Proportional application of K-ASA under Article 19 IFR in non-discretionary custody models linked to the operation of an MTF

Under Article 19 of Regulation (EU) 2019/2033, is there any scope for a more proportionate or risk-sensitive application of K-ASA where an investment firm: operates an MTF as its core activity; safeguards assets strictly on behalf of clients as direct participant in a CSD; does not exercise discretion over those assets; does not assume balance-sheet risk in relation to them; is prohibited from trading on own account or lending client securities; does not exercise voting rights, represent clients at meetings, or administer decisions regarding the underlying instruments; and has demonstrably reduced operational risk through technological investment and streamlined post-trade processes? More specifically: can competent authorities take into account the specific characteristics of such a business model when assessing the prudential effect of K-ASA, or is the calculation strictly volume-based in all cases regardless of the underlying risk profile; and is there any scope to differentiate K-ASA treatment depending on the type of instruments safeguarded, in particular between equity and debt instruments, or depending on whether the custody client is itself a regulated financial institution such as an investment firm or a bank?

The submitting firm operates a Multilateral Trading Facility (MTF) (MIC: POSE) as its core business. The instruments admitted to trading on that MTF are not dual-listed on other trading venues. The firm also acts as a direct participant in a CSD (Euroclear France) and safeguards those instruments strictly on behalf of clients. The firm does not take discretionary decisions over the assets and does not engage in lending, rehypothecation, proprietary trading or similar activities involving balance-sheet risk. Additionally, the firm is not permitted to trade on own account or lend client securities. It does not exercise voting rights on behalf of clients, does not represent them at meetings and does not administer decisions relating to the underlying instruments. The firm has invested significantly in technology and infrastructure, allowing it to manage larger asset volumes safely and efficiently without a corresponding increase in operational risk or operating cost. Its custody model also creates efficiencies for clients by reducing costs, operational errors and post-trade friction. However, K-ASA appears to increase linearly with asset volume, without distinguishing between business models with materially different levels of operational complexity or custody-related risk. In addition, the current framework does not appear to distinguish between equity and debt instruments, although debt instruments may involve significantly higher nominal values while generating lower custody revenues for the investment firm, nor does it distinguish between custody clients that are regulated financial institutions and other types of investors. This may result in disproportionately high capital requirements that do not reflect the actual risks borne by the firm and may limit the ability of investors to benefit from lower custody costs and economies of scale.