The Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (CSDR) took effect on 17 September 2014.
The goal of the CSDR is to harmonise the European requirements for the provision of services by central securities depositories and to facilitate the settlement of securities, in particular by harmonising the rules of settlement followed on the European markets.
CSDR - who is concerned?
The requirements imposed by the Regulation apply both to central securities depositories which provide services in the European Union and, directly or indirectly, to members of securities settlement systems operated by such CSDs.
CSDR defines a central securities depository (CSD) as a legal person that operates a securities settlement system and provides the service of initial recording of securities in a book-entry system and/or providing and maintaining securities accounts at the top tier level.
According to CSDR, a CSD may be operated only by an entity authorised for such business. For Krajowy Depozyt Papierów Wartościowych (KDPW), the institution responsible for the grant of an authorisation is the Polish Financial Supervision Authority (KNF). To be authorised, a CSD must comply with the requirements of CSDR, including organisational requirements, conduct of business rules, and prudential requirements. The specific requirements are defined in the supplementing or implementing regulations which define the regulatory (RTS) or implementing (ITS) technical standards for CSDR.
On 29 September 2017, KDPW has filed an application for authorisation under CSDR with the Polish Financial Supervision Authority.
The next key step will be KDPW’s authorisation process; according to EU regulations and national legislation, it will take at least 6 months.
Scope of the authorisation
KDPW is planning to be authorised for all of the provided core services including the registration of securities, the operation of a depository system and a securities settlement system. In view of KDPW’s role on the Polish capital market, the authorisation largely determines the operation of all players active on the market.
To align with the CSDR requirements, KDPW has developed a range of system modifications which are being implemented in the framework of projects.
CSDR requirements on settlement discipline
The planned modifications in large part derive from the requirements on settlement discipline (Articles 6 and 7 of the CSDR). They apply to KDPW as well as KDPW participants. These mainly include changes in the processing of buy-ins, fees for late settlement, valuation of securities, monitoring of timely settlement, as well as changes to the matching of instructions, the hold-release functionality, partial settlement, and the tolerance level.
The alignment with the CSDR requirements is mandatory by the effective date of relevant regulations on settlement discipline, which is 24 months after the publication of the technical standards on settlement discipline.
The likely publication date of the standards is Q2/Q3 2018 witch implies that the regulations would take effect in Q2/Q3 2020.
CSDR requirements governing the operation of central securities depositories
Other planned changes derive from provisions governing the operation of central securities depositories (including Article 35 of the CSDR which governs among others the communication procedures with participants) and provisions which set the requirements for services of central securities depositories and the requirements for central securities depositories (in particular, Article 29 of the CSDR which governs record keeping).
The alignment with the CSDR requirements is mandatory by the date of KDPW’s authorisation as a CSD.
The expected date is Q2 2018, taking into account the regulatory deadline for the processing of the application by the Polish Financial Supervision Authority (KNF), i.e., 6 months after the application is considered to be complete.
In view of the postponed effective date of the technical standards on settlement discipline, the implementation of modifications to the IT system was divided into two phases (among others to distribute the work evenly over time). Phase 1 was implemented in 2017 and covered certain changes to functionalities supporting settlement processes (mainly work aligning the content of settlement instructions with the data retention requirements). Phase 2 (implementation within 24 months after the effective date of the technical standards on settlement discipline, i.e., not earlier than in 2020) aims to achieve the necessary harmonization with the settlement discipline requirements (including special fees, reporting, and other functionalities supporting settlement processes). In the meantime, in April 2018, modifications were implemented to reconciliation processes; as a result, KDPW will provide daily aggregate statements for registration accounts.
- the planned scope and timetable of modifications of the IT systems to be taken in order to implement the CSDR provisions