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Post-trade in a Capital Market Union:

dismantling barriers and strategy for the future

2017 Public Consultation

Summary of contributions

This document provides a factual overview of the contributions to the

public consultation. The content should not be regarded as reflecting

the position of the Commission.

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1. INTRODUCTION

On 23 August 2017, the Directorate-General for Financial Stability, Financial Services and

Capital Markets Union (DG FISMA) of the European Commission launched a public

consultation on post-trade in a Capital Market Union: dismantling barriers and strategy for the

future.

The purpose was to seek views on the current state of post-trade markets in the EU, the main

trends and challenges faced by post-trade services providers and their users, and to determine

the existence and scale of remaining or new barriers, the risks associated with such barriers

and the best ways to address them. The results of this consultation will feed into future

legislative reviews and inform the Commission’s thinking on post-trade.

DG FISMA received 57 responses to the consultation that ended on 15 November 2017.

Contributions were received from a broad range of stakeholder groups, including 27 industry

associations (banking, asset management, market infrastructures, pension, insurance); 19

investors, banks, companies, financial providers; 4 non-profit organisations, public

corporations and consumer associations and 7 national and international public authorities,

regulatory and supervisory authorities (Chart A). Replies originated from more than 15

countries, mostly European, with a few non-European countries (e.g. USA, Australia) (Chart

B).

This feedback statement summarises the answers received. It provides a factual and

qualitative overview of the contributions received. It does not aim to be exhaustive, but seeks

to identify the key messages and particular insights from respondents related to existing

measures or possible future actions on EU post-trade activities. The content should not be

regarded as reflecting the position of the Commission.

Chart A – Replies by type of stakeholder

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Chart B – Replies by country

2. SUMMARY OF RESPONSES TO GENERAL QUESTIONS

The consultation sought feedback on a number of general topics relating to EU post-trade

activities. The following sections summarise the contributions received in response to each

question.

2.1. Trends shaping EU post-trade activities and their impact moving forward

The trend relating to "increased automation at all levels of the custody chain" was mentioned

by respondents as the most important trend shaping EU post-trade services today and in the

next five years. It was considered as the second most important trend over the next ten years.

Almost all respondents considered that increased automation would have a positive impact,

reinforcing investor confidence and reducing costs and errors. No respondent considered that

it would have a negative impact on the EU post-trade markets.

"New technological developments such as DLT" (Distributed Ledger Technology) was

mentioned by respondents as the second most important trend today and in the next five years,

and the most important one in the next ten years. Half of the respondents considered that

technology would have a positive impact on EU post-trade services while the other half

considered that it would have a mixed impact. No respondent considered that it would have a

negative impact. However, several respondents noted it is too early to provide any firm

opinion on the impact of such developments. Section 2.2 provides particular insights from

respondents on the future implications of technological developments and section 3 on their

relevance for financial stability and systemic risk.

As concerns "improved shareholder relations", respondents viewed it as the least important

trend today. Half of the respondents however referred to it as an important trend in the next

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five years and slightly less than half for the next ten years. Most respondents considered that

it would have a positive impact, referring to a more transparent relationship between issuers

and shareholders. Slightly less than half of the respondents mentioned that it would have a

mixed impact. In particular, a few respondents mentioned that more transparency may also

lead to more complexity in processing (e.g. when segregated accounts are required). Other

respondents referred to the need to maintain the right balance between an issuer’s wish to

identify shareholders and the desire of the latter to maintain their privacy without being

identified.

Respondents mentioned "more trading in equities taking place on regulated trading" as the

second least relevant trend today and as the least important trend over the next five and ten

years. Nevertheless, most respondents considered that it would have a positive impact,

indicating that more concentration of trades provides greater liquidity and increases investor

confidence. Less than half of the respondents said that it would have a mixed impact. In

particular, a few respondents expressed concerns that it could lead to further risk

concentration at CCP level given their increased systemic importance.

For the trend "more cross-border issuance of securities", only a quarter of respondents

considered it as relevant today. Half of the respondents referred to it as an important trend in

the next five years and slightly less than half for the next ten years. About half of the

respondents considered that it would have a positive impact leading to more choice for

issuers, increased competition between CSDs as well as cost-saving opportunities. The other

half of the respondents considered that increased cross-border issuance of securities could

have a mixed impact and did not identify it as a major trend to date.

A quarter of the respondents considered the "shift of issuance to CSDs participating in T2S"

as relevant today, with half of the respondents considering it as a relevant trend in the next

five years, and only a quarter sharing this view over the next ten years. The majority of

respondents also considered that it would have a positive impact on post-trade services, while

slightly less than half of the respondents considered that it would have a mixed impact,

arguing that there is no significant shift of issuances from non-T2S CSDs to T2S-CSDs. No

respondent considered that it would have a negative impact. A few respondents also noted

that they did not see merit in the EU regulating the shift of issuance among CSDs based

within the EEA.

Finally, some respondents referred to "other trends", e.g. the impact of Brexit on EU post-

trade markets, with a focus on third-country CCPs’ access to the EU single market. A few

other respondents referred to the impact of technological developments other than DLT (e.g.

cloud computing, robotics and artificial intelligence).

2.2. Technological developments and their implications for EU post-trade activities

Most respondents indicated that technology could enable real time execution of post-trade

functions and services, and could lower costs. However, few respondents believed that it

would significantly alter the role of financial market infrastructures.

While the majority of respondents stated that the current legal framework inhibits an

increased use of technology, a significant minority stated that the existing legal environment

is sufficiently technology neutral.

