Opinion of the European Central Bank at the request of the Finnish Ministry of Financeon a draft legislative proposal concerning centralisation of book-entry registers at the central securities depository (CON/00/08)
Date: 2000-05-05
Institutions: European Central Bank
Subjects: Finland, financial supervision, national law, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Finnish Ministry of Finance

on a draft legislative proposal concerning centralisation of book-entry registers at the central

securities depository

(CON/00/08)

1.

On 15 March 2000 the European Central Bank (ECB) received a request from the Finnish Ministry

of Finance for an ECB Opinion on a legislative proposal concerning  centralisation  of  book-entry

registers.

2.

The ECB’s competence to deliver an opinion is based on Article 2, paragraph 1, fifth indent of the

Council  Decision  (98/415/EC)  of  29 June  1998  on  the  consultation  of  the  ECB  by  national

authorities  regarding  draft  legislative  provisions,  as  the  legislative  proposal  contains  provisions

concerning securities settlement systems in Finland and thus affecting to some extent the efficiency

and soundness of clearing and payment systems. In accordance with Article 17.5, first sentence, of

the Rules of Procedure of the European Central Bank, this ECB Opinion has been adopted by the

Governing Council of the ECB.

3. 

The Finnish book-entry system was created at the beginning of the 1990s as a decentralised system.

There is one central securities depository, the Finnish Central Securities Depository, which aims at

ensuring the security of operations and readiness to handle all types of book-entries. The Finnish

Central Securities Depository provides centralised services relating to the handling and settlement

of book-entries. It keeps an issuer-specific list of holders of equity securities.

Book-entry  debt  registers  have  already  been  centralised  at  the  Finnish  Central  Securities

Depository. However, book-entry equity registers are currently still decentralised to six book-entry

registrars,  which  maintain book-entry  registers  containing  book-entry  accounts  as  well  as  lists  of

holders of rights and of types of book-entries. Out of the six book-entry equity registers five are run

by private financial institutions and one is run by the Finnish Central Securities Depository.

4. 

The  legislative  proposal  aims  at  reforming  the  Finnish  book-entry  system  such  that  the  present

book-entry equity registers will also be centralised at the Central Securities Depository, which will

become  the  only  book-entry  registrar  licensed  by  the  Finnish  Ministry  of  Finance.  This

centralisation is proposed in order to acquire economies of scale relating to data technology.

5. 

The ECB welcomes the legislative proposal to consolidate the registrar function in Finland into one

centralised  book-entry  system.  This  measure  will  increase  the  safety  and  efficiency  of  securities

settlement and, thereby, contribute to financial stability in Finland. A centralised book-entry system

will shorten the time needed to settle securities transactions, as information on securities holdings

will be obtained directly from the system, i.e. there will be no need to wait for confirmation from

the registrars. The shortening of the settlement period will also reduce the counterparty risk.

The legislative proposal would also facilitate further integration of the Finnish securities markets

into the euro area as the proposed solution will be in line with the structure of the majority of the

euro  area  securities  settlement  systems.  However,  the  ECB  wishes  to  note  that  it  does  not  have

competence to analyse the legislative proposal from the point of view of Community competition

law.

6. 

The  legislative  proposal  would  result  in  changes  in  eight  different  national  laws,  all  of  which

concern  the  Finnish  book-entry  system.  Some  provisions  in  those  eight  laws  relate  either  to

Suomen  Pankki  or  to  the  ESCB-related  tasks  of  Suomen  Pankki.  However,  the  amendments

proposed do not change the substance of these provisions.

In addition the ECB notes that Section 3 of the Act on the Bank of Finland (214/1998) stipulates

that  Suomen  Pankki  shall  participate  in  maintaining  the  reliability  and efficiency  of  the  payment

system and overall financial system and participate in its development. In the opinion of the ECB,

this should be understood as including the securities settlement systems in Finland.

7. 

The  ECB  notes  that  the  legislative  proposal  would  also  change  the  existing  unlimited  secondary

liability of the Finnish Central Securities Depository. This liability will be transferred to a special

fund  to  be  financed  by  the  account  operators  and  limited  to  EUR  25,000  per  case  of  damage.

Furthermore the “force majeure” rule will apply. These changes have to be analysed further by the

ECB  when  making  assessments  against  the  ESCB  Standard 1  on  legal  soundness  of  link

arrangements  allowing  for  cross-border  use  of  collateral  between  the  Finnish  Central  Securities

Depository  and  other  securities  settlement  systems  for  the  Eurosystem  monetary  policy  and

intraday credit operations.

8. 

The  ECB  confirms  that  it  has  no  objection  to  this  ECB  Opinion  being  made  public  by  the

competent national authorities at their discretion.

Done at Frankfurt am Main on 5 May 2000.

The President of the ECB

[signed]

Willem F. Duisenberg

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