The European Securities and Markets Authority has finalized its technical advice for the European Commission on the Central Securities Depositories Regulation penalty mechanism. ESMA hopes to incentivize all actors in the settlement chain to improve settlement efficiency, also in view of the potential move to T+1 in the EU.
The report outlines ESMA's advice to improve the application of the CSDR penalty mechanism on three main aspects: (i) alternative parameters to calculate the penalties due to lack of cash, when the official interest rate for overnight credit charged by the central bank issuing the settlement currency is not available; (ii) the treatment of historical reference prices for the calculation of late matching fail penalties; and (iii) the design and level of the penalty rates for each asset class. ESMA proposes to maintain the design of the current penalty mechanism—for example, not introducing fundamental changes to the methods for calculating penalties—and to introduce an overall moderate increase of the penalty rates, in full alignment with the current types of settlement fails and targeting most asset classes. The Commission will take into account ESMA's technical advice when amending the Commission Delegated Regulation (EU) 2017/389. The revised penalty mechanism will become applicable once the amended Commission Delegated Regulation has been adopted by the Commission, scrutinized by the European Parliament and the Council of the European Union, and published in the Official Journal of the European Union.
[View source.]
