On 15 December 2023, the European Securities and Markets Authority (ESMA) issued a consultation paper regarding technical advice on the penalty mechanism under the Central Securities Depositories Regulation (CSDR).

The consultation paper follows the European Commission’s (Commission) third request to ESMA for technical advice on a possible amendment to Commission Delegated Regulation (EU) 2017/389. ESMA should assess the effectiveness and proportionality of the current CSDR penalty mechanism and propose, if justified, changes to the structure or severity of the mechanism and consider alternative methods for calculating cash penalties, including by introducing progressive penalty rates.

Therefore, the purpose of the consultation paper is to collect views and data from stakeholders on the effectiveness of the current CSDR penalty mechanism in discouraging settlement fails and incentivising their rapid resolution, and on ESMA’s preliminary proposals on the following topics:

  • Alternative parameters, when the official interest rate for overnight credit charged by the central bank issuing the settlement currency is not available.
  • The treatment of historical reference data for the calculation of late matching fail penalties.
  • Alternative methods for calculating cash penalties, including progressive penalty rates.

The deadline for comments on the consultation paper is 29 February 2024.

ESMA will consider the feedback received to the consultation paper and expects to publish a final report and submit its technical advice to the Commission by 30 September 2024.

ESMA will finalise the impact assessment regarding the proposed measures, which will be included in a final report submitted to the Commission. One essential element in the development of technical advice is the analysis of the costs and benefits that the proposed measures would imply. The limited information available did not allow ESMA to produce a quantitative impact study for the purpose of the consultation paper. The input from stakeholders will help ESMA in finalising the technical advice and the relevant impact assessment. Therefore, respondents to the consultation paper are encouraged to provide the relevant data to support their arguments or proposals.