European Parliament resolution on clearing and settlement in the European Union (2004/2185(INI))
Date: 2005-07-07
Institutions: Committee on Economic and Monetary Affairs, European Parliament
Subjects: European System of Central Banks, capital market, competition, financial transaction, regulation of transactions, securities, standard, tax system

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P6_TA(2005)0301

Clearing and settlement in the EU

European Parliament resolution on clearing and settlement in the European Union (2004/2185(INI))

The European Parliament,

— having regard to the Commission's communication to the Council and the European Parliament entitled

‘Clearing and Settlement in the European Union — The way forward’ (COM(2004)0312),

— having regard to the first and second reports of the Giovannini Group on Cross Border Clearing and

Settlement Arrangements in the EU, issued in November 2001 and April 2003 respectively,

— having regard to its resolution of 15 January 2003 on the communication from the Commission to the
Council and the European Parliament entitled ‘Clearing and settlement in the European Union: main
policy issues and future challenges’ (1),

— having regard to the establishment of the Clearing and Settlement Advisory and Monitoring Expert

Group (‘the Cesame Group’) by the Commission, which held its first meeting on 16 July 2004,

— having regard to the declaration of 26 January 2004 by four successive Council presidencies, namely,
the Republic of Ireland, the Netherlands, Luxembourg and the United Kingdom, which stressed the
importance of the Lisbon process and the need to improve the quality of regulation and to consider
alternatives to legislation,

— having regard to the observations made by the President of the European Central Bank during the

debate in plenary on 25 October 2004;

— having regard to Rule 45 of its Rules of Procedure,

— having regard to the report of its Committee on Economic and Monetary Affairs (A6-0180/2005),

A. whereas the infrastructure for securities clearing and settlement in the EU is currently being shaped and
cross-border clearing and settlement activity remains insufficiently harmonised, and whereas the Com-
mission is carrying out an impact-assessment study in order to identify the net comparative benefits of
regulatory and non-regulatory options to reduce the costs of cross-border transactions (including the
elimination of the Giovannini barriers) taking into account the interest of all participants (issuers,
investors and financial intermediaries), and whereas that study may or may not propose legislation,

B. whereas the clearing and settlement industry is successful, innovative and responsive to customer press-
ure on domestic transactions, whereas there is significant scope for increased efficiency in cross-border
clearing and settlement of securities transactions, where the infrastructure for securities settlement is
fragmented in a multiplicity of domestic systems; whereas some users of clearing and settlement ser-
vices tend, however, to be large firms, which are able to negotiate firmly with service providers to
defend their interests; whereas the importance should be stressed of achieving a global system which
provides a safe and efficient framework for transactions to all users (investors, issuers, financial inter-
mediaries) thereby promoting competition,

C. whereas there is competition in the market for clearing and settlement services in the EU, but the
degree of competition varies according to the specific service provided and there is a relatively small
number of major services providers (for example, a number of larger custodians perform clearing and
settlement type services ‘in-house’ by transferring securities between customers on their own books);
whereas the Commission should properly distinguish between the post-trade functions provided in
competition by the following institutions:

(a)

central securities depositories (CSDs), which combine central register and ultimate (central) settle-
ment activities; they may also in certain cases provide non-core activities such as netting services,
which are currently described by the Commission as clearing; in some instances, they also provide
custody and banking services;

(1) OJ C 38 E, 12.2.2004, p. 265.

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(b)

(c)

international central securities depositories (ICSDs), which perform two activities:
(1) acting as CSDs for the settlement side of Eurobond transactions and
(2) performing global custodian activities on securities for which they are not acting as deposi-
tories; as part of these global custodian activities, ICSDs provide lending programme and other
tri-party services;

central counterparts (CCPs), which perform central guarantee and, in most cases, netting activities
(both defined as clearing in the abovementioned Commission communication); since the essential
mission of CCPs consists of replacing each counterparty to the trade by interposing themselves in
the transactions, they concentrate replacement risks together with their clearing members; and

(d) custodian banks, which offer clearing and settlement services and which can participate in CCP

services as clearing members;

D. whereas inefficiencies exist in the market for cross-border clearing and settlement in the EU which arise
partly from two sources: higher operating costs per transaction due to national differences of a legal
nature, technical requirements, market practices and tax procedures, and in some cases higher margins
due to restrictive market practices,

E. whereas the abovementioned Giovannini reports identified 15 barriers which result from those national
differences, and the Cesame Group is working to coordinate private and public sector initiatives to
remove them, and whereas some of the legal and access-related barriers can only be removed through
legislation,