Specific examples inhibiting the increased use of technology were that the EU legislative

framework, which works by type of actors or services, is unsuitable for DLT solutions that

have the potential to integrate all functions of the post-trade chain. Some respondents referred

to the report by the European Securities and Markets Authority (ESMA) on ‘The Distributed

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Ledger Technology Applied to Securities Markets'1, highlighting some legal issues which may

impact the effective deployment of DLT. A few respondents also referred to specific areas of

legal uncertainty for blockchain-based applications, i.e. the legal nature of a tokenised

representation and smart contracts.

Most respondents also considered that an increased use of technology, such as DLT, is

however not without potential risks. Legal risks due to the unregulated ways in which services

would be provided as well as higher operational risks are viewed as the most likely to

materialise. To conclude, most respondents noted that it is too early to determine the concrete

need for any legislative actions in the EU post-trade field.

2.3. Financial stability and systemic risk for EU post-trade areas

The majority of respondents considered "the concentration of clearing in a limited number of

CCPs" as the post-trade area most prone to creating risks to financial stability. While most

respondents acknowledged the benefits of central clearing for financial stability and risk

reduction (through netting and collateralisation), they expressed concerns about the potential

systemic risks in the event of insolvency of a CCP, pointing to the concentration of credit and

operational risks in a small number of large and globally interconnected CCPs. Respondents

welcomed the Commission's proposal for a Regulation on CCP Recovery & Resolution2 and

the proposed EMIR amendment on CCP supervision3. They expressed the need for rapid

adoption of the proposals to mitigate the increased concentration risk in CCPs. One industry

association considered equivalence arrangements for derivative markets a critical tool for

financial stability given the increasing global nature of derivative business.

Several respondents considered "the availability and mobility of collateral and liquidity" as

the other post-trade area most prone to risk. Most respondents indicated that regulation has

improved the quality of collateral and reduced the risk. This has resulted in an increased

demand from a limited pool of collateral which may result in collateral shortages in the future.

For some respondents, easier access to liquid pools of high-quality collateral could be

achieved through increased harmonisation of collateral management activities. They

welcomed the work of the ECB Advisory Group on Market Infrastructures for Securities and

Collateral (AMI-SeCo)4 and encouraged the Commission to monitor and support this work. A

few respondents noted that the compression of exposures and the re-hypothecation of

collateral could improve the efficiency of collateral management and reduce operational risks.

A few respondents also indicated the need to extend the list of assets eligible for collateral

purposes. Section 2.4.1 provides further insights from respondents on the growing importance

of collateral internationally.

Some respondents also considered "Fintech/DLT developments and cyber-security risk" as an

area prone to risk given its potential impact on all post-trade activities and related operational

processes. Respondents indicated the need for regulators and legislators to carefully monitor

developments in this area and address challenges and risks through appropriate legislative

initiatives. One industry respondent referred to the recent SIFMA cybersecurity exercise5. A

1 https://www.esma.europa.eu/sites/default/files/library/dlt_report_-_esma50-1121423017-285.pdf 2 COM(2016) 856 final, available at: http://eur-lex.europa.eu/resource.html?uri=cellar:b17255a7-b550-11e6-

9e3c-01aa75ed71a1.0001.02/DOC_1&format=PDF 3 COM(2017) 208 final, available at: https://ec.europa.eu/info/law/better-

regulation/initiative/25623/attachment/090166e5b21c0862_en 4 Mandate of the advisory group on market infrastructures for securities and collateral, available at:

https://www.ecb.europa.eu/paym/intro/governance/shared/pdf/ami_seco_mandate.pdf 5 https://www.sifma.org/resources/news/sifma-statement-on-completion-of-quantum-dawn-iv-cybersecurity-

exercise.

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few respondents stressed the need for strong coordination across jurisdictions to better

understand and manage potential risks while supporting innovation and trial. This would also

avoid regulatory arbitrage and other undesirable outcomes, including the emergence of a

shadow infrastructure sector.

For some respondents, "Financial Market Infrastructures constitute a systemic risk". Some

examples were provided, e.g. the technical failure of a major (I)CSD for an extended period

of time affecting timely settlement or the insolvency of a major CCP caused by a

simultaneous insolvency of an extraordinary number of participants. Respondents agreed with

the benefits of a clear and strong regulatory framework for financial market infrastructures

(notably EMIR and CSDR) and suggested avoiding additional overlapping regulations that

might create inconsistency and ultimately increase risks. A few respondents indicated that

appropriate Business Continuity Plans for all financial market infrastructures would help to

address further systemic risk while others suggested measures to increase the soundness of

risk-mitigating tools used by financial market infrastructures and intermediaries (see section

3.1.6 for particular insights from respondents on risk mitigating tools). A few respondents

also suggested the review of disclosure requirements applicable to financial market

infrastructures to ensure that information relevant to the management of systemic risks is

properly included.

Finally, for other respondents, mainly market infrastructures, "the potential increase of

counterparty risk" creates systemic risks. Concerns mainly stemmed from the risk of less

settlement within CSDs due to high regulatory constraints (i.e. less CSD participants, less

settlement volumes, although holding assets increased and the number of CSDs remains

stable).

2.4. The international dimension and competition in post-trade activities

2.4.1. Main trends shaping post-trade services internationally

Almost all respondents commented that global application of the Principles for Financial

Market Infrastructures (PFMI) is the most important trend and contributes to the

establishment of a level-playing field (through harmonisation of operational practices with

efficiency increase and risk reduction), supporting global competition between financial

market infrastructures. Some respondents further mentioned that all areas of post-trade would

benefit from more international coherence. A few respondents noted the need to discuss a

coordinated adoption of these rules and, wherever possible, align the timing of compliance,

given that inconsistent adoption would allow for differences to remain and increase the cost

and complexity of implementation for the industry.

