A further delay to the Central Securities Depositories Regulation (CSDR) settlement discipline regime until 1 February 2022 has been welcomed by industry participants.
Paul Baybutt, senior product manager, HSBC, explained that the delay is a “positive step because it will allow the industry an opportunity to further address the open issues concerning the implementation of settlement discipline”.
On 28 August, the European Securities and Markets Authority (ESMA) published a final report on draft regulatory technical standards (RTS) to further postpone the implementation of CSDR’s settlement discipline until 2022.
In its final report, ESMA highlighted the “severe impact” of the ongoing COVID-19 pandemic on the overall implementation of regulatory and IT projects by central securities depositories (CSDs) and their participants as well as by other financial market infrastructures.
ESMA explained it would be “extremely difficult” for market stakeholders to comply with the requirements of the RTS on settlement discipline by the 1 February 2021 deadline.
The RTS on settlement discipline covers measures to prevent and address settlement fails including rules for the trade allocation and confirmation process; cash penalties on failed transactions; mandatory buy-ins; and monitoring and reporting of settlement fails.
Derek Coyle, global custody product, vice president, Brown Brothers Harriman, stated that ESMA’s confirmation “aligns with what has been discussed in industry circles in the past weeks, factoring in the market trading volatility of COVID-19 impacts in March and April of this year, and also accounting for feedback from various groups and forums concerning regulatory items which needed to be addressed”.
Baybutt said: “This is the first step in organising a further delay to the EU settlement discipline regime.”
He suggested that as ESMA has done this at the request of the European Commission “it should pass quickly to parliament for a decision”.
Also commenting on ESMA’s announcement, consultant Tony Freeman said that confirmation “came quite quickly” but “their speed of action is very welcome”.
Freeman explained that although the postponement is officially subject to non-objection by the European Parliament and the European Council, ESMA must be very confident this is a technicality.
He said: “Market participants can now re-plan for a February 2022 start-date with almost 100 percent certainty.”
“There is no indication in the report that the terms of the settlement discipline regime will be changed: this is a simple time delay and not a review of its contents”, Freeman added.
Coyle explained that the deadline extension will also allow for further discussion and clarity on items such as buy-ins, where it is hoped that February 2022 implementation will allow for more buy-in agents to be confirmed.
He suggested that another important factor will be where the delay will allow for more testing time to be built into project planning. He said: “An example being the hope that readiness for penalty reporting and handling can be in place a few months ahead of February 2022, allowing for CSDs, custodians and trading parties to run through tests and scenarios for best practices in penalties.”
In terms of next steps, ESMA said that following the endorsement of the RTS by the European Commission, the delegated regulation will then be subject to the non-objection of the European Parliament and of the European Council.
