BETTER UNDERSTANDING THE CHALLENGES OF THE “EUROPEAN COLLATERAL MANAGEMENT SYSTEM

With the implementation of the Vision 2020 programme, the Eurosystem has set itself on the ambitious path to modernisation of the market infrastructures, with the goal of obtaining better integration and harmonisation of securities and cash within the Euro zone and thus enhance its appeal to investors.

IN THE CONTEXT OF THIS PROGRAMME, THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK (ECB) HAS APPROVED 3 MAJOR MODERNISATION INITIATIVES:

• TIPS (Target Instant Payment System) should, by November 2018, promote the settlement of instant payments in the Euro zone. The goal is to harmonise the various national systems already in place and ensure communication between them.
• T2 and T2S Consolidation will provide actors in the Eurosystem market with enhanced cash management and securities settlement procedures thanks to the technical and functional consolidation of the TARGET 2 and T2S (Target 2 Securities) platforms. The consolidated system should launch in November 2021.
• ECMS (Eurosystem Collateral Management System) aims at developing a single, shared platform harmonised for all Euro zone countries for monetary policy operations (credit and securities management) within the Eurosystem. It is planned to be implemented in November 2022.

FOR CONFORMITY OF THE FOUNDING PRINCIPLES OF THE EURO ZONE, HARMONISATION OF THESE PROGRAMMES IS ESSENTIAL. LET US LOOK MORE CLOSELY AT THE ECMS PROJECT.

Currently, each country in the Euro zone uses its own monetary policy practices and its own collateral management system.

The ambition of the ECMS project is to implement a single platform for managing conventional monetary policy operations and the associated collateral within the Eurosystem.

A monetary policy that is decided singly but applied in a decentralised fashion by each national central bank.

This initiative will significantly help to unify the capital markets within the Euro zone and harmonise Market practices.

It aims to make the mobilisation of national and cross-border guarantees and the management of liquidities more efficient.

ECMS will replace several functions of existing national systems and will enable each country in the Euro zone to manage its own monetary policy through a shared platform operated by the Banque de France and the Banco de España.

WHAT ARE THE CHALLENGES FOR THE CENTRAL BANKS?

With ECMS, the national Central Banks will benefit from a more robust system and strengthen the operating efficiency of the services proposed to their counterparties.

The single platform will also enable them to reduce their operating costs, mutualised within the ECMS with the 19 countries in the Euro zone.

ECMS is also a means of simplifying monetary policy for counterparties with identifical access conditions and simplified cross-border collateral management.

The functional specification phase is underway. While the core of the system has been well-identified, decisions remain to be made concerning some marginal issues such as tripartite management and claims management (private credit), areas which are more difficult to harmonise given the wide diversity between countries.

THE IMPORTANCE OF TRUSTED THIRD PARTIES

Implementation of the Eurosystem Collateral Management System implies access for each central bank to a secure multi-entity system, able to manage significant volumes and accessible through the Internet for the central bank user but also for the counterparties.

The Eurosystem has chosen a proven solution, Megara©, to integrate the Central Banks’ collateral operations and help to further consolidate the financial market infrastructure in Europe.

Vermeg’s Megara system core has accompanied banks for more than ten years in modernising their computer systems, particularly for keeping institutional accounts and managing monetary policy operations.

In terms of collateral management, the central banks of Norway, Ireland, England and France are some of our historical partners. These references have been decisive in the trust bestowed on us by the Eurosystem.

More than ever, Vermeg is positioned as a trustworthy partner to Central banks.

The ECMS project is essential in guaranteeing rapid and harmonised implementation of monetary policy decisions within the Euro zone. However, it does not impact the central banks’ information systems. [To be continued]