities settlement system in accordance with Article 40(2) or otherwise wishes to provide any banking-type ancillary services referred to in paragraph 1 shall be authorised either:
- to offer such services itself under the conditions specified in this Article; or
- to designate for that purpose one or more credit institutions with Part 7 permission to accept deposits.
3.Where a CSD seeks to provide any banking-type ancillary services from within the same legal entity as the legal entity operating the securities settlement system the authorisation referred to in paragraph 2 shall be granted only where the following conditions are met:
- the CSD has Part 7 permission to carry on any regulated activity which is carried on for the purposes of, or in connection with, such services;
- the CSD meets the prudential requirements laid down in Article 59(1), (3) and (4) and the supervisory requirements laid down in Article 60;
- the authorisation referred to in point (a) of this subparagraph is used only to provide the banking-type ancillary services referred to in Section C of the Annex and not to carry out any other activities;
- the CSD is subject to an additional capital surcharge that reflects the risks, including credit and liquidity risks, resulting from the provision of intra-day credit, inter alia, to the participants in a securities settlement system or other users of CSD services;
- the CSD reports at least monthly to the competent authority and annually as a part of its public disclosure as required under Part Eight of Regulation (EU) No 575/2013 on the extent and management of intra-day liquidity risk in accordance with point (j) of Article 59(4) of this Regulation;
- the CSD has submitted to the competent authority an adequate recovery plan to ensure continuity of its critical operations, including in situations where liquidity or credit risk crystallises as a result of the provision of banking-type ancillary services.
In the case of conflicting provisions laid down in this Regulation, in Regulation (EU) No 575/2013 and in the Financial Services (Credit Institutions and Capital Requirements) Regulations 2020, the CSD referred to in point (a) of the first subparagraph shall comply with the stricter requirements on prudential supervision. The regulatory technical standards referred to in Articles 47 and 59 of this Regulation shall clarify the cases of conflicting provisions.
4.Where a CSD seeks to designate a credit institution to provide any banking-type ancillary services from within a separate legal entity which may be part of the same group of undertakings ultimately controlled by the same parent undertaking or not, the authorisation referred to in paragraph 2 shall be granted only where the following conditions are met:
- the separate legal entity has Part 7 permission to accept deposits;
- the separate legal entity meets the prudential requirements laid down in Article 59(1), (3) and (4) and supervisory requirements laid down in Article 60;
- the separate legal entity does not itself carry out any of the core services referred to in Section A of the Annex;
- the authorisation referred to in point (a) is used only to provide the banking-type ancillary services referred to in Section C of the Annex and not to carry out any other activities;
- the separate legal entity is subject to an additional capital surcharge that reflects the risks, including credit and liquidity risks, resulting from the provision of intra-day credit, inter alia, to the participants in a securities settlement system or other users of CSD services;
- the separate legal entity reports at least monthly to the competent authority and annually as a part of its public disclosure as required under Part Eight of Regulation (EU) No 575/2013 on the extent and management of intra-day liquidity risk in accordance with point (j) of Article 59(4) of this Regulation; and
- the separate legal entity has submitted to the competent authority an adequate recovery plan to ensure continuity of its critical operations, including in situations where liquidity or credit risk crystallises as a result of the provision of banking-type ancillary services from within a separate legal entity.
5.Paragraph 4 shall not apply to credit institutions referred to in point (b) of paragraph 2 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, calculated over a one-year period, is less than one per cent of the total value of all securities transactions against cash settled in the books of the CSD and does not exceed a maximum of EUR 2,5 billion per year.
The competent authority shall monitor at least once per year that the threshold defined in the first subparagraph is respected. 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 six months.
6.The competent authority may require a CSD to designate more than one credit institution, or to designate a credit institution in addition to providing services itself in accordance with point (a) of paragraph 2 of this Article where it considers that the exposure of one credit institution to the concentration of risks under Article 59(3) and (4) is not sufficiently mitigated. The designated credit institutions shall be considered to be settlement agents.
7.A CSD authorised to provide any banking-type ancillary services and a credit institution designated in accordance with point (b) of paragraph 2 shall comply at all times with the conditions necessary for authorisation under this Regulation and shall, without delay, notify the competent authorities of any substantive changes affecting the conditions for authorisation.
8.The Minister may make technical standards to determine the additional risk based capital surcharge referred to in point (d) of paragraph 3 and point (e) of paragraph 4.
Article 55
Procedure for granting and refusing authorisation to provide banking-type ancillary services
1.The CSD shall submit its application for authorisation to designate a credit institution or to provide any banking-type ancillary service, as required under Article 54, to the competent authority.
