Responses to Consultation Paper ‘The Bank of England's fees regime for incoming central securities depositories’ and Statement of Policy including fee rates for 2022/23.
This Bank of England (the Bank) Policy Statement (PS) provides feedback to responses to the Consultation Paper (CP) ‘The Bank of England's fees regime for incoming central securities depositories’. The final fees regime for non-UK central securities depositories (incoming CSDs) is confirmed in the Statement of Policy (SoP).
Feedback to responses
The Bank’s public consultation on the fees regime for incoming central securities depositories ran from 30 June 2022 until 15 September 2022. The Bank received two responses to the consultation. Having carefully considered these responses, as detailed below, the Bank is not making any changes to the proposals that were set out in the CP.
The fees policy set out in the SoP will come into effect on 1 December 2022. For the avoidance of doubt, no fees will be levied on incoming CSDs until they have been recognised by the Bank.
Bank response to consultation feedback received
The Bank received two responses to the consultation. Both responses focused on aspects of the Bank’s proposed criteria for allocating incoming CSDs between Incoming CSD Group A (material risk to UK financial stability) and Incoming CSD Group B (low risk to UK financial stability).
Group allocation criteria – suggestions for additional factors to be taken into account
Consultation respondents put forward a number of suggested factors that might reduce the risk posed by an incoming CSD to UK financial stability, and hence the supervisory resources that the Bank needs to devote to that CSD, suggesting that these should be taken into account in determining the group allocation. The suggestions included: whether the CSD has a branch in the UK, whether the CSD has a recovery plan, the types of securities managed by the CSD, and the types of services offered by the CSD. It was also suggested that the safeguards provided by the ‘home’ regulatory framework of the CSD could be a relevant factor for EU-based CSDs.
The supervisory resources allocated to an incoming CSD is a reflection of the risk posed by that CSD to UK financial stability relating to those services provided to UK issuers and/or participants that are subject to recognition by the Bank. Consideration of such risks is therefore central to determining the CSD’s group allocation. This is reflected in the Bank’s proposed criteria for group allocation of a range of qualitative and quantitative factors, including, but not limited to, the extent of the CSD’s core business relating to the UK. The Bank draws attention to the fact that the stated criteria are not an exhaustive list, and the Bank therefore retains the discretion to take into account any other factors that have a bearing on the costs incurred by the Bank in monitoring and/or supervising the incoming CSD, such as the nature of the Bank’s co-operation arrangements with the ‘home’ regulatory authority.
As stated in paragraphs 26 and 29 of the CP, the Bank proposes to keep the level of supervisory resource allocated to each group under review to ensure it remains appropriate and proportionate. The Bank may also adjust fees if it appears that it would be inequitable to require fees or to retain sums previously paid.
Group allocation criteria – scope of ‘core CSD services’
Consultation respondents suggested that the group allocation criteria proposed by the Bank should only relate to the ‘core CSD services’ which are subject to recognition in the UK, ie notary and/or central maintenance services in relation to financial instruments constituted under UK law.
The Bank highlights that as set out in its 2021 guidance document, recognition under UK CSDR Article 25 is relevant for CSDs that intend to: i) provide notary and/or central maintenance services referred to in points (1) and (2) of Section A of the UK CSDR Annex in relation to financial instruments constituted under UK law to either issuers or CSD participants established in the UK; or ii) establish a branch in the UK. The group allocation criteria are designed to reflect these ‘core CSD services’ in scope of recognition.
The Bank can confirm that securities held by UK participants at the incoming CSD via a ‘link’ with a UK CSD would not be taken into account in deciding a CSD’s group allocation, since the UK CSD’s activity is already directly regulated by the Bank.
Statement of Policy on the fees regime for incoming central securities depositories
The recognition fee, payable by all incoming CSDs, is £45,000.footnote  This fee is payable once an incoming CSD has been recognised and will not be levied should the application for recognition be unsuccessful or withdrawn.
Incoming CSD fee groups and fee methodology
Incoming CSDs will be placed into one of two 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 poses to UK financial stability:
- 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.
The Bank’s process for allocating incoming CSDs to these groups will 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.
Under this framework, the Bank expects that incoming CSDs primarily serving their respective national securities markets will be allocated to Group B; and incoming CSDs primarily serving international securities markets (such as the ‘eurobond’ market) will be allocated to Group A.
Each incoming CSD’s group allocation will 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.
The methodology for each fee group is as follows:
(a) a flat fee for Incoming CSD Group B, reviewed annually or as appropriate; 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 will be charged the same fee.
The Bank will 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.
Fees for 2022/23
The 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
Annual process for setting and levying fees
In subsequent years, the annual fees for incoming CSDs will be set on the same cycle as other financial market infrastructure fees. This means that there will be a consultation on proposed fees as early as practicable in the fee year. The fee year runs from 1 March to end-February, the consultation will normally published by early summer, and fees will be finalised and invoiced by the end of Q3 of the fee year.
An incoming CSD will only become subject to annual fees after it has been recognised. An incoming CSD obtaining recognition part-way through the fee year will 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 will be in addition to recognition fees.
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 fees 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.
This updates the July 2019 policy statement to the extent that specified the previous recognition fee (see pages 2–3 of the July 2019 policy statement).