The Central Securities Depository Regulation (CSDR) is one of the current headline regulations impacting entities operating in European securities post-trade space. Given its impact on every division of the bank, from pre- to post-trade, it has a bank-wide programme in place to ensure that it successfully achieves regulatory compliance.

The first major regulatory milestone of the regulation, which is internalised settlement reporting, is approaching on 12 July 2019. This will impact Institutions such as Deutsche Bank, who settle transfer orders on behalf of clients on their own account rather than through a CSD. Reaching this milestone requires management of a high impact regulatory change initiative.

Aside from implementing regulatory change – already a complex process - implementing CSDR brings its own unique levels of complexity – from understanding how cash penalties should be treated to working out how mandatory buy-ins should be approached, and from multiple perspectives: Deutsche Bank as a custodian, Deutsche Bank as a prime broker, Deutsche Bank as a wealth manager, Deutsche Bank as a retail bank, Deutsche Bank as an asset manager. This means that a rounded view is needed on the likely impact of CSDR to different areas of the bank. This fundamentally informs how Deutsche Bank’s divisions and sub-divisions engage on the CSDR topic. This is a non-trivial task and the knowledge base of how CSDR impacts the broader bank, is built-up over time.

There are many other areas of complexity that the programme needs to consider so that it can be properly structured around what needs to get done. In particular, an appreciation for “how” change gets delivered in different areas of the bank is important, including: how and when divisions manage their investment governance processes; whether delivery methodologies are agile or waterfall in nature, which divisions work with vendors and what is the depth of the relationships with those vendors are all key considerations.

In the absence of any off-the-shelf boiler point templates that tell the programme manager what they need to know, getting comfortable with complexity and ambiguity, coupled with strategies to add clarity and definition to the programme overtime is a top priority.

While getting to grips with the regulation, it is very tempting to think that the industry will come to the rescue with timely resolution on some of the niggly, practical interpretations of key aspects of the Regulation. However, a multitude of industry forums¹, are actively engaged in regular, lively and informative debate on how banks should collectively interpret various aspects of CSDR. Deutsche Bank is fortunate to be a leading voice in these forums feeding its perspectives into the industry and funnelling challenges back to the CSDR programme for consideration and resolution.

The challenge for the programme manager is to strike the right balance between allowing the industry debates to continue and mature, but also recognising that implementation windows get smaller (not larger) overtime. Bringing the programme together to focus on the industry decision(s) that are architecturally significant for the programme, is key. This allows for the qualified delivery assumptions to be made and the programme to then move forwards. Without a focus on this dynamic, the programme will pin too much hope on the industry solving for its particular needs. The complexity of Deutsche Bank renders this approach high risk and an intervention will typically be needed by the programme manager to protect delivery timelines and overall CSDR compliance.

Using the “Settlement Internalisation Reporting” phase of the programme as a good example, we have found that getting an early line of sight on potential architectural solution(s) has been an important early stage objective for the programme – we refer to this as “solution blueprinting”.  In the first instance we have tried to look at conceptualising solutions on a bank-wide basis. This has helped us maintain bank-wide architectural alignment and has also helped individual business areas make quicker architecture related decisions – that address their business-line specific requirements.

Inevitably, as architectural thinking has matured and programme delivery plans have been developed, we have had to maintain a degree of flexibility, to adapt our designs to the constraints of delivery. Good examples of this are:

• (a) the dependencies created by other regulatory programmes using similar development teams to build solutions as well and;
• (b) the need to align with certain vendors who are delivering “community solutions” for their broader client bases. 

To manage these challenges, a well-functioning design authority has acted as a key forum within which different approaches can be considered and assessed – with the over-arching requirement being that all solution(s) meet with Deutsche Bank’s architectural principles. 

Deutsche Bank has adopted the same approach for how it develops solutions for the settlement discipline related topics including cash penalties, buy-ins and allocation and confirmations. Targeted sessions have been held to help put boundaries around potential solution options and crystallise areas of complexity.  These sessions are run iteratively to ensure that requirement definition and solution thinking are tightly coupled.  A chief benefit of this quasi-agile approach to working is that the programme is able to rapidly identify and then engage the expert support that it needs.

The successful delivery of CSDR has been a multi-year effort involving many people, and the ability of the programme team to become more effective over time is critical to success. In the CSDR programme at Deutsche Bank, we been fortunate to have had a stable core team over the lifecycle of the programme. The importance of this is borne out, when considering the difficulty of implementing change in large banks under normal circumstances – let alone when things need to be co-ordinated on a bank-wide basis, within hard non-discretionary deadlines.

The challenge for the programme manager is not to bend the organisation to the needs of the programme, but rather work out how to interface the programme with the different areas of the bank. A well-established programme team, that has directly experienced these challenges, and has worked through them together, is better able to achieve an appropriately flexed delivery model that works over an extended period of time.

“Planning” is an ongoing process in the CSDR programme – which we engage in at various levels of detail appropriate to the topics being addressed and teams working on them. Trying to run the whole programme off a single, consolidated plan, is not possible given the complexity of CSDR and the complexity of the divisions implementing it.  The “process of planning” is perhaps more beneficial than the actual plans themselves. This is not to diminish the importance of plans, but is rather a recognition and acknowledgement that “critiquing plans” is a key tool to get alignment between groups of people managing different sets of priorities – and this is what is meant by the value that is unleashed by the “process of planning”.

CSDR has been, and continues to be, a challenging and rewarding programme for Deutsche Bank. There are clear and obvious benefits to the bank that flow from a heightened focus on improving settlement efficiency. As a programme, we are working with business, technology and operations teams who are welcoming the added impetus that CSDR provides to resolving some of the legacy challenges that have hard-wired inefficiency into some of the settlement processes that operate between Deutsche Bank, its clients and the market. Whilst CSDR, as a programme, may end in 2020 – its impacts will be felt for many more years to come.

Sources

¹ See The Association for Financial Markets in Europe (AFME), the Association of Global Custodians, the International Capital Markets Association and the International Securities Lending Association are some of the industry bodies engaged in the interpretation of CSDR