ESMA confirms plan to delay Settlement Discipline Regime to 2022

The proposal came in response to a request from the European Commission to further postpone the Settlement Discipline Regime.

The European Securities and Markets Authority (ESMA) has confirmed it has commenced work on a proposal to further postpone the penalty regime for failed securities trades to 2022.

The Settlement Discipline Regime (SDR) is among the core components of the Central Securities Depository Regulation (CSDR), which lays out cash penalties and mandatory buy-ins for trades that have failed to settle.

The TRADE revealed earlier this month that European regulators were looking to push back the implementation date to February 2022, after a note distributed by Euroclear confirmed that authorities were in advanced discussing regarding a proposed one-year delay to the regulation.

ESMA stated the proposal to delay the rules is due to the impact of the COVID-19 pandemic on the implementation of regulatory projects and IT deliveries to CSDs, and came in response to a request from the European Commission.

In addition to the operational pressures the pandemic has forced on firms, the European Commission also noted that other market developments during the crisis would have been significantly worse in terms of market liquidity, especially in the non-cleared and repo markets, had the mandatory buy-in regime was in place.

“In the light of these representations about the impact of COVID-19, I would like to invite ESMA to consider whether a further postponement of the date of entry into force of the RTS on settlement discipline would be appropriate and, if it is, to present a proposal for amendment of the relevant RTS in this respect to the European Commission,” said John Berrigan, directorate general, Financial Stability, Financial Services and Capital Markets Union, European Commission, in a letter to ESMA.

ESMA stated it aims to publish the final report on further postponing the SDR by September, which will then be subject to endorsement by the European Commission and European Parliament.

The delay marks a victory for the financial services industry, where representative bodies have pressed regulators for months to delay the rules to 2022. Last month, the UK Treasury it would not implement the CSDR buy-in regime as it looks to continue to break away from EU-led legislation.