| UK & Europe | Press releases
Global financial services regulatory consultancy Bovill today warns that hundreds of financial services firms may unwittingly be caught out by new regulation around (the reporting of) securities settlement.
The warning comes as a result of firms believing they are not affected by the incoming reporting rules of the Central Securities Depositories Regulation (CSDR). Under the new rules, which take effect in summer of 2019, financial services companies that settle transactions in a CSD-recorded security on their own books rather than through those of a CSD must report the volume and value of such transactions. All such ‘internalised’ settlements must be reported to the regulator each quarter.
Christian Krohn, Consultant at Bovill said:
“The scope of instruments covered by the new regulation is broad and the threshold of activity is minimal. From our conversations with financial services firms, the majority had overlooked the new rules on internalised settlements. It’s the forgotten reporting regime. Companies simply don’t think it applies to them. Yet, in a worrying number of cases it does.
“If ignored, this buried regulation will catch financial services firms out in 2019. The big custodians and asset managers with large numbers of clients and security transfers are clearly across the new rules. However, the market participants with more modest post-trade operations and who comprise the vast majority of the market may fall foul. If your organisation is anywhere in the chain of a securities holding, then this new – and onerous – reporting regime is coming your way in the new year. Firms in this position need to do one of two things: get to work in the first half of the year and prepare for the reporting, or, if it is not core to your business, ensure that settlement is processed elsewhere in the holding chain.”
The PRA is so concerned that organisations lack awareness of these issues that they have sent letters to UK banks and firms that custody securities for clients, asking about their plans to accommodate the new rules.
The breadth of transaction types covered by the reporting requirements includes: securities purchases and sales, collateral management operations, securities lending and borrowing, repo transactions and transfers of securities between funds and client accounts.
For a firm to be considered as internalising settlement, the rules 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 regime also requires 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 those conditions are met and the security and the transaction are in scope, then your organisations is likely subject to the reporting obligation.
