What is the European Union Central Securities Depositories Regulation (CSDR)?
Regulation (EU) No 909/2014 CSDR was designed to introduce harmonised rules across all Central Security Depositories (CSDs) within the European Economic Area (EEA) and to complement the Target2Securities (T2S) project. CSDR entered into force in 2014. The requirements have been staggered; implementations to date have included shortening of settlement cycles and internalised settlement reporting.
The current regulatory focus of CSDR is on the new Settlement Discipline Regime (SDR), effective 1 February, 2022, which seeks to improve the safety and efficiency of settlement in the EEA by introducing measures focused on preventing settlement fails, including measures such as timely allocations, partial settlements, continuous real time matching and Real Time Gross Settlement (RTGS); and addressing settlement fails, including establishing cash penalties and mandatory buy-in rules.
The UK Government has not adopted the SDR.
State of Play
The European Commission (EC) is conducting a CSDR Review scheduled to be completed in Q1 2022. In July 2021, it published its provisional report on CSDR, acknowledging deficiencies in the SDR and stating that it is considering proposing amendments to the mandatory buy-in rules. In view of anticipated changes to the SDR, industry association advocacy raises concerns regarding the implementation timeline of the mandatory buy-in provisions and proposes a delay to the introduction of mandatory buy-ins. We will keep you informed if a change to the date that the buy-in rules take effect is confirmed. If changes are not confirmed in a reasonable time before 1 February 2022, we may need to send you further information and documentation.
What is the Scope of the EU CSDR Settlement Discipline?
The CSDR Settlement Discipline Regime applies with respect to any security transaction settling on an EEA CSD, irrespective of the Counterparty domicile. Therefore, both EEA and non-EEA BofA entities and their clients that enter into transactions in securities which settle on EEA CSDs will be subject to the SDR (including cash penalties and mandatory buy-ins).
What is Bank of America doing to help Counterparties & Clients prepare for the CSDR SDR?
Bank of America is running a comprehensive CSDR programme and has developed the capabilities to successfully manage and report on settlement fails, penalties and buy-ins. We continue to participate in industry groups considering best practices and advocacy, as well as engage with CSDs and sub-custodians to ensure CSDR SDR requirements are understood, tested and successfully deployed ahead of the 1 February, 2022 implementation date.
Alongside the core project requirements, Bank of America has been conducting a detailed root cause analysis of late settlement and settlement fails and will continue to work with clients and counterparties to improve settlement efficiency and minimise impact. Bank of America would encourage Counterparties to enable and accept auto partial settlement functionality from value date, to materially reduce their CSDR cash penalty risk.
We would encourage clients to consider the electronic offerings available to send their allocation instructions to Bank of America, to prevent settlement fails. If clients would like to use an electronic offering, please discuss further with your usual Sales or Operations representative.
We have created a “CSDR Settlement Discipline Regime Frequently Asked Questions” document, available here which provides useful information about these changes. This document will be updated with new information periodically as necessary.
We stand ready to help our clients and assist them through any further CSDR related changes that may be required. If you need more information, please email us at firstname.lastname@example.org or contact your Bank of America Relationship Manager.