Central Securities Depositories Regulation
The CSD regulation level 1 text came into force 2014. Note that direct CSD participants are not mandated to offer their clients an Individual Segregated Client Account until the Central Securities Depository is authorised by the national competent authority in the jurisdiction of the CSD, for Clearstream Luxembourg this is currently expected to happen in Q1 or Q2 2020.
What is the CSDR?
The CSDR is a European Union regulation that governs how Central Securities Depository (CSD) and its participants operate. A Central Securities Depositaries (CSD) is responsible for custody, control and legal ownership of securities. Barclays Bank PLC, Jersey Branch is a participant of Clearstream Banking Luxembourg, an EU-based CSD, and hence must comply with the regulation. As a result, we must offer customers the option to hold their investments in an Individual Client Segregated Account at Clearstream. The current default is to hold client investments in an Omnibus Client Segregated Account.
The different types of custody are illustrated below:
Individual client segregated account
Omnibus client segregated account
What does this mean for you?
You can now request to hold any eligible assets, in an Individual Client Segregated Account at Clearstream Banking Luxembourg. There will be no change to the way that you manage your investments. You can elect to return to pooled custody at any time. The assets that are currently eligible to hold in an Individual Client Segregated Account are Collective Investments (Funds). All other asset types you hold would remain in an Omnibus Client Segregated Account.
What are the costs?
If you opt to hold your eligible assets in an Individual Client Segregated Account there will be an additional quarterly fee initially set at £1950 (or currency equivalent) to reflect the additional operational costs of an Individual Client Segregated Account. If you were to leave or join the service part way through a quarter, the fee would be charged on a monthly pro-rata basis.
What are the risks, levels of protection, and legal implications of each custody account type?
The three main areas for consideration when comparing use of an Individual Client Segregated Account against an Omnibus Client Segregated Account are outlined below:
Note: Individual Client Segregated Accounts increase the risk of settlement failure which may in turn incur additional buy-in costs or penalties and/or delay settlement.
|Security Interests||Securities held in an Individual Client Segregated Account or Omnibus Client Segregated Account could be used if the CSD benefits from a security interest over securities held for a client potentially causing a delay in returning assets to a client or a shortfall. The Client Asset Order restricts situations when this can happen.