UK’s exclusion of CSDR’s settlement discipline regime set to create new challenges
25 June 2020 London
Image: Sven Hansche/Shutterstock.com
The UK’s exclusion of the Central Securities Depositories Regulation’s (CSDR) settlement discipline regime as part of its adoption of EU regulations post Brexit, will “undoubtedly create new challenges for firms in the UK”, according to Neil Vernon, CTO at Gresham Technologies.
On 23 June, the chancellor of the exchequer Rishi Sunak confirmed several major updates to the UK’s Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the country’s securities services market participants.
Vernon explained that firms impacted by CSDR are likely to be settling in both EU and UK regulatory regimes and “any divergence will add a degree of complexity to the settlement process and so from a business process perspective”.
Commenting on the announcement, Daniel Carpenter, head of regulation at Meritsoft, said: “As the majority of capital markets firms operate globally, having footholds or transactions flowing through the EU, UK, US and Asia Pacific regions, and will, therefore, be pulled into CSDR.”
He added: “Specifically, there will be many UK-based investment managers who will be settling transactions across the EU and will need to make sure that they are compliant with this regulation."
Carpenter explained that the regulation highlights that reducing the number of trade fails is best practice and commercially beneficial and as a result, he suggested “improving processes will no doubt be looked at favourably by UK firms, even following [the] statement”.
CSDR aims to improve settlement rates by imposing cash penalties for fails along with a mandatory buy-in requirement.
The settlement discipline regime was originally due to come into effect in September but “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, scuppered this timeline.
On 23 June, the chancellor of the exchequer Rishi Sunak confirmed several major updates to the UK’s Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the country’s securities services market participants.
Vernon explained that firms impacted by CSDR are likely to be settling in both EU and UK regulatory regimes and “any divergence will add a degree of complexity to the settlement process and so from a business process perspective”.
Commenting on the announcement, Daniel Carpenter, head of regulation at Meritsoft, said: “As the majority of capital markets firms operate globally, having footholds or transactions flowing through the EU, UK, US and Asia Pacific regions, and will, therefore, be pulled into CSDR.”
He added: “Specifically, there will be many UK-based investment managers who will be settling transactions across the EU and will need to make sure that they are compliant with this regulation."
Carpenter explained that the regulation highlights that reducing the number of trade fails is best practice and commercially beneficial and as a result, he suggested “improving processes will no doubt be looked at favourably by UK firms, even following [the] statement”.
CSDR aims to improve settlement rates by imposing cash penalties for fails along with a mandatory buy-in requirement.
The settlement discipline regime was originally due to come into effect in September but “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, scuppered this timeline.
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