Most respondents identified the "lack of full harmonisation of agreed PFMI" as the second

most important trend, mentioning custody, taxes processes, collateral management and

reporting requirements as the main areas requiring further international harmonisation. Some

referred to the need for more harmonisation of data reporting fields, which could be addressed

by industry-wide initiatives where all markets actors would be represented.

As concerns "the growing importance of collateral in international financial markets", the

majority of respondents identified it as the third important trend. Respondents indicated that

collateral is a key requirement for almost any exposure as unsecured exposures are rare and

discouraged by capital requirements. The main consideration is that Central Banks, CCPs and

Triparty Agents have a similar set of collateral requirements, which limits the availability of

collateral and could increase its price, making it more expensive to hedge positions. Some

industry respondents indicated that the high cost may result in participants exiting the market

or using another provider with possible concentration of exposures on fewer firms (i.e. same

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entity used as custody provider, settlement bank and clearing member). A few respondents

reported other elements, i.e. the continued asset purchase programmes by central banks that

might further diminish the availability of collateral, the shortening of settlement cycles for

equities and bonds that could potentially lead to further increase in collateral demand, and the

reliance of future collateral needs for securities settlement also in light of the implementation

of the settlement discipline measures under CSDR (Article 6 and 7).

Finally, some companies and industry associations identified another trend in "the growing

importance of Central Bank Money Settlement (CEBM)", which may make it difficult for EU

CSDs to compete internationally, given their difficulty to offer CEBM settlement in non-EU

currencies (T2S offers settlement in euro, Danish krona should be included by end 2018).

2.4.2. Drivers to make EU financial market infrastructures more attractive globally

The majority of respondents indicated that the removal of legal barriers would make EU

market infrastructures more attractive internationally. In particular, stakeholders underlined

the need for harmonised securities laws and legal certainty as to ownership rights in a cross-

border environment. Some respondents referred to the inconsistent application of segregation

rules at national level and highlighted the importance of an early implementation of ESMA’s

Opinion on Asset Segregation6 and a wide implementation of Article 38 of CSDR. A few

industry respondents noted that Article 49(1) of CSDR focuses on the issuance of securities

into CSDs without addressing the complexities of cross-border issuances. Others noted that

priority should be given to finalising the implementation of ongoing regulatory changes, and

that no new legal initiatives should be initiated.

Many respondents also indicated that the removal of operational barriers would make EU

financial market infrastructures more attractive internationally. Most of them referred to the

need to complete the work of various groups, e.g. Target2 Securities (T2S) Harmonisation

Steering Group, Corporate Actions Sub-Group, Advisory Group on Market Infrastructures for

Securities and Collateral, and the harmonisation of tax procedures. Some respondents

considered that the monitoring of T2S standards implementation for the Eurozone could be

extended to all EU markets. A few respondents also indicated that removing operational

barriers would increase cross-border activity and interoperability. One industry respondent

stated that all T2S CSDs should have a harmonised set of opening days, i.e. at present

opening days of T2S CSDs diverges (e.g. on Good Friday or 1 May).

Finally, a few respondents referred to the removal of market barriers, e.g. the complexity in

registration in certain countries (France, Spain) or national restrictions for primary dealership

activity that would also contribute to making EU market more attractive. Section 2.6 provides

more in-depth insights from respondents on the remaining barriers.

2.4.3. Fields that would benefit from more international coherence

Many respondents indicated that all post-trade fields would benefit from more international

coherence in legislation and supervision, relevant for cross-border activity, particularly in the

light of DLT developments. Nevertheless, some companies and industry associations

reiterated the need for a prudent approach to further legislative changes given the regulatory

changes and related efforts undertaken over the last 6 years.

Specifically on clearing, respondents stressed that harmonisation of CCP standards at the

international level would enable to achieve a level-playing field avoiding systemic risks,

given the global nature of CCPs operating increasingly on a cross-border basis beyond the

6 https://www.esma.europa.eu/sites/default/files/library/esma34-45-

277_opinion_34_on_asset_segregation_and_custody_services.pdf

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EU. Some respondents gave examples where more international coherence should be

achieved, e.g. CCP Recovery & Resolution, margin requirements, determination of

equivalence regimes, and reporting of derivatives transactions. One fund industry respondent

indicated that while under EMIR, FX derivatives could be eligible to a clearing obligation, in

the US there is an exemption. In addition, many respondents reiterated their support for the

Commission proposal on CCP supervision. A few respondents raised concerns on the

fragmentation of clearing markets which could arise if UK CCPs were not recognised under

EMIR further to the UK’s withdrawal from the EU, as this could put EU banks and clients at

a competitive disadvantage.

Concerning settlement, some respondents considered that CSDR would create a level-playing

field issue, arguing that non-EU CSDs have the opportunity to make use of third-country

provisions to offer their services across the EU, whereas EU CSDs would not enjoy the same

access opportunity in some non-EU countries. A few respondents noted that CSDs globally

apply different settlement models, cut-off time and communication standards and a more

harmonised approach would limit the necessary investments to enter a given market.

