Consultation on a possible TARGET2
strategy for ISO 20022
1
Agenda
• Rationale for the strategy
• 1st step: implementation of XML messages for
customer payments
• 2nd step: adaptations to T2S
• 3rd step: possible further compliance
2
Rationale for the strategy
• ISO 20022 aims at increasing the efficiency and
interoperability of financial institutions, market
infrastructures and end users
• Projects with strong linkages to TARGET2, such as
CCBM2 and T2S will be based on ISO 20022
• Possible regulation on a SEPA migration end date,
also relying on ISO 20022.
• TARGET2 is already making use of standards very
similar to ISO 20022 and XML flows for ASI traffic.
A wider usage of ISO 20022 in TARGET2 would create
synergies for all stakeholders and contribute to a
higher efficiency of the industry
3
Agenda
• Rationale for the strategy
• 1st step: implementation of XML capabilities for
customer payments
• 2nd step: adaptations to T2S
• 3rd step: possible further compliance
4
1st step: implementation of XML capabilities for
retail payments
• More than 60% of the TARGET2 transactions are
retail payments and more than 50% of the system’s
traffic would fall into the SEPA perimeter.
• The trend has been steadily growing since the
beginning of TARGET, even after the launch of SEPA.
• The draft regulation on a SEPA migration end date
poses two challenges to the Eurosystem as operator:
 to continue supporting the business case for retail payments
in an RTGS system
 to meet cost recovery objectives
5
1st step: implementation of XML capabilities for
retail payments
• The Eurosystem proposes to implement the XML
message “FItoFICustomerCreditTransfer – pacs
008.001.01” in TARGET2 as part of the release 6.0
(Nov 2012).
• It is expected that a large share of the current
MT103(+) traffic moves to XML standards for the
transactions falling under the SEPA perimeter.
• The system will continue to support the settlement of
MT103(+), in particular for the transactions falling
outside of the SEPA perimeter.
• The other flows e.g. MT202(COV), MT204 or MT9xx
would not be affected.
6
1st step: implementation of XML capabilities for
retail payments
• From a technical viewpoint, the Eurosystem proposes
the following principles/requirements:
 No flag or conversion mechanism between MT103(+) and
XML
 All participating credit institutions would have the obligation
to receive the new XML format
 The settlement would take place in Y-copy mode
 Single transactions using InterAct would be supported
 No price differentiation between XML-based credit transfers
and other payments
 Indication of the receiving DN for XML-based credit
transfers should be included in the T2 directory
7
Agenda
• Rationale for the strategy
• 1st step: implementation of XML capabilities for
customer payments
• 2nd step: adaptations to T2S
• 3rd step: possible further compliance
8
2nd step: adaptations to T2S
• The go-live of T2S and its connection to TARGET2 will
have important impacts on the participants.
• The adaptations to T2S, which is entirely based on ISO
20022, represent an opportunity and create synergies
for a wider use of the new standards in TARGET2.
• The Eurosystem considers 4 possible options for the
adaptations to T2S in the context of the SSP release
7.0 (Nov 2013).
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2nd step: adaptations to T2S
 Option 1: leaving the participant’s interface (i.e. ICM)
unchanged, including the features for a proper
liquidity management with T2S.
T2-S
Securities
CSD
ISO
TARGET2
DCA
Securities
DCA
ISO
ISO
ISO
RTGS
RTGS
RTGS
ICM/FIN
Bank
Securities related information flows
Cash related information flows
10
2nd step: adaptations to T2S
 Option 2: enhancing the ICM to develop the features
necessary to manage the liquidity with T2S in
accordance with ISO 20022.
T2-S
Securities
CSD
ISO
TARGET2
DCA
Securities
DCA
ISO
ISO
ISO
RTGS
RTGS
RTGS
ISO
Bank
Securities related information flows
Cash related information flows
11
2nd step: adaptations to T2S
 Option 3: enhancing the ICM to provide participants
with converting tools to manage the liquidity from
TARGET2 and T2S side.
