As the industry awaits a decision from the European Securities and Markets Authority (ESMA) on a possible further delay to the Central Securities Depositories Regulation (CSDR) settlement discipline regime, Daniel Carpenter, head of regulation at Meritsoft, a Cognizant company, explained that market participants need to be prepared for the significant impact of the new rules when they do come into force.
Earlier this week ESMA revealed it was working on a proposal to possibly further delay the CSDR settlement discipline regime until 1 February 2022.
The delay, which came as a request from the European Commission, is due to the impact of the ongoing COVID-19 pandemic on the implementation of regulatory projects and IT deliveries by central securities depositories (CSDs).
CSDR aims to harmonise certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs for both domestic and cross-border transactions.
However, Carpenter explained there are major concerns around the mandatory buy-in process, particularly for the tier-one banks under the buy-in rules and possible associated cash compensation process.
“Where securities lending is a business line then risks and costs are exacerbated meaning forecasting and predictive analysis will play a key role in risk mitigation,” he said.
In terms of how UK firms will be impacted by CSDR, Carpenter stipulated that although the UK Treasury has confirmed it will not implement the settlement discipline regime as part of post-Brexit plans, the majority of capital markets firms operate globally, having transactions or operations flowing through the UK, EU, US and Asia Pacific regions.
According to Carpenter, UK firms settling within the EU will, therefore, be pulled into CSDR regardless and need to continue focusing on implementing the necessary steps to ensure compliance.
Carpenter concluded: “Irrespective of this proposed grace period, market participants need to be prepared for the significant impact of the new rules when they do come into force. As we await the final decision on the potential delay, it’s important that they don’t lose focus on strategic projects which will automate their operations, such as those that address overall fails management capabilities.”
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