From an oversight perspective, TARGET2-Securities is expected to take the safety of securities settlement to the next level by providing an efficient single settlement platform (SSP) across Europe that enables risk-free settlement in central bank money, and with immediate finality, for all individual securities transactions. However, supervisors need to ensure that T2S takes adequate precautions, particularly with regard to potential operational and legal risks.
T2S oversight is already taking place during the project phase that is scheduled for completion in June 2015. As will later be the case once T2S operations begin, T2S oversight is limited solely to the functionalities of T2S, with the oversight of CSDs continuing to be the reserve of the competent national authorities. Due to the multinational character of T2S oversight and the impact on the functioning of the participating CSDs, there has been close cooperation between all authorities responsible for supervision and oversight since the outset. Alongside the Eurosystem central banks, these authorities include the national securities regulators (ie Germany's Federal Financial Supervisory Authority (BaFin)) of the CSDs participating in T2S as well as the central banks of currencies that can be settled in T2S alongside the euro.
In 2009 and 2010 the Eurosystem central banks responsible for oversight carried out a pre-assessment of the T2S design on the basis of ESCB and CESR (Committee of European Securities Regulators) recommendations for securities settlement systems, which were adapted to suit the special features of T2S. The pre-assessment reflects the project design status at the time of the pre-assessment. In addition, this assessment is being continually updated to reflect ongoing developments in the T2S project.
Since the signing of the framework agreement by the CSDs and the currency participation agreement by the Danish central bank in summer 2012, it has become clear which institutions will be participating in T2S. On this basis, the Eurosystem, in cooperation with the supervisory authorities of the CSDs participating in T2S and the Danish central bank, is pursuing two work streams.
- First, on the basis of the CPSS/IOSCO principles, work is being carried out to design the future oversight framework that will apply once T2S begins operations.
- Second, the relevant oversight and supervisory authorities are cooperating on the on-going oversight of the progress of the T2S project. This includes an assessment of publicly available documents as well as confidential project documents. In addition, meetings are taking place at regular intervals between those with responsibility for T2S oversight and the T2S project managers.
Both the Bundesbank and BaFin are or have been involved in all of the above-mentioned work streams. The Eurosystem has primary responsibility for the oversight of T2S, with the European Securities and Markets Authority (ESMA) having a coordination function for T2S supervision. In accordance with the PFMIs, cooperation between the relevant oversight and supervisory authorities has been formalised in a cooperative arrangement (Responsibility E in the PFMIs).