CSDR- mandatory buy in shelved

To the surprise of few, but the relief of many, the EU Parliament and Council have signalled a postponement of mandatory buy in (MBI) rules under the CSDR. Tabled under Any Other Business at a trilogue meeting agreeing the setup of a Distributed Ledger Technology regulatory sandbox, the co-legislators issued a “non-paper” referencing the upcoming CSDR Review, possible adverse liquidity effects and MBI’s potential to act as a disincentive to trade via EU CSDs.  The non-paper urges ESMA to issue a public statement recommending that National Competent Authorities de-prioritise supervision in regard to MBI provisions, clarifying that they will not apply from 1 February 2022. The announcement, such as it is, was welcomed by Mairead McGuiness, EC Commissioner for most things financial in a brief tweet.

The decision follows ESMA’s 23 September public letter to the EU Commission asking for “urgent action to provide a signal that a modification of the current implementation deadline is considered, postponing the mandatory buy-in framework as soon as possible and, ideally, at the latest by the end of October 2021”. Not entirely “ideal” then, but they got there in the end.  There is no indication on the length of the postponement, however there has been widespread comment that it is 2-3 years is likely. Given that MBI is manifestly unfit for purpose and will now be subject to the CSDR Review, if not entirely abandoned, it is unlikely to be ever be adopted in its current form. Note that other aspects of CSDR Art. 7 Settlement Discipline Regime i.e. penalties and settlement fails reporting will continue to apply from 1 February 2022. These will not require the large scale outreach and repapering efforts that MBI would have entailed and can be addressed by relatively small amendments to MiFID 2 terms of business.

The postponement is not the typical tale of Regulators bending to accommodate a general inability to comply with a deadline. Aside from the eminently predictable adverse effects on regional liquidity, the MBI rules entirely lacked clarity on critical aspects such as the instruments in scope and the responsibilities of participants in a buy in chain. Despite the delay and the slightly convoluted nature of its announcement, the EU is to be congratulated on letting sense prevail.

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