F. whereas the current concentration of stock exchanges and the tendency for central clearing and settle-
ment functions to develop into monopolies demonstrate a need for increased transparency in the cross-
border clearing and settlement market,

1. Warmly supports the goal set out in the abovementioned Commission communication of an efficient,
integrated and safe market for clearing and settlement of securities in the EU;

2.
Believes that the creation of efficient EU clearing and settlement systems will be a complex process,
and notes that true European integration and harmonisation will require the combined efforts of different
stakeholders and that the current public policy debate should take due account of the principles underpin-
ning Directive 2004/39/EC (1) and focus on:

(a) bringing down the cost of cross-border clearing and settlement;

(b) ensuring that systemic or any other remaining risks in cross-border clearing and settlement are properly

managed and regulated;

(c)

encouraging the integration of clearing and settlement by removing distortions of competition; and

(d) ensuring proper transparency and governance arrangements;

Believes that, as a general principle, legislation by the EU should be subject to a cost-benefit analysis
3.
and that the EU should resort to legislation where there is clear risk of market failure and where legislation
is an effective and proportionate way to remedy clearly identified problems;

Strongly asserts that any new regulation in this area should not duplicate existing regulation for
4.
specific entities; notes that this is particularly important in order to avoid double regulation of the banking
and investment services sector; prefers a functional approach to regulation which takes into account differ-
ent risk profiles and competitive situations of different entities as well as the role of CSDs as recognised by
most Member States;

Is convinced that an unnecessary regulatory burden can best be avoided by giving careful consider-

5.
ation to an analysis aimed at identifying those issues where rules may be needed;

(1) OJ L 145, 30.4.2004, p. 1.

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6.
Sees no evidence that the providers of clearing and settlement services are poorly regulated at national
level, although they are regulated differently across the EU, or that any systemic risk they pose is inad-
equately controlled; notes the arrangements in place to manage operational risk (systems breakdown),
which is the source of systemic risk most relevant to clearing and settlement; draws attention however to
the need to guard against any systemic risk whether it be operational, liquidity-related or credit-related;
notes that the natural tendency of central clearing and settlement functions to concentrate due to the exist-
ence of network externalities, economies of scale and other factors will inevitably concentrate risks, which
are today dispersed among many settlement systems;

7. Welcomes the Commission decision to conduct an impact assessment, which should include a tho-
rough analysis of the potential costs and benefits of both legislative and non-legislative options, and their
respective scope;

Believes that there is a need to effectively enforce and improve existing legislation; calls on the Com-
8.
mission to take robust steps to ensure that relevant legislation; (e.g. Directive 98/26/EC (1) on settlement
finality in payment and securities settlement systems and Directive 2004/39/EC) is properly and consistently
implemented and rigorously enforced;

9.
Is concerned at the delays in Level 2 of implementation of Directive 2004/39/EC and points out that
any postponement of the date of implementation should not disregard the competences of the European
Parliament;

10.
Regrets that the Commission did not deal with post-trade services at the same time as investment
services; is concerned at the legal vacuum thus created, particularly in terms of the harmonisation of pro-
cedures, issuing passports and supervision, as a result of the principles of free access established by Directive
2004/39/EC;

Believes that if the Commission, on the basis of the results of the impact assessment study, does opt

11.
for legislation, its proposal should particularly focus on:

(i)

(ii)

re-confirming and strengthening access rights in order to ensure fair and non-discriminatory access to
central clearing and settlement service providers;

strengthening passporting rights for providers of clearing and settlement services supported, when
needed, by regulatory convergence;

(iii) allowing for transparency and enabling market forces to work effectively;

(iv) achieving consistency of regulation, supervision and transparency to enable providers of clearing and

settlement services to manage systemic risk and anti-competitive behaviour;

(v) establishing a functional approach to the regulation of different players, which takes into account the

different risk profiles and competitive situations of different entities;

(vi)

introducing definitions that are coherent and consistent with existing market practices and with the
terms used globally and within the EU;

12.
Agrees with the Commission that it is principally the market that should decide the structure of
clearing and settlement services; considers that no particular model should be mandatory, e.g. user owned
and governed, shareholder owned, publicly owned;

The Giovannini Barriers

Believes that bringing down the cost of cross-border clearing and settlement necessitates in particular
13.
the removal of the 15 ‘Giovannini barriers’, through market mechanisms when possible; urges all entities,
both public and private, to re-double their efforts to remove them; supports the Commission's efforts to
coordinate this project via the Cesame Group;

14.
Considers that the removal of the Giovannini barriers remains a priority; believes that regulation
should, if necessary, have as its primary goal the removal of those legal and fiscal barriers that cannot be
removed without public intervention;

(1) OJ L 166, 11.6.1998, p. 45.

