Association of Global Custodians
AGC
Established in 1996, the Association of Global Custodians is a group of 12 financial institutions that provide securities safekeeping services and asset-servicing functions to primarily institutional cross-border investors worldwide.
ID: 813994623570-13
Lobbying Activity
Response to Central securities depositories – review of EU rules
26 May 2022
The Association of Global Custodians (AGC) welcomes the European Commission’s Proposal for changes to CSDR.
The Commission’s Proposal introduces some important and necessary changes - but it can still be improved in some areas.
Mandatory buy-ins (“MBI”)
The AGC has long argued that MBIs relate to the contractual relationship between two trading parties and thus are an inappropriate tool for the purposes of improving settlement discipline. The two-stage procedure set out in the Proposal is a major improvement. We do, however, stress that other tools should be considered and applied, including notably the recalibration of penalty rates, before any decision is taken to move to stage two and implement the MBI rules.
The AGC would like to highlight that MBI rules are extra-territorial, and their implementation would require extensive repapering between all parties in any custody chain that hold European securities, even if the MBI rules apply only to a limited number of securities. It is important that there should be no repapering obligations in stage one, and we suggest that the CSDR text includes a mandate to ESMA to minimise any re-papering obligations that would arise in stage two. In particular, the requirement to the repaper client contracts to “ensure” compliance with MBI rules should be removed, as otherwise a disproportionate cost and burden is placed on intermediaries them when, as pointed out above, they are not themselves trading parties. In this regard we view the role of intermediaries to be solely limited to the transmission of settlement information in the buy-in process.
Other important improvements to the MBI rules include the clear assignment of buy-in obligations to trading parties, and not to CSD participants, the elimination of the requirement on CSDs to collect and store buy-in-related information, and the elimination of the requirement to appoint a buy-in agent.
Late settlement penalties
The AGC fully supports the objective of higher settlement rates in Europe and believes that the mechanism mandated under CSDR is the most important single tool to achieve this objective.
One key gap in the Proposal is the lack of a mandate to ESMA to ensure the public availability of all key information used for the calculation of penalties, including price information. Such publicly available information is necessary to minimise errors and to avoid reconciliation differences at each level in the custody chain.
Late settlement penalties and MBIs are intrinsically very different tools, and their scope of application should be different. Yet the Proposal sets out a scope of application that is very similar.
As late settlement penalties work by creating incentives for good settlement practices, and creating disincentives for bad settlement practices, it is important that most types of settlement activity fall within the scope of the penalties mechanism, while at the same time there should also be a very clear list of the types of transaction that fall out of scope.
Technical transactions, including market claims and transformations in cash, tax adjustments, registration movements, as well as centrally-generated transactions (for late matching penalties), should all be out of scope, as penalties for these types of transactions serve no purpose and hinder the smooth operation of the penalty mechanism.
Among other improvements to the settlement penalties mechanism would be a measure to ensure that all penalties for a given security are calculated at the same rate.
Banking services
The Proposal would allow a CSD that has a banking licence to offer banking services not only to its participants but also to participants in other CSDs. This measure contradicts the desirable public policy objective of greater settlement in central bank money and introduces contagion risk.
Read full responseResponse to New EU system for the avoidance of double taxation in the field of withholding taxes
26 Oct 2021
The Association of Global Custodians welcomes the Commission's initiative to improve withholding tax procedures within the EU. As detailed in the attached letter, we believe a well-functioning relief at source system must be the primary solution (based on standardized documentation, investor self-certification, and electronic data transmission), supplemented by simplified and streamlined reclaim procedures and enhanced administrative cooperation. Such a system would benefit all stakeholders: tax authorities, investors, and financial intermediaries.
In developing a successful solution, we recommend that the Commission give particular consideration to: (i) the importance of balanced, proportionate, and clear requirements to allow prospective participants to realistically assess and manage risk; (ii) the desirability of designing a system potentially adaptable for use beyond the EU; (iii) the benefits of using new technology to achieve fully digitalized procedures; (iv) the need to engage in robust consultation with relevant stakeholders; and (v) the design of appropriate solutions (e.g., enhanced diligence) to address identifiably higher risk relief claims. The AGC is committed to providing constructive input throughout the process of developing proposals for improved tax relief procedures.
