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Although a number of market regulations – including the EU’s Securities Financing Transaction Regulation (SFTR) and global requirements on bilateral margining for uncleared OTC derivatives – were delayed because of the Covid-19 pandemic, SRD II is not among them. In May 2020, the European Commission (EC) told the industry that the rules would be implemented as planned on 3 September 2020. This was despite calls by several leading industry groups – including the International Securities Lending Association (ISLA), the Association for Financial Markets in Europe (AFME) and the Association for Global Custodians (AGC) – for a 12-month delay to SRD II to account for the impact of Covid-19.
The associations warned SRD II’s implementation risked being undermined by various Covid-19 related disruptions, such as the postponement of AGMs, the redeployment of IT staff to more critical activities, and delays to dividend distributions.4 While the pandemic has been a major distraction, Collier says many of the problems facing SRD II actually precede Covid-19. “The transposition of SRD2 into local law by member states should have been completed by June 2019, yet some member states have yet to do this. However, the pandemic has not helped matters as national parliaments are obviously focusing on bigger things right now than SRD II,” says Collier.
Making matters worse, he adds, is that there is a lack of harmonisation across member states, an issue that could sow confusion among market participants operating in multiple EU jurisdictions. SRD II has not been transposed in major markets, including France, Portugal and Spain, as Collier notes, and, while the rules have been transposed by Italy, the country’s regulator, Consob (Commissione Nazionale per le Società e la Borsa), is yet to publish clarifications on how they will be implemented.
SRD II is forcing custodians to adapt their business to ensure a rapid, free flow of information and data between issuers and investors. “We are developing technology so that we can disseminate information on a same-day basis, or by 10am the following day if the information request is received after 4pm, as per the regulations,” says Collier. “In addition to our capital investment in Proximity, we are spending a lot of time improving our API capabilities so data can be shared quickly with all parties.” In time, he adds, the bank may begin to use DLT during the SRD II data transmission process, although concedes some clients have yet to buy into the technology. Most significantly, Collier highlights that Deutsche Bank is communicating regularly with customers about the implications of SRD2.