EBA consultation on draft RTS on the threshold for prudential risk management requirements under CSDR

The European Banking Authority has published a consultation on draft Regulatory Technical Standards (RTS) on the threshold of activity at which designated credit institutions and Central Securities Depositories (CSDs) providing 'banking-type ancillary services' to a designating CSD need to meet the prudential risk management requirements set out in Articles 54(4) and 54(4a) of the Central Securities Depositories Regulation (CSDR), together with an accompanying press release. Banking-type ancillary services include activities such as providing cash accounts to, and accepting deposits from, participants in a securities settlement system, and payment services involving processing of cash and foreign exchange transactions.

Article 1 of the draft RTS prescribes a formula to determine the threshold which takes into account: (i) the liquidity of the currencies for which commercial bank money (CoBM) settlement is offered; (ii) the number of settlement agents providing CoBM settlement to the designating CSD; (iii) the other roles that the settlement agents may have vis-à-vis the designating CSD (e.g., participants to the securities settlement systems); and (iv) the creditworthiness of the settlement agents. Depending on the liquidity of the currencies and on the characteristics of the settlement agents, the threshold can range from a minimum of 1.5% of the total value of all securities transactions against cash settled in the books of the CSD, calculated over a one-year period, and EUR3.75 bn, to a maximum of 2.5% and EUR6.25bn.

Draft Article 2 sets out basic requirements applicable to all designated credit institutions which operate below the thresholds and, as such, are exempted from applying the requirements of Art. 54(4) of the CSDR. Below 1.5% and up to EUR3.25bn, CSDs would only have to meet basic prudential requirements on creditworthiness, liquidity risk management policy and procedures, and a recovery plan. Draft Article 3 prescribes advanced requirements which apply when the activity of the designated credit is below the threshold determined in Article 1 but exceeds 1.5% of the total value of all securities transactions against cash settled in the books of the CSD over one year, and EUR3.75bn per year. The proposed level represents a 50% increase from the actual CSDR threshold.

The consultation runs until 16 June. A public hearing will be held on 13 May.

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