[ I N D E P T H | R E G U L A T I O N ] come back from that . Once you ’ re done testing , analysing and sense-checking the data , you see the actual impact of the regulation . We ’ re seeing organisations occurring penalties of up to ¤ 5 million a month at a net level , which is quite remarkable .”
Getting to grips with the regulation The adage ‘ fail to prepare , prepare to fail ’ springs to mind when considering the difficulties the market has faced over the last seven months . While some testing was carried out in preparation for go-live , it did not encompass the full scope of the incoming regulation – with all sectors of the industry not having the chance to complete a full month cycle of testing . “ There wasn ’ t enough consideration for further down the chain ,” says Sachin Mohindra , director at Goldman Sachs . “ After testing what CSDs , CCPs and direct CSD participants could do , I think the regulators and most of the infrastructures thought , ‘ well if we can do it , that ’ s great ’. But CSD participants have clients that could be prime brokers , those prime brokers could have hedge fund clients , and those hedge funds could have someone else behind it . “ That less scripted element of testing needed to be done , but it wasn ’ t given sufficient time – that ’ s where some of those teething issues became more apparent once the regulation went live .” Moreover , as Cassells points out , much of the industry ’ s attention in terms of
“ There was a bit of a collective sigh of relief when the buy-ins looked like they were going to be disbanded … but the penalty section of the regulation stood to be just as complicated as the buy-in part .”
PARDEEP CASSELLS , HEAD OF FINANCIAL PRODUCTS , ACCESSFINTECH
preparation for CSDR was directed towards the mandatory buy-in aspect of the regulation , while the penalty regime slipped somewhat under the radar . There had been a view that the buyin regime was going to be much more complicated than the penalty regime , Cassells observes , but that energy did not pivot to penalties once the buy-ins had been postponed . “ There was a bit of a collective sigh of relief when the buy-ins looked like they were going to be disbanded . But what we have seen since go-live , and what AccessFintech had anticipated , was that the penalty section of the regulation stood to be just as complicated as the buy-in part , and unfortunately that is what has come to pass and it ’ s had quite a significant impact on the broader market .” These factors combined meant that when the regulation went live in February , issues quickly became apparent across the custody chain as participants got to grips with the new processes .
A long way to go One of the main areas where the buyside and some of the sell-side ran into problems was with their infrastructure network , with no standard really being set for the way in which custodians and subagents sent information , in what format and at what time . There were varying layers of services depending on who you were using at that point in time , resulting in miscommunication and delays .
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