On reporting, some respondents stressed the need to first align harmonisation efforts with

existing standards currently used globally and would recommend developing technical

standards consistent with ISO 20022. A few respondents stressed the importance of avoiding

contradictory or overlapping regulations (e.g. reporting of transactions to be made multiple

times under different local regimes, e.g. Dodd-Frank vs. EMIR). Respondents appeared

supportive of the Commission’s 'Financial Data Standardisation' initiative7 which should

implement a global data dictionary and aim for a 'one transaction – one report item' across the

EU regulatory framework and possibly beyond. Respondents stressed that it should bring

significant cost savings.

A few respondents indicated that other fields would also benefit from more international

coherence. In particular, they referred to the enforceability of collateral arrangements, to risk

mitigation tools and techniques used by financial market infrastructures and intermediaries, as

well as to custody and taxes principles and processes.

2.4.4. Fields that would benefit from more competition and consolidation

The majority of respondents indicated that clearing and settlement would benefit from more

competition as it could improve market dynamics and encourage innovation and better

service-offering. The dismantling of existing barriers would increase efficiency, which would

boost competition, leading to new service providers entering the market and possibly to the

consolidation of existing providers.

Some respondents also indicated that EMIR and CSDR already create sufficient ground for

competition amongst market infrastructures and that T2S already provides the technical basis

for the ongoing co-existence of CSDs in a competitive settlement environment. Respondents

also mentioned that a next major step would be the establishment of links between CCPs. For

most respondents, more consolidation amongst CCPs and CSDs could bring important

economies of scale for all stakeholders. For some respondents, more consolidation would also

help to eliminate interoperability issues (linked to certain vertical silos from trading to

clearing to settlement). Some respondents also noted that there is no need for more

competition and consolidation.

Finally, some respondents noted that the post-trade competitive environment includes

participants other than market infrastructures, and that a level-playing field should be ensured.

7 Further information available here: https://ec.europa.eu/isa2/actions/towards-better-financial-data-reporting_en

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According to them, all market participants offering the same services should be subject to the

same rules to avoid any competition disadvantage and to safeguard the stability and safety of

financial markets.

2.5. Future strategy of EU post-trade services

2.5.1 The vision for EU post-trade markets going forward

Most respondents felt that 5 years was a too short period in which to envisage substantial

change to the post-trade landscape. In general, respondents expect the cycle of new post-trade

regulations to be completed and major rules to be implemented, with significant efficiency

increase, promoting sustainability and supporting growth.

Most respondents considered challenging to predict what the EU post-trade services would

look like 10 years from now, although they signalled the possibility for radical changes. Some

respondents mentioned that current trends of consolidation with shared utilities (run by

market infrastructures, authorities or bank-mandated consortia) would continue and be used

for a number of further harmonised post-trade services. Others considered that technological

innovation would continue and, in many areas, accelerate although relevant technology

enablers and broad-based industry adoption are not expected to be mature at least before the

end of the next decade. Respondents mentioned that legislative or regulatory intervention

might be desirable to ensure a risk-based approach on technology and to ensure a level-

playing field for all service providers offering the same services.

Some respondents highlighted that in 10 years from now, clearing activities will have reached

their maturity, as the current systemic risks associated with the existence of a few CCPs

should have been mitigated by the effects of regulatory measures and possibly new entrants to

the clearing space. Some respondents also stated that, in the next decade, there would be

greater competition for the provision of CSD services and a possible repositioning or

consolidation around a few large actors and possibly new entrants. Some considered that CSD

services, other than settlement, could be centralised into a single platform, as for settlement

with T2S. Finally, as a result of further harmonisation or consolidation, a few respondents

would foresee shorter settlement timeframes, more efficient issuance models and a

comprehensive reshaping of subscription and redemption process for investment funds.

2.5.2 Main challenges to deliver on the vision

In general, respondents focused on the short-term remaining barriers rather than on the

longer-term ones.

The majority of respondents indicated that the most important challenge currently facing the

post-trade industry is the implementation of EU legislation and the harmonisation of legal and

operational frameworks, e.g. full implementation of market standards for corporate actions

and general meetings or the effective adherence to the Withholding Tax Code of Conduct. For

a few respondents some market specific features and proprietary standards would prevent

more automation and standardisation.

Most of the respondents also reiterated the need for more regulatory coherence internationally

but only a few respondents considered it as a key challenge. Some respondents further

mentioned that the Capital Markets Union should help the EU become stronger

internationally, and that it would not be appropriate to focus solely on internal EU coherence,

as it is critical for EU to be attractive to and accessible for global markets. Finally, some

respondents indicated that financial stability should remain a key focus with critical services

to be provided by highly regulated infrastructures.

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2.6. Remaining post-trade barriers to integrated financial markets

Almost all respondents agreed there are fewer barriers than 15 years ago following the

adoption of European legislation, market initiatives or specific technological solutions. The

general opinion is that further work is required in terms of harmonisation and standardisation

of market practices (e.g. full implementation of corporate actions standards). For some

barriers, such as differences in securities ownership laws, respondents noted that they cannot

be solved solely with industry efforts and efforts at other levels may be required.

In addition, most respondents indicated that the scope of some remaining barriers has changed

over the past 15 years while new post-trade barriers have emerged. Some industry

associations confirmed their contribution to the European Post Trading Forum (EPTF) report8

and their support for its conclusions and proposed actions to remove identified barriers.

Section 3.1 provides more details on these identified specific remaining barriers.

Some respondents indicated that CSDR and T2S have significantly influenced the removal of

barriers, by simplifying and reducing the costs of cross-border settlement (e.g. T+2,

standardised settlement processes). Nevertheless, respondents also mentioned that further

work is required to fully achieve all benefits from the new rules and the T2S platform,

particularly in terms of harmonisation of market practices (e.g. the majority of markets could

potentially be accessed through one CSD account).

