Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU Regulation on Penalties for Settlement Fails Published
Financial Regulatory Developments Focus
  • EU Regulation on Penalties for Settlement Fails Published

    A Commission Delegated Regulation on the parameters for the calculation of cash penalties for settlement fails and the operations of CSDs in host Member States was published in the Official Journal of the European Union. The Delegated Regulation will supplement the Central Securities Depositories Regulation. The CSDR requires CSDs to impose cash penalties on participants to their securities settlement systems that cause settlement fails. The Delegated Regulation sets out the methodology, penalty rates and reference prices that CSDs should use to calculate those penalties.

    The CSDR allows CSDs to provide their services in the EU under the supervision of their home national regulator. To ensure an appropriate level of safety in the provision of services by CSDs in host Member States, home and host national regulators are required to establish cooperation arrangements for the supervision of the activities of CSDs in the host Member State when their operations become of a substantial importance for the functioning of the securities markets and the protection of investors in the host Member States. The Delegated Regulation provides the criteria for determining the substantial importance of a CSD by consideration of the substantial importance of notary, central maintenance services and settlement services provided by a CSD.

    The CSDR introduces common standards for settlements across the EU and the requirement to represent securities in book-entry form will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and from January 1, 2025 to all transferable securities. The Delegated Regulation comes into force on March 30, 2017 and will apply from March 10, 2019.

    View the Delegated Regulation.