CSDR post-implementation: the lay of the land

In this Thinking Aloud podcast, we explore CSDR and the settlement discipline regime post-implementation.


In this Thinking Aloud podcast, we explore CSDR and the settlement discipline regime post-implementation.

CSDR: Get the full picture

CSDR Refit initiative: what you need to know
CSDR Refit initiative: what you need to know

The European Commission has proposed a refit of CSDR in order to simplify the application of the regulation and introduce changes to facilitate cross border services.

CSDR regulation memo
CSDR regulation memo

Our regulation memo provides an overview of the objectives, scope and industry implications of CSDR.

Alan Cameron: Thanks for joining our Thinking Aloud podcast from BNP Paribas. I am Alan Cameron, from the Securities Services business of BNP Paribas, and I am pleased to be joined by my colleagues Silvia Sancin and Damien Veillard. Silvia is a Senior Custody Solutions manager focusing on CSDR. Welcome Silvia.

Silvia Sancin: Hello Alan, and thank you.

Alan Cameron: Damien is from our Public Affairs team, which follows market-related regulations for Securities Services. Welcome Damien.

Damien Veillard: Hi Alan, thank you.

Alan Cameron: In our Thinking Aloud podcasts, we delve into the details of the post-trade world. The topic for today is the EU’s CSDR settlement discipline regime, which aims to improve settlement efficiency in Europe by harmonising some aspects of the settlement cycle and introducing new cash penalties and buy-ins for settlement failure. Its implementation has not been easy. Maybe it’s too early to say for sure, but it looks as if there is no clear increase in settlement efficiency since the penalty regime went live. And as early as one month after it went live, on 1 February 2022, the European Commission introduced a review of the regulation.

CSDR: implementing the settlement discipline regime

Alan Cameron: Silvia, you have been working on our CSDR programme since 2017. Can you bring us up to date on where we are with CSDR’s settlement discipline regime? What is our experience with it so far?

Silvia Sancin:

Implementing the discipline regime has been a long and complex journey. The penalties process is intricate because it involves many actors in a long chain. All the actors of the penalties process are very connected. This chain starts with T2S and CSDs/ICSDs as the source for calculation and reporting of late matching and late settlement penalties.

In our role of Agent Bank, we process and collate information from an extensive number of upstream providers and, despite challenges, on 1 February, we were ready to fully comply with the new requirements towards our clients. Since the settlement discipline regime went live, we have been managing complexity and timing issues in a very flexible manner. This is something we are very proud of. We have adapted our processes to cope with inaccurate, not harmonised and incomplete information being reported to us.

At BNP Paribas, from the start, our goal has been to absorb market inefficiencies as much as possible to shield our clients from the complexity of an intricate and complex process that was extremely vulnerable for the first months of BAU activity. The list of markets issues that appeared after the go-live is long. But to name a few, a number of daily penalties were sent long after the calculation date, penalties for cross border instructions could be reported late, or there were even discrepancies between daily and monthly reporting in which penalties did not match.

CSDR task forces

Alan Cameron: How do market participants tackle those issues? How is BNP Paribas involved?

Silvia Sancin:

Since CSDR came into force in 2014, we have closely worked with local and European industry associations as well as CSD working groups and user committees to ensure a consistent and pragmatic implementation of the regulation and the settlement discipline regime.

Of course, we have engaged with clients since the publication of the final SDR text in May 2018 and through a collaborative approach, we have implemented significant changes to our services to support our clients’ adaptation to CSDR.

Today, we play an active role within each of the 5 task forces that were created to tackle the market issues that appeared during the dry run testing period and remained after 1 February.

Each task force has a particular area of focus, such as issues relating to reference data or messaging standards or the creation of a common market practice for the management of penalties. One of the working groups’ intention is to incorporate other industry segments, associations and stakeholders into a joint standing committee in order to agree on a market practice that is maintained over time.

We have been involved in all the discussions happening at industry level and we are an active participant to AFME’s and AGC’s task forces on the settlement discipline regime. Here, the focus is on settlement efficiency, addressing to ESMA and CSDs the need to make publicly available high-quality, granular information about current settlement efficiency rates. Such information will enable the industry to better identify current areas of deficiency, and ensure that initiatives are targeted accordingly.

As an active participant of all the CSDR task forces, we aim to ensure that CSDR and the settlement discipline regime deliver what they are designed to deliver, namely safer and more efficient securities settlement.

Improving settlement efficiency

Alan Cameron: How can settlement efficiency be improved?

Silvia Sancin:

Settlement efficiency is of the essence and is very topical. If we take a pragmatic approach, as an industry, we first and foremost need to properly measure efficiency and report efficiency gains with the right tools and processes. Of course, these have to be common and shared industry-wise. At BNP Paribas, we are addressing this issue both externally and internally.

