CSDR buy-in rules to be dropped by UK
23 June 2020 London
Image: Shutterstock
The UK will not include the Central Securities Depositories Regulation’s (CSDR) settlement discipline regime as part of its adoption of EU regulations post Brexit.
The chancellor of the exchequer Rishi Sunak confirmed several major updates to the UK’s Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the country’s securities finance market participants.
The terms of the EU Withdrawal Act, which governs the Brexit transition period, stipulates that only regulations which are in effect before the period ends on 31 December are required to be onshored unless the UK government makes changes to the relevant statutory instrument.
The UK has now stated it will not do this, meaning several major incoming regulations will not apply to UK firms, including CSDR, which come into force from February 2021.
Instead, Sunak said that UK firms should instead “continue to apply the existing industry-led framework”.
“Any future legislative changes will be developed through a dialogue with the financial services industry, and sufficient time will be provided to prepare for the implementation of any new future regime,” he added.
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 “technical impossibilities” 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.
Explaining his position, Sunak noted: “The UK played a pivotal role in the design of EU financial services regulation. The government remains committed to maintaining prudential soundness and other important regulatory outcomes such as consumer protection and proportionality.
“However, rules designed as a compromise for 28 countries cannot be expected in every respect to be the right approach for a large and complex international financial sector such as the UK.”
“Now that the UK has left the EU, the EU is naturally already making decisions on amending its current rules without regard for the UK’s interests. We will therefore also tailor our approach to implementation to ensure that it better suits the UK market outside the EU.”
CSDR has garnered widespread criticism in recent years, particularly around the mandatory nature of its buy-in requirement.
The International Capital Market Association (ICMA) has been in the vanguard of efforts to bring amount meaningful amendments to the rules prior to go-live for the benefit of its members and the market.
Commenting on today’s announcement Andrew Hill, senior director for market practice and regulatory policy at ICMA, said: “It is not totally surprising. There is a growing realisation that there are some serious problems with the mandatory buy-in piece of the settlement discipline regime and that it is likely to cause more problems than it will solve.
“This is one piece of regulation where I do not expect to see too many third countries rushing to copy the EU,” Hill continued.
Elsewhere, Sunak’s statement also informed market participants that the fourth implementation phase of Securities Financing Transactions Regulation (SFTR), which applies to non-financial entities, will not be onshored.
The fourth phase of SFTR is due to come into force in January and therefore also falls outside the transition period.
Other EU regulations that may not be adopted by the UK include the European Market Infrastructure Regulation, overhaul, known as EMIR Refit, among others.
The chancellor of the exchequer Rishi Sunak confirmed several major updates to the UK’s Brexit plans for adopting EU rules frameworks in a written statement that will radically impact the country’s securities finance market participants.
The terms of the EU Withdrawal Act, which governs the Brexit transition period, stipulates that only regulations which are in effect before the period ends on 31 December are required to be onshored unless the UK government makes changes to the relevant statutory instrument.
The UK has now stated it will not do this, meaning several major incoming regulations will not apply to UK firms, including CSDR, which come into force from February 2021.
Instead, Sunak said that UK firms should instead “continue to apply the existing industry-led framework”.
“Any future legislative changes will be developed through a dialogue with the financial services industry, and sufficient time will be provided to prepare for the implementation of any new future regime,” he added.
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 “technical impossibilities” 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.
Explaining his position, Sunak noted: “The UK played a pivotal role in the design of EU financial services regulation. The government remains committed to maintaining prudential soundness and other important regulatory outcomes such as consumer protection and proportionality.
“However, rules designed as a compromise for 28 countries cannot be expected in every respect to be the right approach for a large and complex international financial sector such as the UK.”
“Now that the UK has left the EU, the EU is naturally already making decisions on amending its current rules without regard for the UK’s interests. We will therefore also tailor our approach to implementation to ensure that it better suits the UK market outside the EU.”
CSDR has garnered widespread criticism in recent years, particularly around the mandatory nature of its buy-in requirement.
The International Capital Market Association (ICMA) has been in the vanguard of efforts to bring amount meaningful amendments to the rules prior to go-live for the benefit of its members and the market.
Commenting on today’s announcement Andrew Hill, senior director for market practice and regulatory policy at ICMA, said: “It is not totally surprising. There is a growing realisation that there are some serious problems with the mandatory buy-in piece of the settlement discipline regime and that it is likely to cause more problems than it will solve.
“This is one piece of regulation where I do not expect to see too many third countries rushing to copy the EU,” Hill continued.
Elsewhere, Sunak’s statement also informed market participants that the fourth implementation phase of Securities Financing Transactions Regulation (SFTR), which applies to non-financial entities, will not be onshored.
The fourth phase of SFTR is due to come into force in January and therefore also falls outside the transition period.
Other EU regulations that may not be adopted by the UK include the European Market Infrastructure Regulation, overhaul, known as EMIR Refit, among others.
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HM Treasury sets out financial services regulation update in light of Brexit
HM Treasury sets out financial services regulation update in light of Brexit
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