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The Voice of the Buy-Side Assessing the Compounding Impact of New Regulations

By DTCC Connection Staff | May 6, 2020

The Voice of the Buy-Side: Assessing the Compounding Impact of New Regulations

The buy-side faces an onslaught of new regulations that will impact their post-trade processes, resources and operating systems.

In a recent webinar, DTCC joined an expert panel of speakers, including KPMG, UBS Asset Management and DerivSource to analyze where regulations such as Central Securities Depositories Regulation (CSDR), Securities Financing Transactions Regulation (SFTR) and Uncleared Margin Rules (UMR) can overlap to create challenges and opportunities for buy-side firms.

We surveyed our 300 cross-industry webinar attendees (most of which were from the buy-side) to get the view from market participants themselves on how these regulations will impact the buy-side community.

Here is the industry view on how these new regulations will impact the buy-side:

The buy-side is moving towards a more holistic approach to managing the impact of compounding regulations.

We saw that majority of our participants were either preparing (48%) or somewhat preparing (33%) to take a holistic approach to regulatory requirements across UMR, SFTR and CDSR. A minority of respondents (19%) said that they were not looking at implementing a holistic approach at this time.

The implementation timeline of these regulations will create challenges for the buy-side as they start preparing for compliance. Buy-side firms, which are already grappling with intense cost-cutting pressure and tight operating margins, now find themselves in the difficult position of having to upgrade in-house systems or perform major overhauls of out-of-date platforms to comply with these and other regulatory mandates while still growing their client-service capacity. As such buy-side firms are increasingly adopting holistic approaches to how they prepare and resource for compounding regulations.

CSDR may have the biggest impact on the buy-side but SFTR and UMR will also drive significant impact.

We saw that most of our respondents (48%) felt that CSDR would have the greatest impact on buy-side operations.

When CSDR’s Settlement Discipline Regime (SDR) comes into effect from February 2021, it will put into play cash penalties for transactions that fail to settle within their intended settlement date, following the T+2 timeframe mandated in the EU. It will also introduce mandatory buy-ins where a failing participant does not deliver financial instruments to the receiving participant within a set time frame.

Buy-side firms may need to need to significantly increase either their technology spend or their headcount in order to monitor and deal with the impact of these penalties. Respondents also felt that SFTR (30%) and UMR (22%) would also have a significant impact on the buy-side which also reemphasized the need for buy-side community to adopt holistic strategies to prepare for the impact of these upcoming regulations.

The buy-side is preparing for CSDR’ Settlement Discipline Regime but knowledge gaps exist.

We can see our respondents felt that the buy-side was moving forward with the preparations for the impact of the SDR, with 36% beginning their preparations and an additional 32% looking to allocate resources towards analyzing the impact of CSDR on their operations.

However, 32% of the respondents still felt that they needed to address knowledge gaps around the impact of the SDR. While the sell-side are getting up to speed and have established CSDR project teams to analyze current trade failure data to model potential SDR penalty costs, many buy-side firms may still have a little further to go to prepare for the impact of CSDR.

Prevention of trade fails is critical to helping the buy-side avoid penalties under CSDR and they must consider now automation and technology can be applied to realize this. No matter how buy-side firms decide to address CSDR, they need to make sure they are preparing now. The deadline extension is short and as firms are legally required to comply with this regulation, they will find it seriously impacts their bottom-line if they are not ready on time.

Uncertainty may exist around how the buy-side community will be impacted by UMR.

Over 71% of our respondents were either unsure or felt that they were not in scope for UMR.

It is important to note that Phase 5 of UMR will see several hundred predominantly buy-side firms coming into scope for the first time. Going forward, firms that do not meet the entry requirements for UMR in a given year will have to continuously monitor every year to see whether they meet the thresholds.

While phases 5 and 6 have been delayed to September 2021 and 2022 respectively, buy-side firms will still need to determine whether they fall into scope of the regulation and continuously monitor their thresholds in the future and start preparing for compliance now.

Many buy-side firms plan to delegate SFTR reporting to counterparties.

While the phase-one SFTR implementation date for dealers has been extended, buy-side firms seem unaffected by the delay and appear to be making good progress in their preparations for October 2020 compliance. This includes finalizing plans for fulfillment of their regulatory obligation to report SFT transactions to a registered trade repository.

Buy-side firms that lack the resources to build and manage technology for their own transaction reporting can delegate to their counterparty. When a buy-side firm delegates reporting, their counterparty or vendor generates and submits the required reports to a trade repository on their behalf, thus fulfilling the buy-side firm’s regulatory reporting obligation. Most of our respondents felt that the buy-side would delegate it’s SFTR reporting obligation to counterparties, with 31% delegating all reporting, 27% delegating certain products and 13% everything except collateral reuse.

However, it is also important to note that delegated reporting does not remove a buy-side firm’s legal responsibility to ensure that effective controls are in place, that reporting is performed accurately and on time, and that information can be submitted quickly in the event of an audit or regulatory review.

To that end, nearly one-third (29%) of responding firms started that they plan to 100% self-report. managing the operational and data challenges of SFTR compliance through internal infrastructure and or/vendor solutions.

To learn more about the impact of compounding regulations on the buy-side, watch the full webinar here.

Discover how DTCC can help you to prepare for CSDR, UMR and SFTR, visit, and