European CSDs Face High Costs and Complexity, Report Finds
A recent report by the European Court of Auditors has highlighted the high costs and complexity of European Central Securities Depositories (CSDs). Published in March 2023, the report found that settlement fees in European CSDs are significantly higher than in North America, with users facing challenges due to opaque fee schedules.
On average, European investors pay €0.38 per instruction in settlement charges, €0.15 more than their US counterparts. This disparity persists despite the introduction of the T2S (Target2-Securities) project, which aimed to reduce costs. T2S has not delivered the expected results, with settlement costs remaining well above the targeted €0.15 per instruction.
The report also revealed that larger CSDs are not passing on economies of scale to users. Instead, some charge higher fees, leading to persistent high costs. Custody fees in European CSDs are also disproportionately high, ranging from 19% to 650% higher than in the US. The Association for Financial Markets in Europe (AFME) recommends harmonising and standardising fee schedules, transparent invoices, and fair treatment of all participants to improve transparency and reduce costs. If European CSDs adopted North American pricing, market participants could potentially save up to €1 billion annually.
The European Court of Auditors' report underscores the urgent need for reform in European CSDs. With settlement fees averaging 65% higher than in North America and non-core fees accounting for up to 59% of total settlement costs, the current system is inefficient and costly. Implementing AFME's recommendations could significantly reduce costs and improve transparency for market participants.
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