Read full responseResponse to Action Plan on the Capital Markets Union
4 Aug 2020
The AGC-EFC supports the CMU project and the High-Level Forum (HLF) Report recommendations. Points raised below focus on HLF Recommendations with respect to which AGC-EFC members have insights that bear directly on the capacities in which they act and the services they provide. The AGC-EFC would welcome further dialogue on these topics.
Specific Points of Emphasis:
1. HLF Recommendation 7 – regarding legal certainty and clear rules for the use of crypto/digital assets. The AGC-EFC urges cross-border harmonisation of effects so that national laws do not become impediments to (a) holding, (b) exchange/disposition and (c) realisation of rights in such assets across borders.
2. HLF Recommendation 8 – regarding fragmented provision of settlement services. The AGC-EFC strongly urges more fulsome review of Settlement Discipline measures in line with and for the reasons set out in our ESMA Survey response. We believe that the Commission should not wait until after implementation of Settlement Discipline measures to do this. The AGC-EFC recommends as priorities focusing on (a) simplification and adoption of a “principles-based” approach; (b) further clarifying the scope of application so that settlement discipline measures affect relevant market behaviour; (c) revision of the buy-in regime as set out in our ESMA Survey response; (d) revision of the penalty regime as set out in our ESMA Survey response; and (e) regarding CSDR Article 38 (Protection of securities of participants and those of their clients), clarifying the standard of care and liability of CSDs in order to ensure a commonly understood and applied standard of protection of securities for participants and by extension their clients.
3. HLF Recommendation 9 - regarding shareholders’ rights. The AGC-EFC has engaged with DG-Justice regarding our high level of concern with the Shareholders Rights Directive II as written and implemented in member states: we believe this legislation needs to be revisited urgently, especially with respect to the lack of a common definition of shareholder across member states. We attach the AGC-EFC’s white paper on SRD II, which describes challenges and concerns as well as recommending possible solutions.
4. HLF Recommendation 15 - regarding WHT reclaim processes. The AGC-EFC especially supports the recommendation for the EC to make a proposal by mid-2022 to set out in EU law a standardized system for relief at source of withholding tax based on the OECD's TRACE system, including common definitions and processes, a single form, and retaining reclaim procedures as a back-up: if an investor is faced with 27 different sets of tax requirements, tax forms and tax definitions, then (i) the CMU does not exist, and (ii) there is serious complexity for investors. The creation of common tax definition, common forms, and common processes is a pre-condition for an open, competitive and efficient CMU. We attach a previously submitted letter on this issue by the AGC Tax Committee.
5. In keeping with the European Commission’s AIFMD Report, and possible corresponding reform measures under the UCITS Directive, the AGC-EFC urges: (a) consideration of measures to address serious lingering concerns in the depositary provisions, particularly with respect to whether it is sensible that third-party collateral agents be treated as “delegates”, creating the restitution liability risk for depositaries that they cannot control, (b) clarity regarding the status of investor CSDs is also needed, and (c) review of the eligible assets regime under the UCITS Directive due to the evolving needs of investors, advances in technology and broadening assets classes. We also note the Commission’s reference to the possibility of considering a depositary passport.
6. Despite the UK’s departure from the European Union, we urge EU authorities to engage with the UK to reduce EPTF barriers to cross-border capital flows in both directions, which would benefit EU investors and companies.
Read full responseResponse to Safekeeping duties of depositaries for UCITS funds
26 Jun 2018
The European Focus Committee of the Association of Global Custodians (“AGC-EFC”) is grateful for the opportunity to share its views on the European Commission's draft Delegated Regulations (collectively, the “Draft Amendments”) each amending the current EU 2013/231 (“AIFMR”) and EU 2016/438 (“UCITSR”) Delegated Regulations with regard to safe-keeping of AIF and UCITS clients’ assets respectively.
