The European Commission has endorsed the European Securities and Markets Authority’s (ESMA) proposal to push back the implementation of the Central Securities Depositories Regulation (CSDR) until 1 February 2021.
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.
Speculation of a delay has been circulating as least as far back as November 2019 based on the SWIFT update timetable making a September go-live untenable.
On Friday, the commission acknowledged ESMA’s concerns raised in its request for a delay filed on 4 February which flagged these issues and suggested a push-back, which has now been accepted.
In its February report, ESMA noted that information from the European Central Bank showed that a go-live prior to February “would put a high risk on the quality of the software delivered in production due to shorter development and/or testing times and is not deemed manageable”.
“Likewise”, ESMA added “market readiness is also under tight constraints with the current implementation timeline. Finally, it would also require a change in the SWIFT ISO standards release yearly schedule which is agreed among stakeholders worldwide (21-22 November)”.
Having got the nod from the commission, the proposal has now entered a non-objection period of one month. An additional review month may be requested by either the European Parliament and the European Council.
If no objections are raised the amended timeline could be accepted by early June.
ESMA’s basis for the delay was almost solely couched in the technical difficulties and timeline clash with ISO, and largely side-stepped other other concerns by stakeholders that the settlement regime itself is not fit for purpose and requires substantial amendments.
Shortly before ESMA’s appeal for a delay in February, several trade bodies lobbied lobbied the securities market regulator for several major changes to the settlement regime, including for the buy-ins to no longer be mandatory as it could would an asymmetrical market dynamic.
In April, ESMA’s chair Steven Maijoor responded to the letter to confirm that no changes would be made prior to go-live as the evidence presented by the trade bodies had failed to sway the authority of the need to re-open to the rulebook at this time.
The International Capital Market Association, which was one of the letter’s signatories, has since vowed to continue pushing for changes before February.