CSDR Refit: The ECB gives its opinion on the revision proposal

The ECB welcomes the progress contained in the proposal, for example on the "passporting" procedure, cooperation between countries, cross-border settlements and the settlement discipline regime (SDR).

With regard to the latter, the ECB considers that the penalties should be applied taking into account the context and the parties involved, suggesting that only those fails with a negative financial impact on the non-defaulting party should be penalised. The two exemptions proposed by the European Commission (EC)*** are thus favourably received by the Central Bank, which nevertheless stresses the need to clarify what a transaction does not involve two “trading parties” is. It will ultimately be up to the CSDs**** and T2S to be able to distinguish the fails to be penalised from those outside the scope.

Another flagship measure for the SDR is the mandatory buy-in (MBI) which is also addressed in the ECB communication. While welcoming the proposals made by the EC and in particular a conditional implementation of the MBI*****, the ECB goes one step further and proposes that this measure be discarded. Otherwise, the ECB warns about the impact of the MBI on financial stability and suggests three changes: the buy-in procedure would be established between the parties through their contractual relations (rather than imposed by the regulation) and its activation would be at the hand of the buyer (the repurchase should be optional); as for SFTs, they would all be exempt from MBI (the exemption is only partial today).

Finally, the Central Bank indicated that it intends to be involved in future discussions on CSDR and the drafting of texts and that it was at the disposal of the EC.

*Opinion CON/2022/25 EU on a proposal for a regulation amending Regulation (EU) No 909/2014 on the central securities depositories (europa.eu)
**220316-csdr-review-proposal_en.pdf (europa.eu) | Find out more about CSDR
***Settlement fails caused by factors not attributable to the participants to the transaction, and settlement fails occurring in the context of transactions that do not involve ‘two trading parties (see our Flash News: CSDR Refit: The European Commission formalises proposals for amendments)
****CSD: Central Securities Depositary
*****See our Flash News: CSDR Refit: The European Commission formalises proposals for amendments