Centrální depozitář cenných papírů, a.s. (CSD Prague)
We absolutely do not understand the purpose of this calculation, because the way of calculation is almost the same as for operational, legal and custody risk and also the result will be similar. We are sure that there is not additional custody risk, because the custody risks faced by our participants (whether in relation to assets held directly in a CSD, via CSD links, or elsewhere in sub-custody) are covered by participants themselves. The risks to the CSD in relation to participants’ assets, on the other hand, are fully covered under operational and legal risks. Furthermore, it is unclear how CSDs' activities can be mapped to the business lines of a credit institution, as described in art.317 of the CRR. CSDs are not involved in the activities described (corporate finance, trading and sales, retail brokerage etc.) and thus they cannot select any of the listed business lines. So-called agency services" are perhaps the only services that are conceivable in a CSD context, but then the definition provided in the CRR is different from the central maintenance service as described in the CSDR. Indeed, the type of custody services provided by other financial institutions are different from the safekeeping of financial assets by financial market infrastructures like CSDs, and are thus not comparable from a risk perspective. Mainly due to the duplication art.5 of the draft RTS should not only be amended in relation to clients' securities, but should be deleted entirely. We recommend that references to custody risk should be included in art.4 of the draft RTS instead, in line with the spirit of the Level 1 CSDR."
The proposed calculations often put the focus on risks which are marginal for CSDs (investment, credit and liquidity risks) instead of allowing for a transparent and consistent assessment of operational risks which are at the core of every CSD’s activities.
We see also problems with the proposed cumulative approach, because this approach creates overlaps. For example there are overlaps between business risk and winding-down. A given event (e.g. a substantial and unexpected loss of income) considered for business risk purposes might or might not fall under winding down scenarios, depending on the severity of the problem and whether it poses a threat to the operation of a CSD as a going concern. The same scenario might thus be considered twice, although with different degrees.
We support the use of the Basic Indicator Approach for assessing operational and legal risks, but we think that the 15% ratio used for banks should be recalibrated to 10% to reflect CSDs' lower risk profile and also we recommend to adjust the ratio according to specific insurance arrangements covering operational and legal risks.
Regarding a calculation of capital requirements for business risk we think that the using gross expenses as a reference are inappropriate. Business risk should be primarily covered by net income. This would avoid unnecessarily high capital requirements, e.g. in case of a CSD that would remain profitable after the business risk scenarios described in Annex II have materialised. Equity coverage should only be required in case of net losses, hence there should be no 25% floor.