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T2-T2s Consolidation: where are we?

08/01/2020

The consolidation of the T2 / T2S platforms, which is part of a larger project called "Vision 2020", responds to a market manifesting an increasingly need to create synergies and harmonize the currently existing infrastructures within the Eurosystem.

T2-T2s Consolidation: where are we?

The consolidation of the T2 / T2S platforms, which is part of a larger project called "Vision 2020", responds to a market manifesting an increasingly need to create synergies and harmonize the currently existing infrastructures within the Eurosystem. Strongly promoted by the ECB, the go live of the project is scheduled for November 2021. The main objective of the evolution of two platforms is to make it possible for existing technologies to interact and develop new services, reducing the technical costs individually supported for the two systems and guaranteeing greater effectiveness and safety.

The complexity of the project requires industry players to perform an in-depth and global analysis to consider not only the most relevant aspects, i.e. treasury ones, but also the related ones: messaging, coordination between the cash world and the others (Securities Services, first of all), a modified access to data, to mention a few. In such context, to evaluate all potential evolutionary scenarios and to predict the impacts that will emerge once the project is completed remain therefore fundamental.

Technological innovations and operational changes: the impacts of Consolidation

The main impacts of the Consolidation project can be divided into two macro-groups: technical nature and operational nature.

At first glance, the project seems to have a strong technological component. In view of the contextual adjustment of messaging due to the migration of messages related to payment orders to the XML ISO 20022 standard, in fact, some hardware and software adaptations will be necessary, as well as the potential need to identify new networks and/or service providers.

At the operational level, the harmonization of the two systems will introduce some changes in the current processes and the definition of new ones, which, together with the creation of a new account structure, will impact all players. All that, without considering the heterogeneity of the internally impacted areas: IT, business, global transaction banking, compliance, legal affairs. At present, major players directly involved by the ECB in international working groups highlight a low awareness of the project, often considered as a mandatory and non-strategic step. Hence, by focusing on its advantages and, consequently, on a strong internal governance capable of guiding and managing the resulting challenges and promoting the change it will be possible to increase its visibility. Among the technological enhancements aiming to improve the efficiency of the two platforms, the major one is undoubtedly the gradual migration to ISO 20022. The introduction of this new standard is not complex. However, to fully understand it, it is necessary to take a step back and do not consider it as a merely technological/IT element. At a European level, indeed, the standard raised from a precise emergency arisen in the world of payments that, with respect to the securities one, is lagging in terms of standardization supported by adequately structured messages. The leap we are now facing in terms of technological financial communication is therefore a double one: from a protocol of twenty years ago to the XML language together with an important enrichment of structured information (data element).

What can industry players expect?

The real impact is in the T2 and T2S integration step which among other things has simultaneously led to a greater structuring in the compilation of messages.

The substantial and impactful change for global banks, as in the case of Societe Generale, is the obligation to evolve towards a high level of detail and standardization, required however by even more demanding regulators. In November 2021 all SWIFT Network participants must accept payment instructions using the ISO 20022 communication protocol. In an initial phase there will also be "translation" functions supported by the Network (SWIFT), now working to provide this service. Translation is not an easy process given the need to convert many elements to a standardized and "machine readable" format although contained in fields defined as narratives and conventionally structured. However, it goes without saying that supporting the evolution of business needs only with the use of conventionally standardized narrative fields through so-called DSS (Data Source Schemas) is not enough. The epochal change in the modalities of interviews does not stop with what has been described above, which we could define as phase 1. The method decided for the big bang approach in 2025 requires in fact an evolution of IT tools capable of communicating STP based on receipt and sending of new messages. If we consider that this is not a one-to-one translation but a real “telluric current” in terms of messages and their functionality, it’s time to follow up with plans at a fast pace. 

In this context, we must not forget the role of the Bank of Italy, that we could define as triple: consultant, regulator, guardian. However, although the ECB has defined clear rules and assigned an important position to the Bank of Italy (and to all national central banks), the reference for non-domestic banks still has to be defines, hoping for an active co-management.

Finally, at a local level, the banking community is working to catch up. We are experiencing a moment of great ferment and significant changes, in which the theme of digitalization plays a key role. In this direction, projects such as the T2/T2S Consolidation act as an accelerator and represent an important moment to put processes and tools in common with the aim of promoting positive change and the evolution of the industry towards an increasingly virtuous circle.

Paola Deantoni Executive Management Senior Advisor Societe Generale Securities Services SpA
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