2.The application shall contain all the information that is necessary to enable the competent authority to satisfy itself that the CSD and where applicable the designated credit institution have established, at the time of the authorisation, all the necessary arrangements to meet their obligations as laid down in this Regulation. It shall contain a programme of operations setting out the banking-type ancillary services envisaged, the structural organisation of the relations between the CSD and the designated credit institutions where applicable and how that CSD or where applicable the designated credit institution intends to meet the prudential requirements laid down in Article 59(1), (3) and (4) and the other conditions laid down in Article 54.
3.The competent authority shall apply the procedure under Article 17(3) and (8).
5.Omitted
6.Omitted
7.The Minister may make technical standards to specify the information that the CSD is to provide to the competent authority for the purpose of obtaining the relevant authorisations to provide the banking-type services ancillary to settlement.
Extension of the banking-type ancillary services
1.A CSD that intends to extend the banking-type ancillary services for which it designates a credit institution or that it provides itself in accordance with Article 54, shall submit a request for extension to the competent authority.
2.The request for extension shall be subject to the procedure under Article 55.
Article 57
Withdrawal of authorisation
1.Without prejudice to any remedial actions or measures under Title V, the competent authority shall withdraw the authorisations referred to in Article 54 in any of the following circumstances:
- where the CSD has not made use of the authorisation within 12 months, expressly renounces the authorisation or where the designated credit institution has provided no services or performed no activity for the preceding six months;
- where the CSD has obtained the authorisation by making false statements or by any other unlawful means;
- where the CSD or the designated credit institution is no longer in compliance with the conditions under which authorisation was granted and has not taken the remedial actions requested by the competent authority within a set time-frame;
- where the CSD or the designated credit institution has seriously and systematically infringed the requirements laid down in this Regulation.
2.Omitted
3.Omitted
4.The competent authority may limit the withdrawal to a particular service, activity, or financial instrument.
5.A CSD and the designated credit institution shall establish, implement and maintain an adequate procedure ensuring the timely and orderly settlement and transfer of the assets of clients and participants to another settlement agent in the event of a withdrawal of authorisation referred to in paragraph 1.
Article 58
1.Omitted
2.The competent authority shall introduce in the register, that it is required to make available on its dedicated website in accordance with Article 21(3), the following information:
- the name of each CSD which was subject to a decision under Articles 54, 56 and 57;
- the name of each designated credit institution;
- the list of banking-type ancillary services that a designated credit institution or a CSD authorised under Article 54 is authorised to provide for the CSD’s participants.
Article 59
Prudential requirements applicable to credit institutions or CSDs authorised to provide banking-type ancillary services
1.A credit institution designated under point (b) of Article 54(2) or a CSD authorised under point (a) of Article 54(2) to provide banking-type ancillary services shall provide only the services set out in Section C of the Annex that are covered by the authorisation.
2.A credit institution designated under point (b) of Article 54(2) or a CSD authorised under point (a) of Article 54(2) to provide banking-type ancillary services shall comply with any present or future legislation applicable to credit institutions.
3.A credit institution designated under point (b) of Article 54(2) or a CSD authorised under point (a) of Article 54(2) to provide banking-type ancillary services shall comply with the following specific prudential requirements for the credit risks related to those services in respect of each securities settlement system:
- it shall establish a robust framework to manage the corresponding credit risks;
- it shall identify the sources of such credit risks, frequently and regularly, measure and monitor corresponding credit exposures and use appropriate risk-management tools to control those risks;
- it shall fully cover corresponding credit exposures to individual borrowing participants using collateral and other equivalent financial resources;
- if collateral is used to manage its corresponding credit risk, it shall accept highly liquid collateral with minimal credit and market risk; it may use other types of collateral in specific situations if an appropriate haircut is applied;
- it shall establish and apply appropriately conservative haircuts and concentration limits on collateral values constituted to cover the credit exposures referred to in point (c), taking into account the objective of ensuring that collateral can be liquidated promptly without significant adverse price effects;
- it shall set limits on its corresponding credit exposures;
- it shall analyse and plan for how to address any potential residual credit exposures, and adopt rules and procedures to implement such plans;
- it shall provide credit only to participants that have cash accounts with it;
- it shall provide for effective reimbursement procedures of intra-day credit and discourage overnight credit through the application of sanctioning rates which act as an effective deterrent.