8 https://ec.europa.eu/info/sites/info/files/170515 - eptf-report_en.pdf

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3. SUMMARY OF RESPONSES TO SPECIFIC QUESTIONS

The consultation also sought feedback on a number of specific barriers to post-trade activities

in the EU as identified in the EPTF report. Chart C below provides an overview of the

responses and the weight given to each barrier

Chart C – Remaining barriers identified by respondents:

Note: The percentage represents the weight given to each barrier (e.g. 71,4% of respondents considered the fragmentation in

corporate actions and general meeting processes as a remaining barrier to cross-border post-trade activities in the EU).

Respondents mentioned first "fragmented corporate actions and general meeting processes"

as a remaining barrier, followed by "inefficient withholding tax collection procedures" and

"complexity of post-trade reporting structure". The barriers on "shortcomings of EU rules on

finality" and "inconsistent application of asset segregation rules for securities accounts" were

the least mentioned. Some respondents, including both companies and public authorities,

noted that the remaining obstacles are essentially operational ones due to different processing

systems across EU Member States. Although they increase complexity and costs, these

operational obstacles do not prevent cross-border transactions or activities. As such,

respondents argued they should not be considered as barriers. Examples of such obstacles

include the lack of convergence and harmonisation in information messaging standards and

the lack of harmonisation of registration and of investor identification rules and processes.

The following sections present a summary of the contributions received on each issue. They

start with those issues that were most mentioned by respondents.

3.1. Specific barriers and solutions proposed

3.1.1. Diverging corporate actions and general meeting processes

Over 70% of respondents agreed that national differences in the rules governing operational

processing result in increased costs and risks, and inhibit the shareholders' ability to exercise

their rights. One respondent noted that corporate action processing is very costly (approx.

18%

18%

21,5%

25%

25%

28,5%

32%

35,7%

43%

50%

53,6%

71,4%

0% 10% 20% 30% 40% 50% 60% 70% 80%

EU rules on finality

Asset segregation rules for securities accounts

Ownership rights in book-entry securities

Exchange-Traded Funds processes

Protection of client assets

Risk mitigation techniques used by intermediaries

Information messaging standards

Shareholders registration and identification

Reference data and standardised identifiers

Post-trade reporting structure

Withholding tax procedures

Corporate actions and general meeting processes

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$1m per year) and the largest operational risk for an alternative asset manager. Few

respondents disagreed with the definition and scope as the barrier is not the processing itself,

but the differences in company laws across the EU. For one company, these are not post-trade

considerations but governance issues and could be easily addressed by improving data access

for issuers to ease direct engagement for the exercise of rights.

More than half of the respondents noted that implementation of industry market standards in

the Implementing Regulation9 under the Shareholder Rights Directive (SRD)10 would address

the issue. Some industry respondents and public authorities however felt that further or

different actions would be required. The main concern is that despite industry efforts, some

domestic provisions constitute barriers to the full adoption of standards. Respondents also

considered that the revised SRD directive is handling specific matters but does not harmonise

all rules and processes, leaving a certain degree of flexibility in the transposition by Member

States. They would therefore recommend more harmonisation of the remaining issues,

notably with respect to tax and legal matters as both play an important role in the diverging

corporate action and voting processes (e.g. a clear definition of who should be regarded as

shareholder). A few respondents stated that greater use of digital tools (e.g. block chain,

online voting) would make interaction for companies and shareholders much easier and

increase efficiency.

3.1.2. Inefficient withholding tax procedures

Most respondents noted that the issue of inefficient withholding tax (WHT) relief procedures

has been on the EU agenda for a long time and the need to address it as a priority. A majority

of them highlighted the inefficiencies (unquantified) in WHT procedures, related to the

operational complexities of collecting taxes and applying for eligible refunds. Issues such as

different national regimes for WHT relief or the obligation for foreign intermediaries to use

local fiscal agents were also obstacles to efficient cross-border investments and securities.

Respondents proposed the adoption of common standard rules and forms to harmonise the

process for WHT collection and relief, the application of the relevant provisions of Double

Taxation Treaties, and the enhancement of communication tools.

Many respondents also supported the work carried out by the Commission and the adoption of

the Code of Conduct on Withholding Tax11. Several respondents however considered it to be

a starting point, a minimum common denominator, and expressed some doubts regarding the

Code's effectiveness, in particular due to its non-binding nature. Respondents also mentioned

that the Code's implementation will depend heavily on the willingness of the Member States,

and would call for a legislative proposal to make it more effective. Some respondents

mentioned that a standardised form for WHT procedures that could be used by private

investors across the EU without relying on the intermediaries’ chain would be equally

important. In addition, according to respondents, there should be a requirement for a

standardised addressee of the repayment. Pragmatic solutions like extending the services of

SOLVIT to withholding tax procedures should also be considered.

Many industry associations considered that OECD Trace Implementation package12 as one of

the most advanced work streams that should be implemented. Other industry respondents

referred to the recommendations issued by the Tax Barriers’ Business Advisory Group (T-

BAG), which aimed at establishing workable solutions to implement the principles outlined in

9https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R1212&from=EN 10 Directive (EU) 2017/828 (OJ L 132, 20.5.2017, p.1) 11 Https://ec.europa.eu/taxation_customs/sites/taxation/files/code_of_conduct_on_witholding_tax.pdf 12 http://www.oecd.org/ctp/exchange-of-tax-information/TRACE_Implementation_Package_Website.pdf

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the 2009 Commission Recommendation on WHT relief procedures13. According to other

industry respondents, removing WHT for payments made to Collective Investment

Undertakings (CIUs) would be a preferred option. Some respondents supported a single WHT

system for pension institutions. They called for a legislative instrument exempting recognised

EU pension institutions from WHT at source across the EU, or, as an alternative, an initiative

to ensure that recognised pension institutions across the EU benefit from the same tax

treatments as applied to domestic pension institutions.

