The European Commission has approved the delay to the Central Securities Depositories Regulation’s (CSDR) technical rules on settlement discipline. Originally set for September, and then February 2021, it will now be effective on 1 February 2022.
The technical rules on settlement discipline cover 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.
The regulation, which will impact a wide range of market participants including central securities depositories (CSDs), central clearing counterparties, trading venues, investment firms and credit institutions requires significant IT system changes, market testing and adjustments to legal arrangements between the parties concerned.
The aim is to give the industry sufficient time to finish the development of essential IT projects associated with rules.
In a statement, the Commission said, “We recognise the negative impact of the COVID-19 pandemic on the implementation of IT projects necessary for industry’s compliance with EU rules on settlement discipline. The pandemic has stretched IT resources; this postponement gives market participants sufficient time to make the final preparations to ensure compliance with EU rules.”
The delay was mooted in August after the European Securities and Markets Authority (ESMA) highlighted the “severe impact” of the pandemic on the overall implementation of regulatory and IT projects by CSDs and their participants, as well as by other financial market infrastructures.
ESMA explained that it would be “extremely difficult” for market stakeholders to comply with the requirements of the regulatory technical standards on settlement discipline by the 1 February 2021 deadline.
The regime has garnered considerable criticism and generated persistent lobbying by industry groups who have repeatedly voiced concerns regarding the mandatory buy-in regime.
In fact, intense lobbying led to the extension of a delay even before the virus took hold. Earlier in the year, the watchdog moved the deadline by six months to 1 February 2021 after it received a collective letter from several trade groups calling for a phased in approach to SDR.
A public consultation on CSDR, including the regime, is expected to be launched in the coming weeks followed by an official review of the regulation as part of the EU’s Capital Markets Union action plan, which will inspect a narrower aspect of the framework.