4.A credit institution designated under point (b) of Article 54(2) or a CSD authorised under point (a) of Article 54(2) to provide banking-type ancillary services shall comply with the following specific prudential requirements for the liquidity risks relating to those services in respect of each securities settlement system:
- it shall have a robust framework and tools to measure, monitor, and manage its liquidity risks, including intra-day liquidity risks, for each currency of the security settlement system for which it acts as settlement agent;
- it shall measure and monitor on an ongoing and timely basis, and at least daily, its liquidity needs and the level of liquid assets it holds; in doing so, it shall determine the value of its available liquid assets taking into account appropriate haircuts on those assets;
- it shall have sufficient liquid resources in all relevant currencies for a timely provision of settlement services under a wide range of potential stress scenarios including, but not limited to the liquidity risk generated by the default of at least one participant, including its parent undertakings and subsidiaries, to which it has the largest exposures;
- it shall mitigate the corresponding liquidity risks with qualifying liquid resources in each 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;
- where prearranged funding 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;
- it shall determine and test the sufficiency of the corresponding resources by regular and rigorous stress testing;
- it shall analyse and plan for how to address any unforeseen and potentially uncovered liquidity shortfalls, and adopt rules and procedures to implement such plans;
- where practical and available, without prejudice to the eligibility rules of the central bank, it shall have access to central bank accounts and other central bank services to enhance its management of liquidity risks and credit institutions shall deposit the corresponding sterling cash balances on dedicated accounts with the central bank;
- it shall have prearranged and highly reliable arrangements to ensure that it can liquidate in a timely fashion the collateral provided to it by a defaulting client;
- it shall report regularly to the authorities referred to in Article 60(1), and disclose to the public, as to how it measures, monitors and manages its liquidity risks, including intra-day liquidity risks.
5.The Minister may make technical standards to further specify details of the frameworks and tools for the monitoring, the measuring, the management, the reporting and the public disclosure of the credit and liquidity risks, including those which occur intra-day, referred to in paragraphs 3 and 4. Such draft regulatory technical standards shall, where appropriate, be aligned to the regulatory technical standards adopted in accordance with Article 46(3) of Regulation (EU) No 648/2012.
Supervision of designated credit institutions and CSDs authorised to provide banking-type ancillary services
1.Without limiting any of its powers under this Regulation, the competent authority is also responsible for the authorisation and supervision as credit institutions of the designated credit institutions and CSDs authorised under this Regulation to provide banking-type ancillary services.
2.Where a CSD designates an authorised credit institution in accordance with Article 54, in view of the protection of the participants in the securities settlement systems it operates, a CSD shall ensure that it has access from the credit institution it designates to all necessary information for the purpose of this Regulation and it shall report any infringements thereof to the competent authority.
TITLE V
INFRINGEMENTS
Article 61
Administrative penalties and other measures
1. The competent authority may exercise the sanctioning powers in Part 11 of the Financial Services Act 2019 against any person who is responsible for an infringement of [this Regulation] [any provision of Regulation specified in...] as if it were a contravention of a regulatory requirement within the meaning of that Part.
2. Any administrative penalty imposed under section 152 of the Financial Services Act 2019 for an infringement of [this Regulation] must be of an amount which does not exceed the higher of the following–
- where the amount of the benefit derived as a result of the contravention can be determined, twice the amount of that benefit;
- in the case of a legal person–
- in the case of an individual, the sterling equivalent of €5,000,000.
3. Where a legal person is a parent undertaking or a subsidiary of a parent undertaking which has to prepare consolidated financial accounts, the relevant total turnover for the purpose of paragraph 2(b)(ii) is the total annual turnover (or the corresponding type of income) in accordance with the relevant accounting legislative acts, according to the last available consolidated annual accounts approved by the management body of the ultimate parent undertaking.
4. This Article applies without limiting any other powers of the competent authority under this Regulation.
Articles 62 to 64
Omitted
Article 65
Reporting of infringements
1.The competent authority must establish effective mechanisms to encourage the reporting to the authority of potential or actual infringements of this Regulation.
2.The mechanisms referred to in paragraph 1 shall include at least:
- specific procedures for the receipt and investigation of reports on potential or actual infringements and their follow-up, including the establishment of secure communication channels for such reports;
- appropriate protection for employees of institutions who report potential or actual infringements committed within the institution against retaliation, discrimination or other types of unfair treatment at a minimum;
- protection of personal data concerning both the person who reports the potential or actual infringements and the natural person who is allegedly responsible for an infringement in compliance with the principles laid down in the data protection legislation;
- protection of the identity of both the person who reports the infringements and the natural person who is allegedly responsible for an infringement, at all stages of the procedures unless such disclosure is required by national law in the context of further investigation or subsequent administrative or judicial proceedings.