3.1.3. Complexity of post-trade reporting structure

Almost all respondents noted that the lack of a harmonised structure for the various post-trade

reporting requirements and the complexity for applying requirements and data analysis

increased the costs (unquantified) for reporting entities, infrastructures and regulatory

authorities. By way of evidence, several respondents provided examples of overlapping

reporting requirements amongst several pieces of EU legislation. In addition, one respondent

referred to the existence of low matching rates in EMIR. Almost all respondents specified that

the harmonisation of the reporting structure would help address the problem. A few

respondents recommended supporting the work led by CPMI-IOSCO14 on the harmonisation

of data elements.

The majority of respondents highlighted the need for further or different action to remove the

barrier. In particular, some respondents suggested the set-up of a working group on the

'Complexity of the Reporting Structure', which could include market participants and

regulators with the mandate to streamline market practices and identify solutions (so-called

‘harmonised and simplified reporting package’). One industry association proposed the

implementation of a single globally harmonised Entity-Based Reporting system that would

allow regulators to share aggregate data consistently at global level so as to improve quality

and avoid duplication.

3.1.4. Unresolved issues regarding reference data and standardised identifiers

Almost all respondents noted that financial reference data should be available to all market

participants for free or at a cost free of license fees, copyright or similar restrictions. Most

stated that an international agreement on access to all reference data identifiers would address

the issue. A few respondents mentioned that financial identifiers and similar types of

reference data should be free of proprietary restrictions and licensing arrangements. A few

others mentioned that an International Securities Identification Number (ISIN) or Unified

Payment Interface (UPI) without embedded high quality reference data would lack the

precision and comprehensiveness required for trading, clearing and settlement confirmation.

Other respondents proposed to cover governance models such as the Object Management

Group (OMG)15 and to consider the governance developments being examined by the FSB for

the UPI16. One respondent mentioned the importance of governance harmonisation amongst

UTI / UPI / LEI and recommended the set-up of a working group on the convergence of

market practices. One respondent referred to the need to encourage the use of reference data

utilities under the framework of a common standard.

13 https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/c(2009)7924_en.pdf 14 Https://www.bis.org/cpmi/publ/d160.htm 15 Www.omg.org 16 Www.fsb.org/wp-content/uploads/P031017.pdf

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3.1.5. Lack of harmonisation of registration and investor identification rules and

processes

Most respondents stated that the different national regimes for registration of securities

becomes problematic in a cross-border environment, by increasing complexity and costs, by

creating obstacles to issuers’ choice, and by preventing CSDs from effectively competing for

issuer services business. As such, they supported addressing this issue as a priority. However,

respondents did not provide any quantitative evidence of costs or detrimental effects. For

qualitative evidence, many respondents referred to existing national systems for shareholder

identification being limited in scope and often difficult to apply in a cross-border context.

Some referred to current practices of holding securities through chains of intermediaries

across borders where the shareholder identification's process for issuers is often cumbersome.

Others referred to an ECSDA report17 and an AFME paper18 highlighting the related

undesirable outcome. There was also mention of a report by ESMA on shareholder

identification and communication systems19, describing existing complexities.

Many respondents considered that more harmonisation and standardisation of investor

transparency procedures as well as registration processes would address this issue. However,

different views were expressed on how to proceed. Most agreed that the revised Shareholder

Rights Directive (SRD2)20 will ensure the uniform implementation of certain elements of

Article 3 of the Directive, in particular for the transmission of information between issuers

and shareholders. However, the revision would not solve all issues and would still allow

potential discrepancies among Member States’ implementing measures (e.g. freedom to set a

threshold up to 0.5% for shareholder identification). Other respondents recommended a

prudent approach as to the development of a unique identifier 'investor IDs' along the lines of

the Legal Entity Identifier and recommended the Commission to carry out further analysis

through an industry-led approach. A respondent commented that leaving the adoption of a

standard methodology to market participants may not achieve the intended objectives (e.g.

ISO 20022) as long as there is no compelling event or commercial interest.

A few industry respondents argued that registration requirements were not a barrier as such,

as there was according to them little evidence substantiating the scale of the issue and thus

justifying the harmonisation of registration processes across the EU, especially as evidence

solely focused on registration requirements in specific markets (France and Spain). One

industry respondent noted that certain Member States (Ireland, France, and UK) also facilitate

registration outside of a CSD, with other stakeholders (registrars) playing a role to ensure the

overall integrity of a securities issuance.

Some respondents called for any further amendment to the SRD to be done via a Regulation

and not a Directive as a way to prevent potential implementation discrepancies among market

practices. For some respondents, the review of the SRD should also address the specificities

of certain financial instruments. Specifically, respondents expressed the need for an effective

process for bond-holders identification, raising concerns about the risks of mandatory

registration of Eurobonds and money market instruments, and the challenges of obtaining

sufficient information for issuers in certain highly-liquid markets.

