By responding to this consultation, you provide personal data to the Bank of England. This may include your name, contact details (including, if provided, details of the organisation you work for), and opinions or details offered in the response itself.
The response will be assessed to inform our work as a regulator and central bank, both in the public interest and in the exercise of our official authority. We may use your details to contact you to clarify any aspects of your response.
The Consultation paper (CP) will explain if responses will be shared with other organisations (for example, the Financial Conduct Authority). If this is the case, the other organisation will also review the responses and may also contact you to clarify aspects of your response. We will retain all responses for the period that is relevant to supporting ongoing regulatory policy developments and reviews. However, all personal data will be redacted from the responses within five years of receipt. To find out more about how we deal with your personal data, your rights or to get in touch please visit bankofengland.co.uk/legal/privacy.
Information provided in response to this consultation, including personal information, may be subject to publication or disclosure to other parties in accordance with access to information regimes including under the Freedom of Information Act 2000 or data protection legislation, or as otherwise required by law or in discharge of the Bank’s functions.
Please indicate if you regard all, or some of, the information you provide as confidential. If the Bank of England receives a request for disclosure of this information, we will take your indication(s) into account, but cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system on emails will not, of itself, be regarded as binding on the Bank of England.
Responses are requested by 15 September 2022.
Please address any comments or enquiries by email to: FMIFeedback@bankofengland.co.uk
Alternatively, please address any comments or enquiries to: Incoming FMI Framework Team, Financial Market Infrastructure Directorate, Bank of England, 20 Moorgate, London, EC2R 6DA.
1. Following the UK’s withdrawal from the European Union (the EU), the Bank of England (the Bank) has taken on responsibility, pursuant to Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 as it forms part of retained EU law (‘UK CSDR’), for recognising non-UK central securities depositories (‘incoming CSDs’) intending to provide notary and/or central maintenance services in relation to financial instruments constituted under UK law to either issuers or CSD participants established in the UK (‘CSD services’).footnote 
2. For all incoming CSDs, the Bank will need to verify, among other things, that the incoming CSD’s application contains the necessary information and that appropriate co-operation arrangements are in place with the CSD’s home authority. The Bank will subsequently undertake a proportionate degree of ongoing monitoring and/or supervisory activity in relation to the CSD’s recognition under UK CSDR and the Financial Services and Markets Act 2000 (‘FSMA’). The Bank proposes to levy fees on incoming CSDs to cover its costs of recognition and ongoing monitoring and/or supervision.
3. This CP sets out the Bank’s proposed approach to levying recognition fees and annual fees on incoming CSDs pursuant to Regulation 50 of the Central Securities Depositories Regulations 2014. The proposals include how the Bank intends to levy fees:
(a) on incoming CSDs at the point of recognition (‘recognition fee’); and
(b) on incoming CSDs, once they have been recognised, for monitoring and/or supervision on an annual basis (‘annual fees’).
4. This CP is relevant to incoming CSDs that are seeking (or intend to seek) recognition by the Bank to provide clearing services in the UK (including those currently in the Temporary Recognition Regime).footnote 
Summary of proposals
5. The Bank proposes to:
- Replace the current £30,000 fee for the recognition of incoming CSDs with a £45,000 recognition fee, payable by incoming CSDs at the point of recognition (for the avoidance of doubt, this fee will not be payable if recognition is not granted or if the application for recognition is withdrawn by the incoming CSD). As part of the recognition process the Bank is required to provide information or advice which HM Treasury (HMT) considers is necessary to enable it to decide whether to make an equivalence determination. The proposed increase from £30,000 to £45,000 reflects the Bank’s experience of the work required to provide such equivalence advice to HMT and the establishment of appropriate co-operation arrangements with the home authorities.
- Introduce an annual flat fee payable by those incoming CSDs that the Bank judges to present low potential risks to UK financial stability. This fee is proposed to be £6,000 for the 2022/23 fee year and will be subject to review at least on an annual basis. As explained in the Proposals section below, these CSDs would be allocated to incoming CSD ‘Group B’.
- Introduce an annual fee payable by the remaining incoming CSDs, which the Bank judges to present material financial stability risks to the UK, charged on a cost recovery basis, in aggregate, and reflecting the higher level of monitoring and/or supervision undertaken by the Bank. These CSDs would be allocated to incoming CSD ‘Group A’. Fees will be payable at the beginning of the fee year, based on the expected monitoring and/or supervisory resource to be used to monitor and/or supervise the CSDs. At the end of the fee year, fees may be adjusted, where applicable, to reflect the actual costs incurred by the Bank in exercising its monitoring and/or supervisory functions via a rebate or additional invoice as part of the following year’s fees. All CSDs in Group A will pay the same fees.footnote 
- Align the annual fee cycle for incoming CSDs to the cycle used for the Bank’s existing fees regime for the supervision of financial market infrastructures (FMIs).footnote  The Bank’s fee year is a 12-month period from 1 March to the end of February, with invoices issued no later than Q3 of that fee year. Invoices are issued with 30-day payment terms.
6. The proposed implementation date for the proposals contained in this CP is 1 December 2022. For the avoidance of doubt, and as further explained in the Proposals section below, no fees would be levied on incoming CSDs until they have been recognised by the Bank.
