The European Securities and Markets Authority has published its Final Report and draft Regulatory Technical Standards amending the cash penalty process for cleared transactions under the EU Central Securities Depositories Regulation. The settlement discipline regime under the EU CSDR, supplemented in EU Regulatory Technical Standards, provides measures for preventing settlement fails. CSDR and the RTS also provide measures for monitoring and addressing settlement fails when they do occur, such as a mechanism for cash penalties (which has applied since February 1, 2022) and a mandatory buy-in process.

ESMA consulted earlier in 2022 on its proposals to amend the RTS to remove the obligation on CCPs to collect and distribute penalties for cleared transactions. CCPs felt strongly that CSDs should replace them in carrying out this obligation, as they considered that a single operational process involving only CSDs would reduce risk.  The Final Report takes account of responses received to the consultation and implements the proposed changes to the RTS largely as consulted on, with some minor clarificatory adjustments. The implementation deadline for the revised RTS has been extended, so that the new rules will apply 12 months after publication in the Official Journal of the European Union (as opposed to the originally-proposed six months).

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