CSDR: ECSDA offers new, previously unconsidered reasons to delay
09 June 2020 Brussels
Image: VanderWolfImages/Shutterstock
The European Central Securities Depositories Association (ECSDA) has added its voice to industry calls for concern regarding the Central Securities Depositories Regulation (CSDR) by sending its own letter to the European Commission asking for a further one-year delay.
The letter, ECSDA says, aims to alert regulators to a set of “new elements which affect the CSDR’s settlement discipline regime (SDR) timeline and might not yet have been considered by the commission”.
Chief among ECSDA’s concerns is that the COVID-19 pandemic has forced market participants, including but not exclusively CSDs, to give priority to ‘run-the-institution’ activities over ‘change-the-institution’ ones, which has led to slippage in progress towards IT projects for regulatory changes.
Additionally, the trade body stresses that CSDR does not exist in a vacuum and the significant challenges it poses are only one among many upcoming regulatory demands on market participants which will like lead to a “bottleneck” of resource allocation.
Other regulatory projects being undertaken alongside CSDR include the second Shareholder Rights Directive due in September; testing for T2-T2S consolidation due in December; the launch of T2-T2S consolidation in November 2021; and the Eurosystem Collateral Management System (ECMS) testing as of November 2021.
As such, the letter calls for a holistic approach on the implementation timeline of the regulatory and mandatory projects since the pandemic has impacted the overall implementation of regulatory projects and IT deliveries of financial institutions, including CSDs and their participants.
As a consequence, ECSDA says that, despite CSDR already being pushed back from September to February 2021, a further year’s delay is now required.
The grace period was proposed by the European Securities and Markets Authority in February and accepted by the commission in May. It is now under review and ECSDA is hoping to use this period, which is set to expire imminently, to push the implementation deadline back by an additional 12 months.
ECSDA believes that an accommodative regulatory timeline would decrease the risks in post trade activities of European markets.
The association highlights that the implementation plan for the SDR is a “challenging timeline” for CSD participants to test the settlement penalties mechanisms adding that it is “too short” for them to consider issues and correct and implement changes.
Elsewhere, the letter reminds the commission that some projects and regulatory requirements were postponed or requested to be postponed by one year. This has included the delays in the implementation of the Securities Financing Transactions Regulation, Basel capital requirements and other projects, all of which ECSDA endorses.
Moreover, ECSDA was supportive of the request for second Shareholders Rights Directive postponement before the commission rejected it last week/.
The trade body also says it is sympathetic to the need expressed by certain market participants for a deferral for T2-T2S consolidation.
Compounding ESCDA’s concerns around CSDR is the fact that two years after the issuance of the regulatory technical standards, there are “still outstanding important elements of regulatory and market guidance”.
The letter explains that this is hindering the preparation to the completion of the CSDs’ SDR-related projects and by delaying the implementation of SDR would allow more time for much-needed finalisation.
On this point, ESCDA echoes worries voiced by the International Capital Market Association, which recently renewed its campaign for CSDR to be revised on similar grounds.
ESCDA requests that the decision on the postponement should be announced quickly as the timeline uncertainty could further aggravate risks.
The letter, ECSDA says, aims to alert regulators to a set of “new elements which affect the CSDR’s settlement discipline regime (SDR) timeline and might not yet have been considered by the commission”.
Chief among ECSDA’s concerns is that the COVID-19 pandemic has forced market participants, including but not exclusively CSDs, to give priority to ‘run-the-institution’ activities over ‘change-the-institution’ ones, which has led to slippage in progress towards IT projects for regulatory changes.
Additionally, the trade body stresses that CSDR does not exist in a vacuum and the significant challenges it poses are only one among many upcoming regulatory demands on market participants which will like lead to a “bottleneck” of resource allocation.
Other regulatory projects being undertaken alongside CSDR include the second Shareholder Rights Directive due in September; testing for T2-T2S consolidation due in December; the launch of T2-T2S consolidation in November 2021; and the Eurosystem Collateral Management System (ECMS) testing as of November 2021.
As such, the letter calls for a holistic approach on the implementation timeline of the regulatory and mandatory projects since the pandemic has impacted the overall implementation of regulatory projects and IT deliveries of financial institutions, including CSDs and their participants.
As a consequence, ECSDA says that, despite CSDR already being pushed back from September to February 2021, a further year’s delay is now required.
The grace period was proposed by the European Securities and Markets Authority in February and accepted by the commission in May. It is now under review and ECSDA is hoping to use this period, which is set to expire imminently, to push the implementation deadline back by an additional 12 months.
ECSDA believes that an accommodative regulatory timeline would decrease the risks in post trade activities of European markets.
The association highlights that the implementation plan for the SDR is a “challenging timeline” for CSD participants to test the settlement penalties mechanisms adding that it is “too short” for them to consider issues and correct and implement changes.
Elsewhere, the letter reminds the commission that some projects and regulatory requirements were postponed or requested to be postponed by one year. This has included the delays in the implementation of the Securities Financing Transactions Regulation, Basel capital requirements and other projects, all of which ECSDA endorses.
Moreover, ECSDA was supportive of the request for second Shareholders Rights Directive postponement before the commission rejected it last week/.
The trade body also says it is sympathetic to the need expressed by certain market participants for a deferral for T2-T2S consolidation.
Compounding ESCDA’s concerns around CSDR is the fact that two years after the issuance of the regulatory technical standards, there are “still outstanding important elements of regulatory and market guidance”.
The letter explains that this is hindering the preparation to the completion of the CSDs’ SDR-related projects and by delaying the implementation of SDR would allow more time for much-needed finalisation.
On this point, ESCDA echoes worries voiced by the International Capital Market Association, which recently renewed its campaign for CSDR to be revised on similar grounds.
ESCDA requests that the decision on the postponement should be announced quickly as the timeline uncertainty could further aggravate risks.
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