The AGC-EFC strongly supports the Commission’s continued efforts to improve legislation where warranted and welcomes proposals promoting investor protection and systemic stability that are cost effective and efficient. In the case of the current proposed Draft Amendments, the AGC-EFC welcomes the Commission’s agreement with ESMA - expressed in the Draft Amendments - that a third-party custodian should be able to hold assets of UCITS and AIFs clients and other clients of one depositary in the same omnibus account, provided its own assets, proprietary assets of the depositary and assets belonging to other clients of the third-party custodian are held in segregated financial instruments accounts. The AGC-EFC has emphasised the importance of omnibus accounts to market structure, efficiency, safety and investor interests and we are gratified that the Commission has responded to the ESMA opinion in agreement, albeit with related proposals which we will address in more detail below.
Although the AGC-EFC welcomes the proposed Draft Amendments, we wish to provide some comments, and alternative drafting, to address a number of concerns and to provide greater clarity.
Our comments and drafting focus on the following issues:
• Frequency of reconciliation between account holders and account providers through the custody chain
• Financial instruments registered in a “Financial Instruments Account” and whether the depositary may rely on its delegate (the “Reliance Model”)
• Contract requirements as between the depositary and its Delegate(s)
• Technical drafting issues regarding segregation obligations
• The requirement to obtain legal opinions in local markets and impact of harmonising the AIFMD with the UCITS Directive in this respect
• Treatment of CSDs as “third-parties”
• Implementation timing concerns
These concerns are set out in appropriate detail in our attached submission. We would welcome the opportunity to discuss with the Commission any aspects of these concerns, as well as our recommendations also contained in our submission for addressing them efficiently.
Read full responseResponse to Safekeeping duties of depositaries for Alternative Investment Funds
26 Jun 2018
The European Focus Committee of the Association of Global Custodians (“AGC-EFC”) is grateful for the opportunity to share its views on the European Commission's draft Delegated Regulations (collectively, the “Draft Amendments”) each amending the current EU 2013/231 (“AIFMR”) and EU 2016/438 (“UCITSR”) Delegated Regulations with regard to safe-keeping of AIF and UCITS clients’ assets respectively.
The AGC-EFC strongly supports the Commission’s continued efforts to improve legislation where warranted and welcomes proposals promoting investor protection and systemic stability that are cost effective and efficient. In the case of the current proposed Draft Amendments, the AGC-EFC welcomes the Commission’s agreement with ESMA - expressed in the Draft Amendments - that a third-party custodian should be able to hold assets of UCITS and AIFs clients and other clients of one depositary in the same omnibus account, provided its own assets, proprietary assets of the depositary and assets belonging to other clients of the third-party custodian are held in segregated financial instruments accounts. The AGC-EFC has emphasised the importance of omnibus accounts to market structure, efficiency, safety and investor interests and we are gratified that the Commission has responded to the ESMA opinion in agreement, albeit with related proposals which we will address in more detail below.
Although the AGC-EFC welcomes the proposed Draft Amendments, we wish to provide some comments, and alternative drafting, to address a number of concerns and to provide greater clarity.
Our comments and drafting focus on the following issues:
• Frequency of reconciliation between account holders and account providers through the custody chain
• Financial instruments registered in a “Financial Instruments Account” and whether the depositary may rely on its delegate (the “Reliance Model”)
• Contract requirements as between the depositary and its Delegate(s)
• Technical drafting issues regarding segregation obligations
• The requirement to obtain legal opinions in local markets and impact of harmonising the AIFMD with the UCITS Directive in this respect
• Treatment of CSDs as “third-parties”
• Implementation timing concerns
These concerns are set out in appropriate detail in our attached submission. We would welcome the opportunity to discuss with the Commission any aspects of these concerns, as well as our recommendations also contained in our submission for addressing them efficiently.
Read full response