The Settlement Discipline Regime (SDR) is a new EU / ECB regulation coming in to effect in February 2022
CSDR SDR penalties (interest and mandatory buy-ins) are due to be implemented in February 2022. This regulation is essentially a further extension of existing measures to reduce friction from Clearing and Settlement. These measures impact every buy-side firm with cash, repo, or securities lending trades settling in one of the 27 European Central Security Depositories (CSDs). The regulatory reach is therefore global.
The new regime introduces mandatory buy-ins for trades which fail for an extended period. This has the potential to significantly impact operating costs and client service delivery. Additional process and rigour must also be applied to the handling of Client money – the debit / credit cashflows which wll result.
At current fail levels, we estimate around €1.2bn (annual total) of debit and credit interest (€600m each). Every firm in the chain - bank, broker, fund manager, etc. will need robust controls over its daily penalties to ensure that amounts are correct, appropriately booked and passed on in a timely manner. Assuming that each interest debit and credit is processed by an average of 4 firms, the total flows will be €4.8 bn.
Why CSDR / SDR is a challenge
Reduce the number of fails and buy-ins
Validate and allocate penalties
Treatment of client money (debit / credit interest)
Penalties / costs and impact on NAVs
Inducement to trade requirements
Mandatory buy-in processing costs and risk
How We Can Help You Achieve Compliance
We can help you prepare – prioritise the fails you need to reduce, reduce them, and put the controls you need in place for when the regime goes live
We can help you to operate under the new regime – make sure fails stay down and make sure the debit / credit interest and charges are materially correct
We have partnered with a leading Fintech to provide a best-of-breed technology solution, to embed the controls you need in order to comply.
We know from experience of working on many complex digital transformation projects, that technology in of itself, is not a panacea. You need people with a deep understanding of the business challenges you face, to ensure that the technology solution, people and processes are implemented correctly. Our experienced SMEs know what is required to ensure that new technologies are implemented and embedded within the organisation correctly and meet the specific needs of your business.