EBA proposes prudential rule changes for central securities depositories in Europe
European efforts to widen access to foreign-currency settlement services are prompting new supervisory adjustments for central securities depositories. The European Banking Authority says its draft amendments are designed to reflect the CSDR Refit while limiting any rise in systemic risk from closer links between market infrastructures.
Highlights
- The European Banking Authority proposes draft amendments to regulatory technical standards for prudential requirements of central securities depositories and designated credit institutions under CSDR Refit.
- The new rules enable banking CSDs to offer cash payment services and foreign exchange transactions to other CSDs, aiming to enhance settlement efficiency and foreign currency access.
- Amendments address risks from increased interconnectedness, incorporate recent Capital Requirements Regulation updates, and ensure alignment with revised CSDR to safeguard European financial system stability.
Draft prudential changes under CSDR Refit
As reported by European Banking Authority, the draft amendments update regulatory technical standards covering prudential requirements for central securities depositories and designated credit institutions that provide banking-type ancillary services.The changes mainly respond to the CSDR Refit, which allows banking CSDs to offer services such as cash payment services and foreign exchange transactions to other CSDs. The policy goal is to improve access to foreign currency for non-banking CSDs and support settlement efficiency across Europe.
The authority says the revised standards focus on how this arrangement affects the risk profile of banking CSDs, while also setting out the notifications supervisors will need to receive.
Risk controls and market implications
The EBA says the updated rules are intended to prevent any increase in interconnectedness between CSDs from creating broader systemic risk in the financial system.Further amendments also reflect recent changes to the Capital Requirements Regulation and align references with the revised CSDR text where relevant. Together, the changes indicate a regulatory effort to balance broader service access within post-trade markets with prudential safeguards for European financial infrastructure.
Prime brokerage growth and the post-crisis regulatory squeeze on banks were the focus of our earlier coverage, outlining how lending and financing services for hedge funds and trading firms have become a major profit engine. We noted that as tighter rules constrained traditional trading desks, large banks expanded balance-sheet-intensive financing while regulators increased scrutiny of the risks this creates for the wider financial system.