What people came to realise over a year or two ago was the extent to which CSDR impacts every player in the custody chain, one way or the other”

John Siena, Associate General Counsel at Brown Brothers Harriman (BBH) and Chair of the European Committee of the Association of Global Custodians

Janet Du Chenne: Could you tell us a bit about your roles in the industry and the work that you've both been involved in on CSDR?

John Siena: As chair of the European Committee of the Association of Global Custodians (AGC), we've obviously had to engage with CSDR on the global custodian industry segment. And that role was brought in to effect with what eventually became an ad hoc steering group of different representatives of different industry segments to try to facilitate coordination and collaboration across industry segments. It became clear early on when CSDR emerged (in July 2014¹) that it's a very complex, broad and wide ranging piece of legislation that required a great deal of collaboration and coordination, not just among intermediaries and custodian banks but also with other affected industry segments. Because of that, I was asked to represent the custodian segment of the steering group that that was trying to achieve that coordination. So that included the market infrastructures, the brokers across Europe as well as other stakeholders.

Emma Johnson: My role is very much looking at CSDR primarily from the custodian angle which is the division that I'm responsible for in Deutsche Bank. But more broadly I look at CSDR across the Deutsche Bank Group of businesses, so I'm trying to look at the regulation from every angle. So we’re very active in the AGC as John mentioned, but also in AFME, who are relied heavily on as a great source of collaboration. We should also acknowledge the CSDs through ECSDA (the European Central Securities Depositories Association), who are a great partner to the AGC and AFME (Association for Financial Markets in Europe) and have played a key role in the CSDR journey. From the CSD community, the CSDs have also been on this journey from day 1 with the majority of the articles focused on the CSDs and their various regulatory requirements.

John Siena: It’s probably worth emphasising that because I happen to be a lawyer at the steering group I was asked at the AGC to focus on the so called legal aspects of the legislation. So the AGC has been asked to play a leading role on the legal requirements that are imposed by CSDR. And a lot of those requirements relate to mandatory buy in, which is what I've been mainly focused on. That contrasts with what Emma has been focusing on which has been the penalty mechanism, which is the other big area of the Settlement Discipline Regime. And as a result in some respects I think Emma probably plays more of a critical role because the cash penalty mechanism involves intermediaries and custodians in a way that the buy in requirements don’t. So that’s where the focus and attention is and where Emma and I are required to work closely together as a result.

Emma Johnson: From the cash penalty point of view there’s a true provider and consumer dependency, and as custodians we’re really in the thick of it. We have a dependency on the CSDs where we’re general clearing members. And we have a responsibility to enable our clients on the implementation and to go above and beyond and think ahead of what we need to need to implement on a client's behalf and take that information back into the various committees and back to the CSD community who thankfully listen to us and respond to our requirements. So I think we're in a good place.

John Siena: If we take a step back I have thought about what we’ve been doing across a few broad fronts. The first is that we are discussing and trying to align expectations and readiness across all these different industry segments. The second, involves engaging with regulatory authorities because this involves ongoing interaction with ESMA as well as the European Commission, among others, and the member state level across how we deal with the Settlement Discipline Regime. That’s involved a very, deep effort, partly because the regulation is so complex, broad and deep. By that I mean it impacts a wide variety of different financial services firms and infrastructures (the CSDs who are very much in the middle of all this). But then I think what a lot of people haven't fully appreciated is the extent to which it also impacts the vertical chain of custody which means there's a wide range of intermediaries that might connect the end investor to the ultimate investments, and the security in which they're investing in through the chain for multiple intermediaries in that chain. And what people came to realise starting a year or two ago was that the extent to which it impacts every player in that chain one way or the other, wherever they're located anywhere in the world. So the extraterritorial impacts of CSDR are quite significant as well. And I think that's just by definition required a strong collaboration and coordination to do that which is why, to some extent, the engagement of public authorities became so important. Public authorities relied on us to come up with market standards and to deal with the complexity as well as all of the gaps that were quite evident as we moved through representations.