1. Global regulatory update ACSDA General Assembly Santiago de Chile April 2014

2. The origins of the Crisis… 2006 : Mortgage defaults in the US subprime mortgage market Global economy contaminated through securitisation Compounded by Credit Default Swaps which led to freeze of private credit markets Freeze caused liquidity problems and insolvencies National governments forced to support domestic banks and provide emergency liquidity

3. …and its spread 2009 : Banking crisis reinforced by Eurozone sovereign debt, growth and competitiveness crisis Eurozone faced governance issues 2012 : European Stability Mechanism established as a permanent rescue mechanism Reform of regulation of financial institutions

4. Pre-crisis regulatory drivers… SecuritiesMarkets Financial stability SAFETY Cross-border efficiency HARMONISATION EU Single market COMPETITION CONSOLIDATION

5. …have been transformed post-crisis PREVENTION Prevent negative impacts from bank losses and failures Increase capital and liquidity buffers Reduce risk profile Ensure orderly failure without taxpayer support PREVENTION Prevent negative impacts from bank losses and failures Increase capital and liquidity buffers Reduce risk profile Ensure orderly failure without taxpayer support BEHAVIOUR Improve behaviour and integrity of financial markets Ensure consistent regulation across European markets BEHAVIOUR Improve behaviour and integrity of financial markets Ensure consistent regulation across European markets TRANSPARENCY Improve transparency particularly of the derivatives market more trading on exchanges More clearing via CCPs Reporting to Trade Repositories TRANSPARENCY Improve transparency particularly of the derivatives market more trading on exchanges More clearing via CCPs Reporting to Trade Repositories

6. The Main Global Authorities Global bodies e.g. G20 are now main drivers for regulatory change with local implementation by national authorities. FSB (Financial Stability Board) Assesses vulnerabilities and sets international guidelines for the financial sector Monitors implementation of G20 agreements in finance Ensures peer reviews of the implementation of international agreements (with IMF) BIS (Bank for International Settlements) Serves central banks in their pursuit of monetary and financial stability, and fosters international cooperation in these areas Its Committee for Payment and Settlement Systems (CPSS) is focused on Financial Market Infrastructures IOSCO (International Organization of Securities Commissions) Brings together the world's securities regulators and is a global standard setter for the securities sector

7. The Global scope of post-crisis reforms EU Measures Prevention : Bank Recovery & Resolution, Banking Union (SSM, SRM), CRD IV/CRR, Liikanen report on bank restructuring, DGS, ICS Behaviour/ Transparency: MIFIR & MIFID, AIFMD review of UCITS, Securities Law Legislation FMIs : EMIR, CSDR, T2S, R&R for FMIs Other: FTT US measures Prevention/Behaviour/FMIs: Transparency: Dodd-Frank Act, Volcker Rule, Consumer Protection Act, Resolution Planning, Basel 3 Behaviour: Triparty collateral review FMIs: OTC Derivatives, Designated Financial Market Utilities Other: FATCA Asia-Pacific Measures Asia was only indirectly hit by the crisis; initiatives are hence on: Implementation of Global commitments Enhancements of local markets and market infrastructures through OTC Derivatives reform in HK, Japan and Australia, HK multi- currency clearing, RMB as a settlement currency Global Measures  Prevention of failures: Recovery & Resolution, G-SIFIs & Capital add-ons: Basel 3, intra-day liquidity, spec. add-ons for G-SIFIs  Change of behaviour: Shadow Banking, Banker compensation  Transparency: LEI, Client Asset Protection  Attention to FMIs: CPSS/IOSCO PFMIs, Central clearing of OTC derivatives, R&R of FMIs Global Measures  Prevention of failures: Recovery & Resolution, G-SIFIs & Capital add-ons: Basel 3, intra-day liquidity, spec. add-ons for G-SIFIs  Change of behaviour: Shadow Banking, Banker compensation  Transparency: LEI, Client Asset Protection  Attention to FMIs: CPSS/IOSCO PFMIs, Central clearing of OTC derivatives, R&R of FMIs

8. Drivers of change in the EU securities markets HARMONISATION Removal of technical, legal and fiscal barriers to low cost cross border settlement Giovannini, CESAME & EGMI Securities Law Directive ISMAG SAFETY Standard for safety, soundness and efficiency in the provision of trading, clearing & settlement services ESCB/CESR CPSS/IOSCO principles for FMIs CSD Regulation Resolution & Recovery frameworks COMPETITION Improved access and interoperability MiFID II/MIFIR EMIR CSD Regulation CONSOLIDATION/ EFFICIENCY Public sector intervention in merger control & consolidation of settlement in CeBM Target 2 Securities

9. T2S is of particular importance to CSDs.. A technical platform: With Both cash & securities a/c (integrated model) Creation of realignment instructions between the accounts that CSDs hold with each other Management of static data reflecting securities eligible on each link Lean settlement functionalities Validation Matching Settlement Basic reporting A unified operating window Night time settlement with multiple sequences Real time settlement A technical settlement infrastructure for European CSDs and Central Banks providing:

10. …as is CSD Regulation Designed to make CSDs safer but introduces more competition. Defines what a CSD is authorised to do ► Introduces process changes ► mandatory dematerialisation or immobilisation of securities ► Can be a challenge for some States, hence 2025 as a deadline ► T+2 settlement cycle ► mandatory measures to address settlement fails ► Disclosure and potential suspension of systematically failing participants Introduces specific authorisation and supervision process ► Passport with cooperation between home and host authorities ► Mandatory User Committees Defines rules for CSDs with a banking licence including capital requirements

11. Other relevant regulatory initiatives AIFMD ► Fund depositaries: specific treatment in case of custody performed by SSS: – SSS services are not a delegation of a depository Resolution and Recovery Regimes ► CPSS/IOSCO & FSB consultations on special regimes for FMIs and their participants; ► Expected EU Commission initiatives Securities Law Legislation ► Long-awaited, and covering rules for holding and transfer of securities ► Will impact whole custody chain ► May also deal with collateral re-hypothecation issues Financial Transaction Tax (FTT)

12. How do these initiatives affect our clients? Effects on the industry are significant, still not fully understood nor predictable (since so many regulations have yet to be implemented) but still growing Balance sheet restructuring will continue, driven by  deleveraging  the ECB’s Asset Quality Review (undertaken by the ECB prior to the introduction of the Single Supervisory Mechanism in the Eurozone)  the CRD  the need to maintain complex recovery plans, contribute to new statutory resolution funds, and potentially issue new bonds which can be bailed-in (i.e. convertible into equity) if necessary These additional costs will result in  internal cost reduction and a search for economy of scale gains through (for example) mutualisation (outsourcing) of back offices  restructuring, specialisation, and disintermediation (as non-banks increase their share of the financing market)