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15.
Believes that inconsistencies between national laws on transferring financial instruments are one of
the main reasons why costs are higher for cross-border than for domestic transactions; supports ongoing
attempts to harmonise these laws but acknowledges that this project could take many years to complete;
welcomes the setting-up by the Commission of the Legal Certainty Group; urges the Commission to step up
the work of that group as a priority instrument for promoting convergence at European level; calls on the
Commission to act upon the results of this work and to cooperate closely with third countries and groups
such as Unidroit and the Hague Convention of 13 December 2002 on the law applicable to certain rights in
respect of securities held with an intermediary and calls for the European Parliament and the Member States
to be associated in due course with defining the European negotiating position within this framework;

16.
Believes that fiscal barriers are a reason for higher costs in cross-border clearing and settlement;
supports ongoing attempts to reduce these barriers; welcomes the fiscal compliance experts' working group,
introduced by the Commission with a view to launching a process of coordination and harmonisation in tax
matters;

Believes that the short-term focus of work on tax matters should be the standardisation of reporting
17.
requirements, to be followed by further removal of discriminatory tax practices; considers that if it were
possible to provide information to tax authorities on a standard form throughout Europe, this would signi-
ficantly reduce clearing and settlement costs, without undermining the power of Member States to decide
their own taxes;

CESR/ESCB Standards

18.
Urges the Committee of European Securities Regulators (CESR) to clearly state the legal basis of its
activities on subjects not mandated by EU legislation, and in any case to cooperate closely with the Euro-
pean Parliament and to keep it fully informed on its Level 3 and 4 activities, particularly on highly political
issues related to market structures such as clearing and settlement, and to remove the binding character of
its standards;

Regrets that the CESR and the European System of Central Banks (ESCB) did not consult more widely
19.
and openly the market players concerned as well as other European institutions; questions the usefulness of
the CESR-ESCB concept of a ‘significant custodian’, as it is ambiguous; believes that the CESR-ESCB stan-
dards must ensure there is no double regulation for institutions already subject to banking regulation;

20.
Regrets the timing of the adoption of CESR-ESCB standards during a period when Level 1 measures
are under consideration; reaffirms that CESR standards must not pre-determine EU legislation, whether
legislative or non-legislative; urges full consultation and transparency in the implementation of the standards
and believes that implementation should be postponed at least until after the Commission has decided
whether to propose a directive; points out that, in any case, whatever contribution is made by CESR-ESCB,
the primary responsibility and competence for legislation in this sphere lies with the European legislator;

21.
Is concerned that, despite the CESR's decision to postpone implementation of the standards, some
regulators are going ahead and are already requiring their implementation by market participants; is further
concerned at reports that the standards are being redrafted by CESR-ESCB without consultation and behind
closed doors;

22.
Believes that, if no directive is proposed on clearing and settlement, an effective alternative means of
scrutinising CESR must be developed which ensures effective parliamentary oversight of Level 3 activities;
calls on all relevant institutions and stakeholders to engage in a debate on how this might be achieved; notes
the following ways in which this might be achieved:

(i)

ensuring that notification is sent to the European Parliament of all mandates sent to the CESR and also
ensuring that the CESR keeps the European Parliament informed, at the earliest possible stage, of work
carried out at Level 3 on subjects which raise sensitive political issues;

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(ii) developing and enhancing the effectiveness of parliamentary hearings with representatives of CESR,

with tough questioning and cross-examination;

(iii) submission of regular written reports by the CESR to the Committee on Economic and Monetary

Affairs;

Competition

23.
Believes that the definitions in the abovementioned Commission communication do not clearly dis-
tinguish between the activities of different sectors of the market and that they must be significantly
improved if legislation is proposed;

24.
Recognises the benefits of scale and scope that can flow from allowing concentration; notes that
users of clearing and settlement services have been calling for consolidation for many years and that recent
consolidation, if properly controlled, is expected to yield further benefits in the near future; believes that the
absence of an appropriate legislative and regulatory framework does not allow for a level playing field to be
created, which is needed to foster integration;

25.
Urges the Commission to use its general powers under competition law in a pro-active way to guard
against any abuse of a dominant position or other anti-competitive behaviour; notes the significant impact
of recent competition cases in this area; points out, however, that these cases concerned major players with
significant negotiating power and that particular attention should be paid to ensuring that all participants
have access to essential facilities without discrimination;

