Regulation (EU) 2023/2845 as regards settlement discipline, cross-border provision of services, supervisory cooperation, provision of banking-type ancillary services and requirements for third-country central securities depositories.

New Regulation (EU) 2023/2845 relating to the operation and passporting of central securities depositories (CSDs), the settlement discipline, and the provision of other banking-type services by CSDs was published in the Official Journal (OJ) of the EU. The Regulation is aimed at improving the operational efficiency of CSDs and – subsequently – the settlement of financial transactions and the functioning of the financial market as a whole by simplifying and streamlining the requirements for CSDs in line with the Commission’s Regulatory Fitness and Performance (REFIT) program. The text below presents a summary of the key provisions of the new regulation; for more detailed, comprehensive information, please refer to the enclosed document.
The regulation addresses the registration of CSDs, clarifying and simplifying the procedure for CSDs to provide services across the Union. It aims to dismantle barriers to cross-border settlement and provides a clear legal framework for CSDs to assess and comply with the law of another Member State when providing services in that jurisdiction. In detail, a CSD seeking to passport into other EU Member States will need to apply with its home regulator. The home regulator will then send this information to the host state regulator which – in turn – can provide a non-binding opinion in this matter. However, the host state cannot deny the provision of services of the CSD in its territory, if the home regulator approves the application. This approval is then sent to ESMA who notifies the host state regulator of the approval.
In terms of settlement discipline, the regulation introduces measures to address situations where a CSD’s settlement efficiency is significantly lower than the average settlement efficiency levels in the Union market. It empowers competent authorities to apply additional regulatory tools to improve settlement efficiency and requires ESMA to prepare reports on measures taken by competent authorities in this regard.
Regarding mandatory buy-ins, the regulation sets out requirements for CSDs to minimize risks associated with the safekeeping and settlement of transactions in securities. It also addresses the risks stemming from the use of settlement systems that apply deferred net settlement and provides clarity on the applicable law in cases where a security is constituted under the corporate or similar law of two different Member States.
The regulation establishes rules as to the cooperation among national competent authorities and ESMA in the supervision of CSDs providing cross-border services. Specifically, the new regulation allows for on-site inspections of branches and the transmission of findings and information on remedial actions or penalties to ESMA and supervisory colleges. In this context, the new regulation also requires supervisory colleges to be established for CSDs whose activities are considered of substantial importance for the functioning of securities markets and the protection of investors in at least two host Member States.
Furthermore, the regulation introduces specific requirements for CSDs providing banking-type ancillary services. This includes maintaining sufficient qualifying liquid resources in all relevant currencies and ensuring that stress testing scenarios are sufficiently strong. Additionally, CSDs are required to have rules and procedures to tackle potential credit, liquidity, and concentration risks stemming from the provision of banking-type ancillary services. In same context, the regulation provides for a longer period for relevant authorities and competent authorities to issue a reasoned opinion on the authorization to provide such services.
The regulation further imposes rules for the acquisition of qualifying holdings in CSDs to implement safeguards for the sound and prudent management of the CSDs following an acquisition. Thereafter, (legal) persons seeking to acquire, directly or indirectly, a qualifying holding in a CSD, or to further increase such a holding, must notify the competent authority of that CSD in writing. Following the notification, the competent authority is tasked with assessing the suitability of the proposed acquirer and the financial soundness of the proposed acquisition. This assessment includes considering the reputation and financial soundness of the proposed acquirer, the reputation, knowledge, skills, and experience of any person who will direct the business of the CSD as a result of the proposed acquisition, and whether the CSD will be able to comply and continue to comply with the regulation. Finally, the competent authority may disapprove the acquisition, if any of the noted criteria aren’t met.
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The regulation finally modifies the Short Selling Regulation to install previously omitted requirements on central couterparties (CCPs) as regards the establishment of procedures for buy-ins. Thereafter, such policies must cover the following scenarios:
– the seller is unable to deliver shares for settlement within four business days from the settlement due date and
– a buy-in isn’t feasible.
In either case, the (legal) person failing to settle a transaction is responsible for payment of the settlement.