UKās exclusion of CSDRās settlement discipline regime set to create new challenges
25 June 2020 London
Image: Sven Hansche/Shutterstock.com
The UKās exclusion of the Central Securities Depositories Regulationās (CSDR) settlement discipline regime as part of its adoption of EU regulations post Brexit, will āundoubtedly create new challenges for firms in the UKā, according to Neil Vernon, CTO at Gresham Technologies.
On 23 June, the chancellor of the exchequer Rishi Sunak confirmed several major updates to the UKās Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the countryās securities services market participants.
Vernon explained that firms impacted by CSDR are likely to be settling in both EU and UK regulatory regimes and āany divergence will add a degree of complexity to the settlement process and so from a business process perspectiveā.
Commenting on the announcement, Daniel Carpenter, head of regulation at Meritsoft, said: āAs 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.ā
He added: āSpecifically, 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 āimproving processes will no doubt be looked at favourably by UK firms, even following [the] statementā.
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 ātechnical impossibilitiesā 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 UKās Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the countryās securities services market participants.
Vernon explained that firms impacted by CSDR are likely to be settling in both EU and UK regulatory regimes and āany divergence will add a degree of complexity to the settlement process and so from a business process perspectiveā.
Commenting on the announcement, Daniel Carpenter, head of regulation at Meritsoft, said: āAs 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.ā
He added: āSpecifically, 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 āimproving processes will no doubt be looked at favourably by UK firms, even following [the] statementā.
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 ātechnical impossibilitiesā 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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