Responses and next steps
7. This consultation closes on 15 September 2022. The Bank invites feedback on the proposals set out in this CP. Please address any comments or enquiries to FMIFeedback@bankofengland.co.uk or, alternatively to: Incoming FMI Framework Team, Financial Market Infrastructure Directorate, Bank of England, 20 Moorgate, London, EC2R 6DA.
8. The proposals set out in this CP have been designed in the context of the UK’s withdrawal from the EU and the transition period having come to an end. Unless otherwise stated, any references to EU or EU derived legislation in this CP refer to the version of that legislation which forms part of retained EU law.footnote 
9. The Bank proposes to levy fees to cover its recognition and monitoring and/or supervisory activity in respect of incoming CSDs, as permitted by the Bank’s fee-levying powers. The costs anticipated to be incurred by the Bank in connection with its recognition and monitoring and/or supervisory activity in respect of incoming CSDs include the costs of relevant supervision staff together with relevant specialist resources, corporate services and other relevant costs.
Proposed recognition fee for incoming CSDs
10. In July 2019, following consultation, the Bank set out in a Policy Statement its fee for the recognition of incoming CSDs.footnote  The Policy Statement specifies a £30,000 fee, payable once an incoming CSD has been recognised by the Bank (in the event that an application for recognition is unsuccessful or withdrawn, no fee is levied). The Bank has reviewed the existing recognition fee arrangements to take into account the Bank’s up-to-date resource cost estimates, and is consequently proposing revised fees as follows.
11. The Bank considers that a recognition fee of £45,000, payable by all incoming CSDs at the point of their recognition, would be fair, reasonable and proportionate, based on a calculation of the Bank’s expected work effort and the associated costs the Bank anticipates it will incur (including for CSDs that are based in jurisdictions in which there is more than one applicant CSD). This includes the work required for the establishment of co-operation arrangements with relevant home authorities and the delivery of any technical advice on equivalence provided to HMT, as well as a review of the documentation submitted by the applicant CSDs. The proposed £15,000 increase on the current £30,000 recognition fee reflects the Bank’s experience of the work required to provide equivalence advice to HMT, as well as the Bank’s up-to-date resource costs.
12. The Bank is therefore proposing a recognition fee, payable by all incoming CSDs, of £45,000. Consistent with the current recognition fee, this would be payable once an incoming CSD has been recognised and would not be levied should the application for recognition be unsuccessful or withdrawn.
Proposed annual fee regime for incoming CSDs
Interaction with the Bank’s existing FMI fee regime
13. The Bank currently charges annual supervision fees to FMIs supervised under the Banking Act 2009 or FSMA.
14. The Bank’s established approach to fees uses ‘fee blocks’ for each type of FMI (ie there is a separate fee block for central counterparties, CSDs, and recognised payment systems and specified service providers). This means that costs are allocated to each type of FMI and then further allocated between FMIs within each fee block.
15. The allocation of fees between FMIs within a given fee block is determined by an individual FMI’s ‘category’. FMIs are categorised according to their potential capacity to cause disruption to the UK’s financial system, ranging from the most significant FMIs (Category 1) to the least significant (Category 3). FMIs are charged fees based on their assigned category.footnote 
New incoming CSD fee block and groups
16. The Bank proposes to create a new fee block for incoming CSDs (separate from the existing fee block for UK-based CSDs). Incoming CSDs would be placed into ‘groups’ based on the level of monitoring and/or supervisory activity anticipated to be undertaken by the Bank, which will primarily depend on the risk the Bank considers the incoming CSD to pose to UK financial stability. Incoming CSD ‘groups’ can be viewed as broadly analogous to ‘categories’ in the existing regime for UK-based CSDs, though a different methodology is proposed for determining the allocation of incoming CSDs to ‘groups’.
17. The Bank proposes to establish two ‘groups’ (A and B) for incoming CSDs, with the level of monitoring and/or supervisory activity undertaken by the Bank being higher for Group A than for Group B:
- Incoming CSD Group A – incoming CSDs deemed to pose material risks to UK financial stability.
- Incoming CSD Group B – incoming CSDs deemed to pose low risks to UK financial stability.
18. The Bank’s process for allocating incoming CSDs to these groups would be based on an assessment against a range of qualitative and quantitative factors relating to the materiality of the risks the CSD poses to UK financial stability, including but not limited to:
- The value of the transactions settled by the CSD that are linked to the UK (measuring UK related settlement flows through the CSD).
- The value of securities held by the CSD on behalf of UK-based participants and issuers (measuring the stock of UK related securities held in the CSD).
- The proportion of the CSD’s total business that is linked to the UK.
19. Under this framework, the Bank would expect that incoming CSDs primarily serving their respective national securities markets would be allocated to Group B; and incoming CSDs primarily serving international securities markets (such as the ‘eurobond’ market) would be allocated to Group A. These expectations around group allocations for CSDs serving their respective national securities markets versus international securities markets would change if the value of UK-related activities were to change significantly compared with the current metrics.
