CEBS publishes its report to the ECOFIN on custodian banks

The Committee of European Banking Supervisors (CEBS) today publishes its response to the ECOFIN’s request from 3 June 2008 for a review of ‘the coverage of risks borne by custodians (…) so as to ensure a level playing field while avoiding inconsistencies in the treatment of custodians and double regulation’.

The review carried out by CEBS compared the relevant ESCB-CESR draft Recommendations for Securities Settlement Systems and for Central Counterparties with the Capital Requirements Directive and other relevant EU Directives and Level 3 guidance applicable to custodian banks.

CEBS’s Report finds that, in general, the draft Recommendations relevant to custodian banks participating in the clearing and settlement system are covered in the Capital Requirements Directive and/or other banking relevant regulations. However, where custodian banks internalise settlement activities, CEBS finds that some recommendations relating to the design of the clearing and settlement system are either not met or only partially/indirectly met by the Capital Requirements Directive.

In order to gather evidence about the extent to which such activities are performed (i.e. the internalisation of settlement carried out by custodian banks), CEBS has decided to carry out a review of the materiality of this market practise and expects to deliver its results by early Q2 2009.