CSDR Refit initiative: what you need to know

On 27 June 2023, the European Parliament and the Council of the European Union reached an agreement on a compromise text for CSDR Refit.


The European Commission proposed a review of the Central Securities Depositories Regulation (CSDR Refit) on 16 March 2022. On 27 June 2023, the European Parliament and the Council of the European Union reached an agreement on a compromise text for CSDR Refit. In the meantime, penalties and mandatory buy-ins (MBIs) were decoupled while the application of MBIs was postponed to November 2025 in order for CSDR Refit to propose a new settlement discipline framework.

Main points of the CSDR Refit provisional agreement

  • Penalties are separated from mandatory buy-ins (MBIs)
  • Penalties shall not apply to (a) settlement fails whose underlying cause is not attributable to the participants to the transactions or (b) operations that are not considered as trading (to be further specified by a delegated act)
  • MBIs can only be implemented in a limited number of instances. MBIs shall not apply to securities financing transactions or other types of transactions that render the buy-in process unnecessary (to be further specified by a delegated act)
  • Pass-on mechanisms are introduced for MBIs as well as cash compensations in case the buy-in fails
  • To propose introducing MBIs, the European Commission must:
    • consider market impact and the conditions of settlement fails at the end of the extension period,
    • consider that MBIs are necessary, appropriate, and proportionate, and consult with ESRB (European Systemic Risk Board) and ESMA (European Securities and Markets Authority)
  • There is no requirement for implementing a T+1 settlement cycle. ESMA will report on the potential shortening of the settlement cycle

The CSDR Refit initiative was initially proposed by the European Commission to simplify the application of the regulation and introduce changes to facilitate cross border services. Other measures included in the CSDR Refit agreement cover the simplification of the passporting requirements for CSDs (timeframe, notification, and assessment review), additional possibilities for the provision of banking-type ancillary services (under revised thresholds and conditions) and further cooperation between supervisory authorities by requiring the establishment of colleges of supervisors for certain CSDs.

CSDR has many implications for our clients. These can be broadly categorised as resulting from extended CSD requirements, internalised settlement reporting and the settlement discipline regime.

Settlement Discipline Regime (SDR)

The implementation of SDR has not followed an easy path between the delay of its introduction to 1 February 2022 due to the Covid-19 pandemic and the decoupling of the mandatory buy-in regime from the penalty regime.

SDR affects all market participants and settlement efficiency is key to meet the requirements of SDR.

The Settlement Discipline Regime was designed to harmonise some aspects of the settlement cycle and introduced new rules for cash penalties and buy-ins. Trading parties, central counterparties (CCPs) and trading venues are impacted by SDR and, even though the buy-in regime was not enacted in February 2022, they have to comply with the measures relating to cash penalties for settlement failures. Those measures have proven intricate to implement since they came into force on 1 February 2022.

In this Thinking Aloud podcast, we explore the implementation of the settlement discipline regime. This podcast was recorded in November 2022 and does not account for the agreement reached in July 2023 by the European Parliament and the Council of the European Union.

Our experts explore what is next for CSDR post-implementation, the settlement discipline regime and the future of mandatory buy-ins.

Securities Services’ view

The European financial industry has long been highlighting the potential operational and administrative complexities of the mandatory buy-in regime. The CSDR Refit agreement is an improvement with respect to the initial proposal but the provisions on MBIs are still part of the deal and the level 2 measures yet to be defined might illustrate the remaining complexities of implementing an MBI framework.

The difficulties seen with the implementation of the penalties in February 2022 and their effects over time will surely provide significant feedback to policy makers in evaluating the costs and benefits of any additional settlement discipline measures and keep the industry focused on settlement efficiency.

We expect the publication of the CSDR Refit agreement in the Official Journal of the EU by the end of 2023.

This article was first published in May 2022. It was last updated in August 2023.