The voices of those in the industry who lobbied against the simultaneous introduction of mandatory buy-ins and penalties in phase 1 of the CSDR settlement disciple regime have been heard. The European Commission has confirmed that implementation of the mandatory buy-in regime has been postponed.
Regardless of this amendment, the CSDR settlement discipline clock is still ticking, and businesses must be prepared to comply with the penalty rules when they come into force in February 2022.
Time will tell how far the ‘penalties-only’ approach will go in addressing the industry-wide issue of settlement fails, but the additional cost implications are certainly focusing minds on more effective fails prevention and management.
Inevitably, some trades will fail, but operational efficiency, data digitisation, automation, analytics, and AI must be at the centre of the settlement conversation if market participants want to remain ahead of the curve, minimise the financial impact and ensure compliance. Real-time workflow, flexible dashboards that provide a centralised view of all the relevant CSDR data, and the ability to apply predictive analysis to identify where the biggest risks of failure lie, are set to become key components as businesses focus on the overall effectiveness of their fails management processes.
So, while many across the industry will welcome the Commission’s decision on buy-ins, preparation must continue at pace if firms are to meet the requirements of the new rules when they come into force in February.
I joined my fellow panelists for the ‘All Settled for CSDR’ discussion at the Securities Finance Technology Symposium earlier this month where an audience poll revealed that only 15% believed that the market would be ready for a penalties-only implementation. A staggering 55% expressed the view that the market would not be ready for the implementation of settlement fines by February.
It seems that for some, at least, there is still a way to go.