17 “The Registration of Securities Holders” dated 19th July 2016 (https://ecsda.eu/publications 18 https://www.afme.eu/globalassets/downloads/consultation-responses/afme-csd-acct-structure-final-report-for-

publication.pdf). 19 https://www.esma.europa.eu/sites/default/files/library/esma31-54-

435_report_on_shareholder_identification_and_communication.pdf 20 Directive (EU) 2017/828 of 17 May 2017 amending Directive 2007/36/EC, (OJ L 132, 20.5.2017, p1)

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3.1.6. Lack of convergence and harmonisation in information messaging standards

Almost all respondents agreed that national differences in information technology and in the

interfaces used by clearing and settlement providers create higher (unquantified) processing

costs and increase the risk of errors due to manual processing, notably for cash securities. A

few respondents mentioned that messaging standards are not a particular problem for OTC

derivatives21 and that there is no “one size fits all” standard suitable for all processes across

the industry. In addition, all except one respondent mentioned that a broader use of

ISO20022, digitalisation, harmonisation (to improve straight-through processing) and

standardisation would address the issue. That respondent did not consider the ISO20022

format to be suitable for any real-time processes. A few respondents referred to the need for

further or different action to remove this barrier, e.g. one respondent mentioned that a number

of market (domestic) specifics have not yet been standardised and supported an industry effort

to identify all current automation and standardisation gaps. Another respondent noted that

messaging across asset classes should conform, where appropriate, to the ISO 20022 syntax.

3.1.7. Uncertainty as to the legal soundness of risk-mitigation techniques used by

intermediaries

Many respondents felt that intermediaries required greater protection against existing

difficulties with the enforceability of bilateral close-out netting arrangements in case of

insolvency of another party. These difficulties relate to differences in the national

implementation of the Financial Collateral Directive (FCD) or to diverging national

insolvency rules. Many felt that a review of the relevant EU legislation would address the

issue. However, some respondents disagreed, expressing divergent views on the need for any

actions. A few industry associations and financial providers also indicated that any revision of

the FCD should assess collateral liquidity and mobility and consider the needs of all collateral

market participants. Other respondents considered that the FCD already has a close-out

netting regime in place which covers most of the needs while a few respondents considered

that EU legislation does not sufficiently protect close-out netting agreements in cross-border

settings. Some industry associations and public authorities considered that the FCD should be

amended through a Regulation and not a Directive so as to ensure uniformity and

simultaneous application. Others called for promoting further the Euro Master Agreement22 ,

as it could help to by-pass the conflict of law issues and prevent the automatic choice of

certain jurisdictions.

Some respondents also noted the important role of systemically important payment systems

that are specifically protected under the Settlement Finality Directive (SFD) and that a

number of jurisdictions (UK, Canada, Hong Kong, Singapore) already implemented finality

legislation to protect the default arrangements of designated payment systems.

3.1.8. Deficiencies in the protection of client assets as a result of the fragmented EU

legal framework for book-entry securities

Many respondents felt there was insufficient protection of clients' ownership rights in case of

an intermediaries' failure, arguing that this is due to the fragmented legal framework across

the EU. Half of the respondents considered that the introduction of harmonised legal

principles on book-entry securities and on end-investor's ownership on loss attribution in case

of shortfalls arising in the intermediary's insolvency would address the issue. However, there

were divergent views on the need for any actions. Several respondents disagreed with the

21 Reference to FpML® (Financial products Markup Language) which has been developed as an open source

XML standard for electronic dealing and processing of OTC derivatives. 22 Https://www.ebf-fbe.eu/european-master-agreement-ema

16

definition and scope of the barrier arguing that (i) the absence of harmonisation of book-entry

securities law is not a barrier as such, and (ii) there is no risk for end-investors or for client

asset protection since the EU legal framework already provides for clear rules on asset

protection and segregation requirements (notably Art. 38 CSDR and Art. 39 EMIR). Some

respondents, including companies, industry associations and public authorities, noted the need

to avoid theoretical discussions and focus on real cross-border barriers as there was little

evidence of legal disputes or material damages due to lack of harmonised book-entry

securities law. Respondents would therefore recommend that the Commission conduct an

impact assessment before any legislative initiative so as to gather evidence on the exact need

for any changes, if any at all.

Some respondents considered that there was a need for a comprehensive harmonisation of

conflict-of-laws rules to improve client protection, possibly along the lines of the 'Hague

Securities Convention' of 2004 as the EU regulation should be in line with international legal

standards. Some would welcome convergence of book-entry securities rules along broader

international efforts carried out in the UNIDROIT 'Geneva Securities Convention' of 2009.

Some respondents also indicated that any further legislative initiatives should bring legal

certainty that 'securities held through an intermediary are not legally owned by that

intermediary', as in a number of Member States the registered holder is considered the legal

owner. A few respondents noted that segregation requirements should avoid operational

complexity with minimum account structure arrangements and that the reference to 'omnibus

account' is not exhaustive as all securities accounts types should be taken into account,

including the nominee account.

3.1.9. Lack of harmonisation and standardisation of exchange traded funds (ETF)

processes

The vast majority of respondents felt that the growth of ETFs is restrained by legal obstacles

and a high degree of fragmentation, particularly in the post-trade area The majority of

respondents stated that the implementation of best market practices and standards to ease

cross-border movements as well as a special treatment for ETFs in settlement discipline under

CSDR23 would address this issue. Most respondents did not consider the need for further or

different action to remove this barrier, except for a few contributions calling for the

recalibration of the settlement penalties applicable to ETFs and for having a single CSD for

settling ETFs. Finally, some respondents referred to the fragmentation of certain multi-issued

products.

