CSD Regulation - Interview with Sylvie Bonduelle

On July 1st, The European Commission published a report paving the way for a revision of the CSDR¹ regulation on central securities depositories. In a few words, can you tell us what this revision is about?

There are two revisions to CSDR under way at the moment.

There is the classic revision, which is inherent to all European Commission texts, and which consists of conducting a review after a functional period to determine whether or not the defined objectives set were achieved and, if necessary, to make revisions,  that would result in a new version of the text.

And we have a much more contextual revision, which is linked to the European Commission’s programme for 2021 and which aims to relaunch the economy in the Union post-pandemic. And here, the focus will be more on questions of balance between obligations and impacts, and, of course, some of the requirements may even be revised downwards. But in all instances, the revisions focus on parts of the text that have already entered into force. And this is why, with regard to the associations, we were extremely relieved to see that settlement disciplines, which will only come into force in February 2022, were among the subjects analyzed by the European Commission. This is likely the result of the many actions carried out by these associations, in which SGSS is highly represented. However, the report published by the European Commission on 1 July is only the first stage.

Now what we are waiting for is the publication of the text proposal by the European Commission, probably around the end of the year, and that is when we will see whether the most has been made of the opportunity.

Precisely, what could be expected from a revision of the settlement disciplines and in particular the mandatory buy-in?

In fact, the buy-in as it is currently planned is mandatory, applies to all types of transactions, and, moreover, must also adhere to a very strict schedule. In other words, we are not lacking areas for improvement. Now at the level of the industry, our preference would be for a buy-in which would become discretionary, rather than being a mandatory buy-in. Except, of course, in the case of transactions in which the buyer is a CCP². For those, the mandatory aspect would remain. The advantage of this solution is that it would simultaneously resolve all the other defects of the current model.

The question now is to know whether we can hope that the European Commission will hear us. The fact that it has put the settlement disciplines on the agenda of its revision programme is a highly positive sign which, not long ago, we didn’t even hope for. It is likely that the European Commission has understood that the buy-in in its current form would have disastrous and disproportionate consequences. And so I think that we can be reasonably optimistic and anticipate, or hope for, a new version of the regime that will be much more favorable over time.

Do you think there will be time to amend CSDR before 1 February 2022, when the penalties and mandatory buy-ins begin to apply?

It is very likely that the content will be modified and also very unlikely that this modification will take place before 1 February 2022. In fact, today we know nothing for sure, neither about the “when” nor the “what”. What remains, what is currently binding, is the date of 1 February 2022 and the current buy-in model. And the industry is continuing to prepare for these tangible elements, as much as possible.

I would just like to cite, as a reminder, the 30 to 40 questions that are still awaiting responses from the European Commission many of which will be crucial to ensure proper compliance. In fact, if nothing is done, we will find ourselves in a rather farcical situation where we will have a regime launched in February to be replaced a few months later by an improved version, that will have taken time and energy to put in place. And in addition to the litigation, and in addition to IT³ aspects, we should note the impact on contracts, the much-discussed "repapering", that will require several months to be carried out, and the idea of doing this only to have to do it again is frustrating to say the least. Especially since the European Commission has itself recognized the necessity of avoiding disproportionate costs⁴ in the implementation of settlement disciplines.

This is why professional associations wrote to the European Commission and ESMA⁵ again on 14 July.  In this letter they urge the Commission – the word may seem strong, but the situation is relatively serious – they urge the European Commission to do two things. First, to put the buy-in regime on hold. In concrete terms, this means that on 1 February, only penalties would begin. This would, moreover, allow the European Commission to reflect calmly and to develop a genuine buy-in system that is viable and beneficial, truly beneficial, for the settlement in Europe. And the second request, which goes with the first, is that this pause be made official as quickly as possible. This is necessary for the industry, It is the only way for the industry to feel authorized to raise its pen while we wait for the new version. Without this strong signal, the desire expressed by the European Commission and unanimously welcomed, will remain a vain wish. And so today, we are at the end of the institutional Summer period... And we are all now awaiting the slightest murmur,  the slightest signal, from the European Commission and ESMA and perhaps, even now as you are listening to me, this signal has been given and I would be the first to celebrate it.