3.The competent authority shall require institutions to have in place appropriate procedures for their employees to report actual or potential infringements internally through a specific, independent and autonomous channel.
Such a channel may also be provided through arrangements provided for by social partners. The same protection as is referred to in points (b), (c) and (d) of paragraph 2 shall apply.
Article 66
Appeals
Any appeal under this Regulation must be exercised in accordance with section 615 of the Financial Services Act 2019 and, where applicable, as if notice of the decision appealed against were contained in a decision notice within the meaning of that Act.
TITLE VI
REGULATIONS, TRANSITIONAL AND FINAL PROVISION
Article 67
Regulations
1.Any power to make regulations conferred on the Minister by this Regulation includes the power to:
- make any supplementary, incidental, consequential, transitional or saving provision which the Minister considers necessary or expedient; and
- make different provision for different purposes.
Articles 68 to 72
Omitted
Application of the law of Gibraltar on markets in financial instruments and Regulation (EU) No 600/2014
CSDs authorised in accordance with Article 16 of this Regulation shall not require authorisation under the law of Gibraltar on markets in financial instruments in order to provide the services explicitly listed in Sections A and B of the Annex to this Regulation.
Where a CSD authorised in accordance with Article 16 of this Regulation provides one or more investment services or carries out one or more investment activities in addition to providing the services explicitly listed in Sections A and B of the Annex to this Regulation, Directive 2014/65/EU with the exception of Articles 5 to 8, Article 9(1) to (2) and (4) to (6) and as implemented by the law of Gibraltar on markets in financial instruments, and Regulation (EU) No 600/2014 shall apply.
Articles 74 & 75
Omitted
Article 76
Entry into force and application
1.This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
2.Omitted
3.Article 5(2) shall apply from 1 January 2015.
By way of derogation from the first subparagraph of this paragraph, in the case of a trading venue that has access to a CSD referred to in Article 30(5), Article 5(2) shall apply at least six months before such a CSD outsources its activities to the relevant public entity, and in any event from 1 January 2016.
4.The settlement discipline measures in Article 6(1) to (4) and Article 7(1) to (13) apply from the date specified by the Minister by notice in the Gazette.
5.Omitted
6.The reporting measures referred to in Article 9(1) shall apply from the date of entry into force of any technical standards made by the Minister under Article 9(2)(b).
7.Article 17(1) to (3) and (8) apply from the earlier of:
- the date of entry into force of any technical standards made by the Minister under Article 17(9); or
- the date specified by the Minister by notice in the Gazette.
ANNEX
LIST OF SERVICES
SECTION A . Core services of central securities depositories
1.Initial recording of securities in a book-entry system (‘notary service’); .
2.Providing and maintaining securities accounts at the top tier level (‘central maintenance service’); .
3.Operating a securities settlement system (‘settlement service’). .
SECTION B . Non-banking-type ancillary services of CSDs that do not entail credit or liquidity risks
Services provided by CSDs that contribute to enhancing the safety, efficiency and transparency of the securities markets, which may include but are not restricted to:
- Organising a securities lending mechanism, as agent among participants of a securities settlement system;
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Providing collateral management services, as agent for participants in a securities settlement system;
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Settlement matching, instruction routing, trade confirmation, trade verification.
- Services related to shareholders’ registers;
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Supporting the processing of corporate actions, including tax, general meetings and information services;
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New issue services, including allocation and management of ISIN codes and similar codes;
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Instruction routing and processing, fee collection and processing and related reporting.
- Providing general collateral management services as agent;
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Providing regulatory reporting;
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Providing information, data and statistics to market/census bureaus or other governmental or inter-governmental entities;
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Providing IT services.
SECTION C . Banking-type ancillary services
Banking-type services directly related to core or ancillary services listed in Sections A and B, such as:
- Providing cash accounts to, and accepting deposits from, participants in a securities settlement system and holders of securities accounts, within the meaning of point 1 of the Schedule to the Financial Services (Credit Institutions and Capital Requirements) Regulations 2020;
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Providing cash credit for reimbursement no later than the following business day, cash lending to pre-finance corporate actions and lending securities to holders of securities accounts, within the meaning of point 2 of that Schedule;
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Payment services involving processing of cash and foreign exchange transactions, within the meaning of point 4 of that Schedule;
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Guarantees and commitments related to securities lending and borrowing, within the meaning of point 6 of that Schedule;
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Treasury activities involving foreign exchange and transferable securities related to managing participants’ long balances, within the meaning of points 7(b) and (e) of that Schedule.