CSDR Internalised Settlement Reporting – the forgotten reporting regime

30 October 2018

CSDR

Buried deep in CSDR, a regulation widely believed to be of little interest to those outside the post-trade community, there is a reporting regime which has been overlooked by the majority of financial services firms. In fact, the PRA have become so concerned about this potential oversight, that they recently sent a letter to  number of banks, asking them to confirm their plans (if any).

In addition to the core requirements for CSDs, CSDR also sets out an onerous reporting requirement for all other entities in the securities holding chain. Under this reporting regime, any institution that settles transactions in CSD-recorded securities on their own books rather than through those of a CSD must report the aggregate volume and value of all such ‘internalised’ settlement to their regulator on a quarterly basis. The first such reports will be due from 12 July 2019.

Am I caught by the CSDR Internalised Settlement Reporting regime?

For a firm to be considered as internalising settlement, the Guidelines require that it receives a settlement instruction from a client and does not forward this in its entirety to another intermediary or a CSD. The Guidelines also require that the instruction results or is supposed to result in a transfer of securities from one securities account to another in the books of the firm.  So if any aspect of settlement could be perceived to be occurring in your books and records, you are likely subject to the reporting obligation.

The scope of instruments covered is also broad – including all securities for which an EU-authorised CSD acts in either an issuer CSD capacity or in an investor CSD capacity. In addition to traditional securities, this may also have an impact for firms trading in crypto assets which are deemed securities, who may then have to provide reporting on crypto tokens which may be subject to CSDR but settled in the blockchain.

What is the impact if I’m caught?

For settlement internalisers, the scope of transaction types and operations covered by the reporting requirements is very broad and includes:

  • securities purchases and sales
  • collateral management operations
  • securities lending and  borrowing; repo transactions
  • transfers of securities between funds and between securities accounts of the same client.

If you are caught by the requirements, you will need to begin designing the technology and operational changes to support reporting. In many cases, this will be a substantial report, covering all settlement activities over the quarter. And even if you only settle transaction in certain exceptional circumstances, you will still need to ensure you have the ability to identify these transactions, and submit a timely and accurate report.

How Bovill can help

We have worked closely with CSDs and settlement agents as they implement CSDR. We can help you to determine whether you have a reporting obligation, and design the operational changes required to ensure compliance.

For firms in the crypto token space, we can help you to understand the impact of CSDR on your business, advise on the scope of the regulation as applied to crypto tokens, and help you to implement pragmatic reporting solutions.

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