-

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

diagram of CSDR

Omnibus client segregated account

diagram of CSDR

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:

Consideration Commentary
Insolvency
  1. Were we to become insolvent, insolvency proceedings would take place in England under English Insolvency Law.
  2. Clients’ legal entitlement to securities that we hold directly with CSDs would not be affected by our insolvency whether an Individual Client Segregated Account or Omnibus Client Segregated Account is selected.
  3. For Individual Client Segregated Accounts & Omnibus Client Segregated Accounts, we are subject to the Client Asset Order of the Jersey Financial Service Commission and are audited on compliance to those rules.
  4. For an Individual Client Segregated Account, the client is beneficially entitled to all assets in the Individual Client Segregated Account. For an Omnibus Client Segregated Account, each client is considered to have a beneficial interest in all the securities in the account proportionate to its holding of securities.
Shortfalls
  1. Shortfalls may arise from administrative errors, intraday movements or counterparty default. For Omnibus Client Segregated Accounts only, they may arise from securities of one client being used by another client to settle an intraday position.
  2. The whole of a shortfall on an Individual Client Segregated Account is attributable to that client. For an Omnibus Client Segregated Account, the shortfall is shared among clients with an interest in the security.
  3. The Client Asset Order mitigates the risk of shortfalls by having cash or securities set aside.

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.

Article 38(6) CSDR Disclosure

For details of the Article 38(6) Disclosure, please download the PDF document [PDF, 269KB]