The Federal Reserve Bank of New York (Fedwire Securities Service) and European Central Bank (Target2- Securities) co-sponsored the 1st Meeting of the Central Securities Depository Operators Group (COG) held at the Federal Reserve Bank of New York.  The purpose and objective of the COG is to have periodic meetings with large CSD representatives from different regions around the world in order to build and maintain relationships and discuss topics of mutual interest; including trends, developments, conditions, and practices in the issuance, clearing, and settlement of securities.

Within the two-day agenda the discussions focused on two mayor areas; Technology and Regulation.

The discussions on technology included: 

1) CYBERSECURITY:

The discussion highlighted the fact that all CSDs are vulnerable.  CSDs must adopt cyber risk within their organizational culture and provide training to all employees.  An important step towards cybersecurity is coordinating an industry-wide meeting with regulators, markets, participants, institutional investors, FMIs and important service providers to define roles and responsibilities in response to cyber-attacks.  Interoperability with key service providers is important to consider in the overall cybersecurity plan, since these may represent key points of vulnerability. Developing a model to share information among CSDs could help the community to react faster and work on prevention.

2) CLOUD TECHNOLOGY:

Cloud technology is now being considered by CSDs since it offers major advantages in terms of development, scalability, efficiency and cost reduction.  There are, however, important considerations in terms of governance, legal and risk that should not be overlooked before moving forward in adopting cloud technology.  Some examples of these include considerations regarding data ownership, control and responsibility for the data and functions, intellectual rights, assessment of the dependency required on cloud service providers and the liabilities that they should assume in addition to other aspects.  Regulators are now working towards the development of policies and guidelines surrounding cloud technology providers and usage.

3) DISTRIBUTED LEDGER TECHNOLOGY:

CSDs are considering DLT technology as a solution that will provide increased transparency and efficiency.  However, its practical development and implementation for CSD services pose important challenges. Some of the issues discussed included the technological hurdles; legal and regulatory challenges, as well as risk management considerations for CSDs.

The discussions on regulation covered:

1) COMPLIANCE, REGULATION, ANTI-MONEY LAUNDERING, INVESTOR PROTECTION AND ASSET SAFETY ARE IMPORTANT TOPICS FOR CSDS.

The discussion focused on whether CSDs should have key responsibilities on Anti-Money Laundering and Know-Your-Customer policies and practices.  In this analysis the difference between omnibus and beneficial ownership accounting models currently adopted by CSDs was discussed. The conclusion is that omnibus models offer significant advantages in  areas such as netting, risk management, efficiency and cross border linkages.  However, beneficial ownership models provide the highest level of asset protection, allow AML and KYC enforcement.  The group will continue discussions on this subject to issue recommendations on best practices.

2) SYSTEMIC RISK:

Today, Financial Market Infrastructures (FMIs) are linked or dependent upon one another; they have many common participants and serve interconnected markets. The high interdependency may increase systemic risk, including to CSDs, because of knock-on effects. The discussion addressed the role of CSDs in providing confidence in the safety, soundness, and reliability of the financial infrastructure

MEMBERS:

United States Federal Reserve System, European Central Bank Australia, ASX/Austraclear, United States, Depository Trust & Clearing Corporation, South Africa, Strate, Spain, Iberclear, India, National Securities Depository Limited, Mexico, S.D. Indeval, Canadá, Canadian Depository for Securities Canada, Italy, Monte Titoli, EU, Clearstream, Brazil, BM&FBOVESPA, Japan, Bank of Japan, EU, Euroclear

	Communicated on the ACSDA website.

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