The European Central Securities Depositories Association (ECSDA) is calling for a one year delay to the implementation of the settlement discipline regime (SDR), and settlement penalties in particular, because of Covid-19.
The Central Securities Depositories Regulation (CSDR) SDR is due to come into effect on 1 February 2021, introducing financial penalty and mandatory buy-in regimes in an effort to cut the number of securities transactions that fail to settle on the intended date, and reduce the duration of such settlement failures.
However, the ECSDA has written to European authorities asking for postponement, "possibly by one year", arguing that its members are already struggling to carry out a host of parallel regulatory and other mandatory IT projects during a time when they are trying to focus on day-to-day resilience during the pandemic.
CSDs and their participants are already preparing for a host of projects over the next 18 months, including T2-T2S, Shareholder Rights Directive II, and Eurosystem Collateral Management System testing.
Meanwhile, they are also working on cyber risk-related patches, mandatory software upgrades, legacy system upgrades, and the launch of new services and products.
"Considering the complexities and interdependencies among those projects in terms of development, testing and production, we recommended taking a holistic approach when considering a postponement of those projects," says the letter.
Covid-19 and the accumulation of IT deliverables has led to a "bottleneck in the delivery of post-trade IT projects," says the letter.
With only December and January pencilled in to test the settlement penalties mechanisms, "we consider that this is a challenging timeline to test under normal circumstances. Considering the current setting, it will be too short for CSD participants to consider issues and correct and implement the necessary changes. This exacerbates the IT deliveries bottleneck and further challenges the operational resilience of CSDs’ ecosystems."
Concludes the letter: "We believe that an accommodative regulatory timeline would decrease the risks in post-trade activities of European markets."
A delay would be the second for the SDR - the European Securities and Markets Authority has already postponed by six months in the face of heavy industry pressure.