CSDR

The CSDR Regulation (No. 909/2014) on enhancing securities settlement in the European Union and central securities depositories (CSDs) is one of the legacies of the banking and financial crisis that hit the world in 2008. Seeking to strengthen the resilience of the internal market and recognising the systemic role of CSDs, the European institutions have chosen, by adopting this Regulation on 23 July 2014, to accelerate the convergence of EU standards on CSDs and to enhance the safety and efficiency of settlement processes. The regulation entered into force on 17 September 2014 in all Member States.

On 8 December 2020, the European Commission launched a public consultation prior to its report on the CSDR Regulation and its implementation. This consultation, which will close on 2 February 2021, thus foreshadows a broader review of the CSDR Regulation as the Commission may present proposals for legislative changes in its report to the Council and the European Parliament.

Main provisions

Objectives of this regulation

1. To provide a set of common requirements for Central Securities Depositories operating securities settlement systems in the EU.
2. To harmonise certain aspects of the settlement cycle by enhancing the safety and efficiency of the settlement of financial instruments within the EU.

The CSDR Regulation mainly provides for:

• Shorter settlement/delivery times;
• Disciplinary measures for settlement (mandatory cash penalties and "buy-in" in case of settlement failure);
• A dematerialisation requirement for most securities (particularly in the UK and Ireland, where the possibility to hold physical securities was maintained);
• The strengthening of prudential and supervisory requirements for Central Securities Depositaries (CSDs) - including the introduction of a European passport - and other institutions providing banking services ancillary to securities settlement.

Challenges and opportunities

The CSDR Regulation introduces measures that impact all actors involved in settlement, particularly the settlement discipline, containing:

• A prevention axis with confirmation/allocation procedures between investment firms and their professional clients and settlement functionalities, in order to facilitate the process and thus encourage a timely settlement;
• Remedial measures, including financial penalties and the buy-in procedure to encourage smooth settlement.

CACEIS has launched a project consisting of a set of actions and services based on these two areas, and is continuing discussions with its clients to assist them in adapting to the CSDR Regulation.