Externally, we propose a set of indicators that the Central Depositories and T2S should make available to all their participants. Internally, we aim to implement an ad hoc governance around data to monitor and analyse behaviours and trends to take all appropriate measures needed to increase settlement efficiency.

We know that there are settlement best practices that we encourage our clients to use in their day-to-day activity to prevent and monitor settlement fails, to reduce late matching and late settlement such as partial settlement and partial release, the use of hold and release and priority management in a settlement instruction. These functionalities are all supported at BNP Paribas and we are available to provide our clients with any support they might need to implement them.

CSDR refit initiative and mandatory buy-ins

Alan Cameron: We can see that many market participants are very much involved in making sure that CSDR achieve its objectives. There has been tremendous work done on the ground to cope with the market issues that arose when the settlement discipline regime went live. Damien, from your position within our Public Affairs team, could you tell us what happens next with the regulators? Are they going to bring in mandatory buy-ins?

Damien Veillard:

The European Commission proposed in March 2022 a review of CSDR through what is called a Refit, or a regulatory fitness and performance programme. The objective of a Refit is to ensure that EU laws deliver on their objectives at a minimum cost for the benefit of citizens and businesses. The point is to review the rules to make them simpler, less burdensome and easier to comply with.

While Refit programs cover EU laws which have already been enacted for some time, it was decided for CSDR to also include the settlement discipline regime even though it had only come into force earlier this year.

Several CSDR provisions are subject to review. The review covers the passporting rules for CSDs for the provision of cross border services within the EU with a view to improving harmonisation; it covers supervisory convergence among national authorities; and it also covers a review of the rules governing bank-type ancillary services provided by CSDs to facilitate settlement in central bank money. This review currently under discussion at Parliament and Council levels aims to simplify some of the rules of CSDR and improve harmonisation within the EU.

This review also tackles the settlement discipline regime and the mandatory buy-ins (MBIs). The existing buy-in regime has been decoupled from the penalties and suspended for 3 years until November 2025, allowing for a review of its mechanism to take place as part of the CSDR Refit discussions.

The European Commission has proposed through CSDR Refit to introduce a 2-step approach for mandatory buy-ins in order to give time to penalties to produce effects on settlement efficiency before considering their introduction.

Settlement fail rates would be monitored for any given set of financial instruments or categories of transactions with the penalty mechanism applying. Should settlement fails not improve over a given period of time, a mandatory buy-in mechanism could be introduced as a second step. This potential second step would also have to consider factors such as benchmarks with third countries and impacts on financial stability. Also, the buy-in mechanism was improved with the introduction of a pass-on mechanism to make sure that market participants are less affected.

In July this year, the European Central Bank published an opinion on CSDR refit questioning the added value of MBIs. There is a growing consensus with the authorities that MBIs could in fact jeopardise market stability and ultimately render markets less efficient. The European parliament seems now ready to reconsider introducing this measure and the Council is currently addressing the technical complexities of a possible application of a buy-in regime. After the experience of the penalties this year, we can trust they have now taken the measure of the difficulties for the industry to apply such a rule, that we need to evaluate the costs and benefits of such a measure. We can trust that they will review the settlement discipline regime in a way that makes sense for the industry and for all the actors.

Supporting our clients in their adaptation to CSDR

Alan Cameron: Many challenges remain before increased settlement efficiency is achieved. We actively participate in all industry discussions and many task forces around CSDR and the settlement discipline regime. We propose that appropriate information is shared more efficiently across the whole value chain. Silvia, what we can do to further help our clients now that we are 8 months after the live date?

Silvia Sancin:

We think that dialogue with our clients is fundamental. During our regular CSDR catch-ups we put in place with our clients, we realised how important it is for them to receive comprehensive and reliable penalties reporting. That’s why we are currently developing as an add on service two different types of reports dedicated to CSDR penalties.

First, an intra-day alert reporting, focused on our local custody franchise. This report will combine information on failing settlement instructions with a forecast of the penalty amount that will arise if the fail is not resolved before the settlement cut off.

The second type of reporting will provide metrics and trends to help our clients reconcile each penalty. This report can be sent on a daily or monthly basis or for a set period of time. It will be flexible enough to answer our clients’ needs around CSDR penalties.

Alan Cameron: Silvia and Damien, thank you for sharing your insights with us today. This has been a BNP Paribas “Thinking Aloud” podcast from the Securities Services business. For more, please visit our website securities.cib.bnpparibas. Thank you for joining us.


The information contained within this recording is believed to be reliable but BNP Paribas does not warrant its completeness or accuracy. Opinions and estimates contained herein constitute BNP Paribas’ judgment and are subject to change without notice. BNP Paribas and its subsidiaries shall not be liable for any errors, omissions or opinions contained within this recording. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. For the avoidance of doubt, any information contained within this recording will not form an agreement between parties. Additional information is available on request.

Damien Veillard and Silvia Sancin
Damien Veillard and Silvia Sancin