In June 2008, the Economic and Financial Affairs Council (ECOFIN) requested the Committee of European Banking Supervisors (CEBS) to review ‘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’.
Following its report to the ECOFIN, published in December 2008, CEBS committed to undertake further work to assess the materiality of custodian banks’ internalising settlement activities or their carrying out of central counterparty-like activities. This was called for since the initial report identified certain gaps with regard to these activities in the applicable banking regulations.
In order to gather evidence about the extent to which such activities are performed, CEBS published a call for evidence in February 2009.
CEBS has now published a report on the materiality of custodian banks’ internalising settlement activities or their carrying out of central counterparty-like activities.
The responses summarised in the report leads CEBS to conclude that there is little evidence to suggest that action at a European level is needed to address the issue of settlement internalisation. However, in the medium term CEBS will investigate further risk management aspects relevant to banks that take on the role of a general clearing member.