In March and April of this year, Accenture surveyed senior-level representatives from banks of all sizes with operations based in Europe. As the industry enters into the final phases of TARGET2-Securities (T2S), we wanted to get a sense of how prepared banks are and what they are doing to get ready. Today, I’ll be sharing some of the most interesting results.
The Governing Council of the European Central Bank launched T2S in 2006 in an effort to address post-trade fragmentation in Europe. In 2012, the first nine central securities depositories (CSDs) signed the framework agreement with the Eurosystem. Today, 21 countries and 23 CSDs are part of the T2S area. The second T2S migration wave took place in March, and the final three waves will follow in the coming months. Once implementation is complete, in late 2017, securities and cash settlement in central bank money will be executed on the T2S platform in all participating countries.
Are banks ready?
The short answer is yes. Ninety percent of banks have a readiness strategy in place and have been working on implementation since 2014—or even earlier. Key considerations driving their actions included the need to mobilize resources early, and manage stakeholder and client expectations. The remaining 10 percent did not identify any specific risks associated with T2S implementation and are confident in their ability to manage implications as they emerge.
What about their partners?
Banks are confident in their own preparedness and that of their securities services partners, including CSDs, custodians and asset-servicing providers. But when it comes to payment banks, their confidence drops to just 60 percent. With T2S, these organizations will need to be able to fulfill demand for specialized cash services in central bank money, offer liquidity pooling services and eventually operate in multiple currencies. It’s a big leap—and banks aren’t yet certain how it will all unfold.
How are banks preparing?
Most banks have adopted a “wait-and-see” approach, choosing to deal only with mandatory changes as a first step rather than looking at broader strategic change. They recognize the potential for cost savings that a more strategic approach could offer, but they’re also aware of high implementation costs. For many—small players, in particular—it’s a matter of limited budgets and service provider dependence.
One area we’re seeing that play out is connectivity rationalization. Just 10 percent of survey respondents will optimize connectivity before connecting to T2S, 25 percent intend to do it alongside T2S implementation and 65 percent have no immediate plans.
Nonetheless, a few banks are digging deeper to ask important questions about the long-term impacts and opportunities posed by T2S: How will T2S affect my organization’s operating model? How will our business model need to evolve? Is this the right time to reconsider our European infrastructure?
Over the coming weeks, I plan to examine two key issues that have become central to the T2S discussion: access models and asset servicing. For a peek at what I’ll be covering next, read the point of view we wrote with Clearstream on the aggregated results of the survey: “Evolution or Overhaul? How Banks Are Adapting to TARGET2-Securities in Europe”