20. The Annex provides further detail on the type of monitoring and/or supervisory activity expected to be undertaken by the Bank for each incoming CSD group.
21. Each incoming CSD’s group allocation (and any changes thereto) would be confirmed to it by the Bank upon recognition and, thereafter, on an annual basis (or more frequently if appropriate). Where an incoming CSD is subject to monitoring and/or supervisory activity significantly above or below that which would normally be expected of its group allocation, the Bank may subsequently re-allocate that incoming CSD to a different group for the next fee year.
Methodology for levying fees
22. The Bank proposes:
(a) a flat fee for Incoming CSD Group B, reviewed annually or as appropriate; the Bank considers a flat fee appropriate given that the financial management costs would be disproportionate to calculate fees for Group B on a cost-recovery basis; and
(b) fees for Incoming CSD Group A estimated based on expected monitoring and/or supervisory activity, and then applied on a cost recovery basis, in aggregate, by making a final adjustment, where applicable, at the end of each fee year via a rebate or request for additional fees. All incoming CSDs within Group A would be charged the same fee.
23. The Bank proposes to calculate fees annually by i) calculating the total cost for the incoming CSD fee block via the budget allocation process; ii) subtracting from that the revenue from the flat fees payable by CSDs in Group B; and iii) allocating the remaining cost to the CSDs in Group A.
24. The Bank considered other approaches to calculating and charging annual fees for the monitoring and/or supervision of incoming CSDs before deciding to propose the above approach.
- The Bank considered calculating fees on a cost-recovery basis calculated at the level of each individual CSD. Using this method, the Bank would calculate the supervisory and/or monitoring resource spent on a specific incoming CSD in a given fee year and charge fees to that CSD to recover the relevant costs. However, the Bank considers this approach to be highly complex and resource-intensive when applied to the entire potential incoming CSD population. The financial management costs of calculating fees on this basis would be disproportionate to the total cost of monitoring and/or supervisory activity.
- The Bank also considered allocating incoming CSDs to the existing fee block for UK-based CSDs. Since the monitoring and/or supervisory resource spent on the majority of incoming CSDs is expected to be significantly lower than the resource spent on UK-based CSDs, the Bank considers it appropriate to create a new fee block for incoming CSDs to reflect the anticipated costs to be incurred by the Bank in monitoring and/or supervising these CSDs. Accordingly, the Bank proposes to calculate the supervisory and/or monitoring resource spent on incoming CSDs separately from the resource spent on UK-based CSDs.
Fees for 2022/23 fee year
25. The proposed fees for the 2022/23 fee year are shown in Table A below.
Table A: Fees for the 2022/23 fee year
Incoming CSD group
Fee per CSD for the 2022/23 fee year
26. The Bank proposes to keep the level of monitoring and/or supervisory resource allocated to each group under review to ensure it remains appropriate and proportionate. The Bank will also aim to reduce the variability of fee amounts from year-to-year.
Process for levying fees
27. The Bank’s fee year is a 12-month period running from 1 March to the end of February. The Bank proposes to align the annual fee cycle for incoming CSDs with the cycle used for the existing fees regime for the Bank’s supervision of FMIs. Accordingly, the Bank expects to invoice incoming CSDs for annual fees no later than Q3 of the relevant fee year.
28. An incoming CSD would only become subject to annual fees after it has been recognised. An incoming CSD obtaining recognition part-way through the fee year would be charged annual fees on a pro-rata basis from the point of its recognition until the end of that fee year. These annual fees would be in addition to recognition fees.
29. If it appears to the Bank that, in relation to any fee, in exceptional circumstances relating to a particular case, it would be inequitable to require payment or to retain sums previously paid, it may at its discretion:
- waive the payment;
- reduce the amount payable; or
- offer a whole or partial refund of sums already paid.
Incoming CSD group
Examples of monitoring and/or supervisory activity undertaken by the Bank
Incoming CSDs deemed to pose material risks to UK financial stability.
- Annual review of key data.
- Recognition review as required.
- Multi-layer engagement with the home authority that includes updates and exchange of views on key risks and priorities.
- Assessment of more detailed supervisory information relating to the CSD received periodically from the home authority.
- Joint work with home authority, eg the Bank being invited to join a supervisory visit or to join a supervisory examination.
Incoming CSDs deemed to pose low risks to UK financial stability.
- Annual review of key data.
- Recognition review as required.
- Ad-hoc engagement with the home authority and the CSD as required.
Or CSDs that establish a branch in the UK. The Bank has published guidance (2021) setting out in more detail the recognition process for incoming CSDs.
See: List of third-country CSDs that have notified the Bank to provide CSD services in the UK pursuant to the notification requirements under Part 5 of the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.
For example, if the actual expenditure for monitoring and/or supervising the entire incoming CSD population by the Bank is 10% lower than estimated at the beginning of the fee year, all CSDs in Group A would receive an approximately 10% rebate on the fee paid at the beginning of the year.
For further information see: Policy Statement: Fees regime for the supervision of financial market infrastructure (FMI) (June 2018).
For further information see: Transitioning to post-exit rules and standards.
For further detail, see: Policy Statement: Fees regime for the supervision of financial market infrastructure (FMI) (June 2018).