26.
Agrees that some parts of the clearing and settlement system industry deserve more careful attention
from a competition policy perspective; recognises that certain firms have a large share of the market for
clearing and settlement services and this may weaken the smooth functioning of the market; considers that
it is only where a dominant position is abused that customers suffer and public policy intervention is
justified;

27.
Cautions the Commission against any dilution of competition law; urges the Commission to use its
powers to safeguard competition in a pro-active way so as to guard against any abuse of a dominant
position or other anti-competitive behaviour, in particular with regard to transparency of pricing structures;
urges the Commission to:

(i)

ensure that there is equal and fair access for all users;

(ii) examine the existence of cross-subsidisation between core and value-added services; and

(iii) ensure appropriate behaviour by players with dominant market positions as provided by Article 82 of

the EC Treaty;

notes the impact of recent competition cases in this area;

28.
Believes that effective and transparent non-discriminatory access rights to clearing and settlement
services are important in ensuring a competitive integrated financial market in the EU; recommends using
the possibility of pro-active enforcement of Directive 2004/39/EC, along with vigilant use of the Commis-
sion's general competition powers, to ensure access restrictions are not abused for anti-competitive reasons;

29.
Accepts that access may be refused where it would not be technically feasible or commercially viable
or prudentially safe for objective and transparent reasons; urges the Commission to use its general com-
petition law powers to ensure access restrictions are not abused for anti-competitive reasons;

30.
Supports the ongoing impact assessment which the Commission is undertaking to assess the need
for legislative measures; supports the Commission's ideas regarding the transparency of pricing structures;
notes that comparability difficulties can arise if several cost components are combined together in a single
tariff component; questions whether it is necessary to separate ‘core’ clearing and settlement activities and
so-called ‘value-added’ services in order to address legitimate questions regarding free competition, non-
discriminatory access and risk mitigation; expects potential proposals of the Commission in this area to be
proportionate to problems identified in the market;

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31.
Expresses concern over the issue of whether post-trade services should come under the category of
services of general interest; urges the Commission to ensure that all players providing the same service are
regulated in the same manner;

Believes that central providers of clearing and settlement services should take full account of the
32.
interests of all users, maximise user consultation and transparency of pricing structures and ensure zero
cross-subsidy between their central services and those offered in competition with other market participants,
especially custodian banks, as is already the case in other industries; believes that users should pay only for
the services they consume and have a clear and unfettered choice about where to purchase banking services
related to their transactions; considers that securities settlement systems settling in commercial bank money
should offer at least a choice as to whether to settle in central bank money;

33.

Instructs its President to forward this resolution to the Council and the Commission.

*

*

*

P6_TA(2005)0302

The accession process of Bulgaria and Romania

European Parliament resolution on the accession process of Bulgaria and Romania

The European Parliament,

— having regard to the accession treaty for Bulgaria and Romania signed on 25 April 2005,

— having regard to the progress achieved by Bulgaria and Romania which made it possible to conclude
the accession negotiations, but also to the need to continue the efforts to remedy the shortcomings
identified in the Commission's 2004 progress report and in Parliament's most recent resolutions both
before and after signature of the accession treaty,

— having regard to the exchange of letters between the President of Parliament and the President of the
Commission on the full involvement of Parliament in any decision to apply any of the safeguard clauses
in the accession treaty,

— having regard to the fact that the ‘acquis’ continues to develop and be modified in the run-up to the
Bulgarian and Romanian accession to the European Union, scheduled for 1 January 2007, or 1 January
2008 should the safeguard clauses in the accession treaty be invoked,

— having regard to the fact that the Council and Commission are allowing observers from Bulgaria and
Romania to participate in parts of their respective internal proceedings, as a minimum safeguard to
enable the two countries to at least be aware of legislative developments affecting them,

— having regard to Rule 103(4) of its Rules of Procedure,

Stresses once again that it will continue to follow closely the process which will lead to Bulgaria's and
1.
Romania's accession, and calls on the Commission to keep it regularly informed of the extent to which the
Bulgarian and Romanian authorities honour the commitments made in the accession treaty; stresses that its
approval of the accession treaties was given on condition that the Council and Commission fully involve
Parliament in decision-making in the event of the safeguard clauses in the accession treaty being used in the
context of Bulgaria's and Romania's accession;

Emphasises that

2.
the European Parliament welcomed parliamentary observers from the ten new
Member States for the whole period from the signing of the accession treaty to their actual and formal
accession to the Union;

3.
Points out that, although the presence of the observers was limited and restricted in terms of real
influence, this arrangement made it possible for democratically elected parliamentarians from the accession
countries not only to familiarise themselves with European Parliament proceedings, but also to closely
follow the actual adoption of Community legislation;