T2-S
Securities
CSD
ISO
TARGET2
DCA
Securities
DCA
ISO
ISO
ISO
Securities related information flows
RTGS
RTGS
RTGS
ICM/FIN*
Bank
* For both TARGET2/RTGS and T2S/DCA cash related flows
Cash related information flows
12
2nd step: adaptations to T2S
 Option 4: Combination of option 2 and option 3.
T2-S
Securities
CSD
ISO
TARGET2
DCA
Securities
DCA
ISO
ISO
ISO
Securities related information flows
RTGS
RTGS
RTGS
ICM/FIN*/
ISO
Bank
* For both TARGET2/RTGS and T2S/DCA cash related flows
Cash related information flows
13
2nd step: adaptations to T2S
• Along with the interface with T2S, the Eurosystem is
keen on providing the users with liquidity management
tools enabling them to reap the benefits of T2S.
 Consolidation of balances of Dedicated Cash Accounts
(DCA) and RTGS on the ICM
 Initiation of liquidity transfers from DCA into RTGS via
the ICM
 Provision of liquidity forecasts
 Provision of end-of-day account statements for DCAs
• If option 3 or option 4 are supported, banks are invited
to clarify which additional liquidity management
features beyond the above they would consider
14
Agenda
• Rationale for the strategy
• 1st step: implementation of XML capabilities for
customer payments
• 2nd step: adaptations to T2S
• 3rd step: possible further compliance
15
3rd step: possible further compliance
• This step seeks a greater compliance with ISO 20022
beyond the fields of retail payments (XML standards
implementation) and T2S adaptations.
• The business cases, which would be at stake, are:
 Reporting messages (MT900 debit advice, MT910 credit
advice, MT940/950 account statements)
 Interbank credit transfers (MT202/MT202COV)
 Direct debits (MT204)
16
3rd step: possible further compliance
• The Eurosytem is willing to support the fast movers
without however creating an obligation for the others
users to migrate to ISO 20022.
• The current MT/FIN formats would be maintained
until a large majority of users have moved to ISO
20022.
• Participants’ input on their own migration plans is
needed to clarify these possible steps towards a further
compliance with ISO 20022 in TARGET2.
• No implementation of these further steps is foreseen
before SSP release 8.0 (Nov.2014).
17
Consultation on a possible TARGET2
strategy for ISO 20022
Deadline for commenting: 9th November 2010
Further consultations will be carried out on each of the
steps forming the strategy in the context of the regular
consultations on TARGET2 yearly releases
18
Statistical Annex
19
Statistical annex
Number of payments per value band (2009)
25,000,000
27%
67% of total TARGET2 traffic
26%
20,000,000
15,000,000
14%
10,000,000
5,000,000
0
up to
1,250.00
1,250.01 - 12,500.01 - 50,000.01 - 250.001 - 1 >1 - 10 Mio
12,500.00 50,000.00
250,000
Mio
>10 - 25
Mio
>25 - 50
Mio
>50 - 100 >100 - 500
Mio
Mio
>500 - 1
Bio
> 1 Bio
Source: ECB statistics
20
Statistical annex
Share of transactions with a value less than € 50.000 in the
total TARGET2 volume
69%
68%
67%
66%
65%
64%
63%
62%
61%
60%
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q42006 2006 2006 2006 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009
Source: ECB statistics
21
Statistical annex
Share of customer payments per community in the total
TARGET2 volume (2009)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
SI
IE
IT
DE
CY
BE
NL
FR
LU
ES
GR
SK
MT
AT
PT
FI
Source: ECB statistics
22
Statistical annex
Composition of the TARGET2 volume (Feb. 2010)
Customer
payments
Interbank
and AS
traffic
33%
SEPA
nonSEPA
Nonresident
MT 103
9%
Resident
MT 103
58%
Source: CRSS data
23