European Securities and Markets Authority Supports Delay to Buy-In Regime under EU Central Securities Depositories Regulation

The European Securities and Markets Authority has published a letter to the European Commission urging the Commission to delay the buy-in regime under the Central Securities Depositories Regulation. The EU CSDR provides a harmonized regulatory and prudential regime for central securities depositories and increases the robustness and resilience of securities settlement arrangements. The Commission consulted in 2020 on proposals to improve securities settlement in the EU and on central securities depositories, and legislative proposals are expected before the end of 2021.

The settlement discipline regime is set out in EU Regulatory Technical Standards. The RTS cover measures for preventing settlement fails through automated matching, a hold and release mechanism and partial settlement. The RTS also provide measures for monitoring and addressing settlement fails, such as a mechanism for cash penalties and a mandatory buy-in process. The application date of the settlement discipline rules has been postponed, first from September 13, 2020, to February 1, 2021, to allow time for the industry to establish systems and processes for implementation. Then, in October 2020, the Commission adopted legislation to further delay the application date to February 1, 2022, as a result of the impact of the coronavirus pandemic.

In its letter, ESMA urges the Commission to provide clarity on the timing of the settlement discipline regime and confirms its support for the buy-in regime to be delayed beyond February 1, 2022, because of ongoing uncertainties about the regime, including whether any amendments will be made in the Commission's upcoming legislative proposal.

The U.K. government on-shored the CSDR into U.K. law after Brexit, but the T+2 and buy-in rules under U.K. CSDR were abandoned. This was decided on the basis that there will be a "market solution," which means that industry will still need to promote more effective settlements and buy-in. Following the U.K.'s decision not to implement the buy-in rules, there are questions about whether the EU will follow through with the settlement discipline regime and in what format.

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