New 12-month CSDR delay expected 20 July 2020Brussels Reporter: Drew Nicol
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The European Commission is in “advanced” discussions with industry stakeholders on the potential for the Central Securities Depositories Regulation (CSDR) settlement discipline regime to be delayed for an additional year until February 2022, SLT understands.
Euroclear has confirmed in a memo to clients seen by SLT that the European Securities and Markets Authority (ESMA) is expected to publish an amendment proposing the delay to the current February 2021 deadline, after the summer holiday period.
The drive for an additional delay follows persistent lobbying efforts by industry groups that have repeatedly voiced concerns that the mandatory buy-in regime that comes as part of the regime’s framework would significantly damage market liquidity and the participants it is meant to protect.
Moreover, the spotlight further intensified on the flaws with the regime in June after the UK confirmed it would not on-shore CSDR after the Brexit transition period ends on 31 December.
The proposal for an additional 12-month delay is understood to represent an acknowledgement by EU regulators that the settlement discipline regime is not optimal in its current form.
The delay is also aimed at giving industry stakeholders and lawmakers the necessary time to re-open the CSDR rulebook in the context of a highly-disrupted regulatory implementation timeline caused by the COVID-19 pandemic.
CSDR is due to come into force in February 2021, after being delayed from September, due to “technical impossibilities” around the implementation of IT solutions of industry stakeholders, and the fact that an essential ISO update due from SWIFT would not be in place until its annual November update.
The new postponement will be subject to the legislative processes at the EU level which involves the European Commission, Parliament and Council, and could take “some months to complete”, the Euroclear memo continues.
This exposes industry stakeholders to the prospect of having to commit to several more months of dedicated work to meet the February deadline only to be given additional bandwidth in the final quarter.
Despite the positive noises coming from Brussels and Paris, multiple industry stakeholders tell SLT they will not review their roll-out schedule for their CSDR solution until the ink is dry on the further grace period.
Of the proposed delay, Paul Baybutt, senior product manager at HSBC Securities Services, says: “While a level of uncertainty will continue until the proposal is approved, a further delay would be welcomed by the industry, giving more time to address the open issues and ensure the effective implementation of the regulation.”
One exception is Euroclear which says it is currently reviewing the implementation of its settlement discipline projects in line with the new expected date of entry into force (1 February 2022).
“We can already confirm that our release planned for October this year (matching changes and new functionality for Bridge and internal settlement instructions) will be postponed until 2021,” Euroclear says, adding that “participant testing related to the penalties and buy-ins processes, will also be postponed to 2021".
The post-trade services provider plans to share a new timetable with clients in the coming weeks.
ESMA and the European Commission were unable to immediately comment on the matter.
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