The question of whether there is “life after CSDR'' was left unanswered by panellists at AFME’s inaugural Operations, Post-Trade, Technology & Innovation Conference (OPTIC).
The panel, entitled ‘European Post Trade Regulation in 2022: Where Next?’, assessed the impact of the Central Securities Depositories Regulation (CSDR) in the seven months since its implementation in February 2022, and explored future developments under CSDR Refit, the ongoing CMU actions, and other industry initiatives.
Emiliano Tornese, deputy head of the financial markets infrastructure unit at the European Commission, said that the data communication process was not working as well as the European Commission had hoped, with settlement failure rates not as improved as they would have liked. However, he highlighted the ongoing review of CSDR and the Commission’s willingness to adjust their approach.
“We are not perfect,” he said, before thanking the industry for their participation in consultations around CSDR development. He reiterated throughout the panel the importance of collaboration and communication between regulators and market participants, emphasising ESMA’s openness to industry comment and suggestion, and encouraged companies to voice their concerns.
A major issue that emerged was the rocky implementation of cash penalties since their entry into force in February 2022. Although Susan Yavari, senior policy advisor for capital markets at EFAMA, maintained that they were the correct route to follow, she acknowledged that the penalties were being seen as something that brokers could accept and pay without changing their behaviour. She suggested that penalty rates were increased and recalibrated before further changes to the settlement discipline regime were introduced.
Jesús Benito, head of domestic custody and TR operations at SIX, raised the argument that regulators do not acknowledge the number of regulations that companies are having to comply with. He claimed that this pressure has led to firms reducing their product offerings and causing fatigue, a particularly prevalent issue as companies struggle to maintain their workforces.
He asked regulators to “be realistic” in their expectations, and to give companies time to fully prepare before new regulations are implemented. Yavari agreed, stressing the importance of testing and clearly defining regulations before they are implemented. The details of CSDR are very complicated, she said, and the market requires more clarity and time to adapt.
A lack of harmonisation of regulatory frameworks was also cited as a problem. With 27 different frameworks across Europe, Yavari called regulation a “patchwork” that made CSDR harder to comply with and follow.
There were also discussions on the difficulty around regulation implementation. With the volatile geopolitical situation, the lack of stability in global markets must be factored into CSDR efficacy evaluation, Yavari said.
After a brief mention of other regulatory and market initiatives (not only under the “CSDR Refit”, but also linked to on-going actions for the Capital Markets Union, for enhanced settlement practices and for other technological innovations), moderator Marcello Topa concluded that the future remains unclear as to what the industry will look like post-CSDR. However, the panellists agreed that CSDR regulation is ultimately a positive change — although it is challenging, there will ultimately be long-term improvements, said Tornese.
