Some thoughts on the future Eurosystem infrastructure
4 Apr 2016 – In a short response to the Eurosystem consultation on the future of real-time gross settlement (RTGS) services, ECSDA outlines three aspects worth considering from a CSD perspective.
When exploring the potential technical synergies between the TARGET2 (T2) payment system and the TARGET2-Securities (T2S), ECSDA recommends that the following considerations should be taken into account by the Eurosystem:
- Further technical consolidation between T2 and T2S may have regulatory implications, as well as an impact on current governance structures.
There are important differences between the rules applying to T2 and the rules applying to T2S. The T2S project in particular is governed by a framework agreement which provides the legal basis for the provision of services to CSDs by the Eurosystem. Any technical consolidation between T2 and T2S should be supported by a clear understanding of the regulatory implications, such as whether regulatory adaptations (e.g. the introduction of additional safeguards) will required. At this stage, it is not clear to ECSDA, for instance, if further integration between T2 and T2S would require changes in the T2S framework agreement.
The governance arrangements resulting from the T2S framework agreement are also different from those of T2, and potential impacts of a technical consolidation on governance aspects would have to be assessed (e.g. in relation to change management and the release of new technical functionalities). - Irrespective of any technical consolidation, T2 and T2S should remain clearly distinct services.
Whereas T2 is a payment system, T2S is not a CSD. In the euro area, the use of T2 is required for securities settlement to occur in central bank money. Participating in T2S, on the other hand, is voluntary and does not directly mirror euro area markets (some non-euro area markets have joined the project, whereas some CSDs established in the euro area are not currently taking part). A technical consolidation of both platforms should not result in a situation where users of one platform are disadvantaged by the fact that they are not users of the other platform. For instance, CSDs whose central bank has an own RTGS system should not be penalised with reduced functionality compared to CSDs whose central banks operate with T2. - Concentration risk must be taken into account.
A technical consolidation of the T2 and T2S platforms could be an opportunity to strengthen information security and resilience against cyber threats, but the Eurosystem will also need to consider the impact of such consolidation on concentration risk. Relying on the same technical architecture could make both platforms (T2 and T2S) more interdependent and in some cases increase the systemic impact of an outage or other operational failure.
For more details, read the full ECSDA comments on the Eurosystem consultative report.