3.1.10. Shortcoming of EU rules on finality

Most respondents noted that the SFD24 does not address the actual finality of a transfer or

delivery versus payment mechanisms, lacks definitions of certain elements (e.g. matching

process) that are crucial to the uniform application of its rules, and is not sufficiently tailored

to central clearing. Half of the respondents suggested that a revision of the SFD could address

the issue. Some industry respondents supported a review of the SFD in relation to matters that

specifically refer to CCPs since the SFD provisions were not originally designed to take into

account the specificities of CCPs. Respondents agreed that the SFD should provide more

clarity on: (i) the treatment of clearing instructions, (ii) the application of finality regime to

transfer orders and collateral transfers from clearing members to the CCP (currently a

question of national applicable law), and (iii) the status of settlement instructions issued by

23 Directive (EU) 2014/9090 (OJ L 257/1, 23.07.2014) 24 Directive 98/26/EC (OJ L 166, 11.6.1998, p.45)

17

CCPs as a necessary part of their default management procedures (where CCPs may issue

new settlement instructions to be processed following the participant insolvency).

Some companies and industry associations did however not consider any shortcomings of the

SFD as a barrier. According to them, the objective of the SFD was not to harmonise the

moment of entry into a system, the settlement irrevocability or enforceability but to grant

insolvency protection regardless of the CSD's operating model. Respondents noted that

harmonisation of settlement finality is appropriate when several CSDs jointly decide to use a

single IT platform and harmonise their services. This is what has happened with T2S where

EU CSDs connected to T2S and EU NCBs signed the Collective Agreement in order to define

the same irrevocability moment of transfer orders in their respective systems.

Finally, certain respondents considered that the conversion of the SFD into an EU Regulation

would help minimise the differences in national legislation while others mentioned that any

revision should be based on an impact assessment and feedback from all types of systems that

benefit from the SFD protection (including both securities and payment).

3.1.11 Inconsistent application of asset segregation rules for securities accounts

The consultation did not seek specific views on asset segregation requirements given the work

that the Commission has already undertaken following stakeholders responses to the

Commission Call for Evidence25 and ESMA consultations on this issue under AIFMD and

UCITS Directive.26

3.1.12 Legal uncertainty as to ownership rights in book entry securities and third party effects

of assignment of claims

The consultation did not seek specific views on this issue as the Commission has previously

announced a legislative proposal and carried out a public consultation27.

3.2. Other barriers

All respondents confirmed the need to monitor closely the evolution of (i) potential

restrictions that could arise from CSDR requirements to the provision of cross-border delivery

versus payment services in foreign currencies by CSDs, (ii) the increasing focus on intraday

and overnight credit usage; and (iii) the ability to move collateral efficiently between

counterparties markets and accounts. All respondents except one also expressed the need to

monitor closely the possible introduction of a European Financial Transaction Tax and the

harmonisation of the tax collection mechanism across EU members. Finally, most

respondents also called for following national restrictions on the activities of primary dealers

and market makers, with the exception of a few respondents who did not consider these as

post-trade activities.

With regard to the lack of collateral mobility, respondents encouraged the Commission to

follow closely the work undertaken by AMI-SeCo28 and to provide regulatory support where

deemed necessary.

25 http://ec.europa.eu:finance/consultations/2015/financial-regulatory-framework-review/index_en.htm 26 https://www.esma.europa;eu/press-news/esma-news/esma-consults-assets-segregations-and-custody-services-

under-aifmd-and-ucits and https://www.esma.europa.eu/press-news/consultations/consultations-guidelines-

assets-segregations-under-aifmd 27 https://ec.europa.eu/info/finance-consultations-2017-securities -and-claim_en

18

A few respondents considered that CSDR requirements could potentially create a barrier to

the competitiveness of CSDs at global level due to the difficulty to develop investor CSDs’

services. They mentioned stringent requirements, the lack of reciprocity or recognition in

some non-EU countries, and the unintended consequences of mandatory buy-in rules (i.e.

disproportionate costly burdens, operational challenges). Finally, a few respondents

highlighted the impact of legal requirements and unintended consequences in terms of

liquidity fragmentation as well as the lack of harmonisation in CCPs methodologies and

processes for risk management purposes.

4. Conclusion

Many respondents from industry associations, companies and public authorities highlighted

the progress and substantial improvement achieved in recent years to make the EU post-trade

services and infrastructures more stable, transparent and efficient. While there seems to be a

few areas for improvement, respondents noted that any further adaptation of EU post-trade

legislation needs to be assessed carefully, given the major regulatory changes already

undertaken, some of which are still being implemented.

A few respondents also stressed that EU post-trade legislation is already much more

ambitious than other non-EU jurisdictions, in line with the G20’s post-crisis guidance. They

suggested that non-EU jurisdictions should further align with the EU’s regulatory framework

and best practices. In many areas, such as corporate action standards and T2S functionalities,

the EU should actively encourage the acceptance of EU-developed standards and practices at

global level. This would also foster international coherence and competitiveness and would

enable the EU to remain attractive to global markets in the future.

Additionally, some respondents considered that any future regulatory initiatives should first

require an impact assessment to gather solid qualitative and quantitative evidence of the need

for improvement. A few industry respondents and one public authority also expressed regret

that not all market participants were represented in the EPTF although those market

participants are also impacted (directly or indirectly). Finally, some respondents suggested the

creation of an effective mechanism to monitor progress to achieve further improvement.

28 Mandate of the advisory group on market infrastructures for securities and collateral, available at:

https://www.ecb.europa.eu/paym/intro/governance/shared/pdf/ami_seco_mandate.pdf