ESMA offers continuity guidance for users of third-country CSDs

ESMA said on 7 October 2026 that national regulators should not prioritise supervisory and enforcement action concerning unrecognised third-country central securities depositories while a proposed extension of their transitional regime is pending. The statement responds to issuers’ concerns about continued access to services beyond 17 January 2027.[1]

The distinction between supervision and legislation is decisive. ESMA says neither it nor national authorities can suspend directly applicable EU law. Its stated expectation lasts until the proposed extension takes effect; it does not itself replace the statutory transition or confer recognition on a depository.[1]

The service and the governing law determine exposure

The existing general transition runs until an ESMA recognition decision or 17 January 2027, whichever comes first. A material separate provision preserves national rules until a decision for qualifying complete recognition applications filed before 16 January 2024 that were still undecided at that date.[2]

For a broker or custodian, a reference to an overseas depository in the custody chain is therefore only the beginning of the assessment. The relevant questions are which service the firm depends on, which instruments it covers, and the legal basis on which that service currently continues. A settlement-only relationship should not be assigned the same issue simply because it also involves a third-country CSD.

The proposed extension has a moving start point

The Commission’s Market Integration and Supervision Package would replace the general deadline with the earlier of recognition or three years after the amending regulation enters into force. That is a relative legal timetable, not an already fixed extension to January 2030. The relevant amendment remains a proposal.[3]

The Council Presidency’s June 2026 progress report recorded broad member-state support for extending the grandfathering period. The report expressly did not bind negotiating positions. ESMA’s October intervention is therefore best read against political support for continuity while the legislative process continues.[4]

On 9 October, the Council agreed the main elements of its negotiating position on the wider package. Its announcement said the negotiating text still needed finalisation and formal Council adoption; talks with Parliament could begin once Parliament adopted its own position. That political agreement was not final enactment of the CSD extension.[5]

This reduces one source of immediate supervisory uncertainty for existing arrangements. It also leaves an important contractual question for intermediaries: whether their agreements, service descriptions or internal approvals refer to a statutory date, an authorisation status or a regulator’s enforcement position. Those terms can have different consequences even where day-to-day processing remains unchanged.

Continuity planning needs evidence at each dependency

An operational review can begin with a concise inventory linking the issuer, security, governing law, depository service and custody provider. The next step is to attach the applicable recognition or transitional basis and identify which contract or process would need to change if that basis changed. This is an analytical planning approach; it does not assume every institution needs to move assets.

For example, an intermediary might use one overseas CSD only for settlement and another for central maintenance of relevant EU-law securities. The first relationship and the second relationship would need separate legal assessments. Treating the provider’s country as the only data field would conceal the distinction; recording the service and instrument would make it visible. No particular depository or client exposure is assumed in this illustration.

ESMA’s 2027 work programme anticipates further work on third-country CSD notifications and possible recognition decisions, dependent on potential Commission equivalence decisions. Notification and recognition remain separate stages. The continuity statement gives market participants more room to plan around that process; it does not complete it.[6]

The next material checkpoints are the adopted legislative text, its entry-into-force date and any recognition decision affecting a particular service. Those events determine whether an institution’s recorded legal basis, contract terms and operational plans still match one another.

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