The European Securities and Markets Authority (ESMA) has confirmed it will further delay the implementation of the Central Securities Depositories Regulation (CSDR) settlement discipline regime (SDR) until 1 February 2022 due to Covid-19.
In its final report on draft regulatory technical standards (RTS), the European regulator highlighted the “severe impact” of the ongoing pandemic on the overall deployment of regulatory and IT projects by central securities depositories (CSDs) and their participants as well as by other financial market infrastructures.
ESMA noted it would be “extremely difficult” for market stakeholders to comply with the requirements of the RTS on settlement discipline by 1 February 2021.
This RTS 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.
The move was mooted in July by ESMA who said it was working on a proposal for a possible additional delay. This was partly due to persistent lobbying efforts by industry groups who have repeatedly voiced concerns regarding the mandatory buy-in regime.
Their main concerns are that this would significantly damage market liquidity and the participants it is meant to protect.
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.
The Association for Financial Markets in Europe (AFME), the Investment Association (IA), the International Capital Market Association (ICMA), the Alternative Investment Management Association (AIMA), and the International Securities Lending Association (ISLA) among others, wrote, asking for more time to make the necessary IT system changes, to develop and update the relevant ISO messages, and to incorporate the legal arrangements.
If all goes according to the current plan, the RTS will be endorsed by the European Commission and then subject to the non-objection of the European Parliament and of the European Council.