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TARGET2/T2S consolidation

Alongside TIPS and ECMS, TARGET2/T2S consolidation is one of the three projects launched by the Eurosystem in 2017 to further develop its market infrastructure. The project initiatives, entitled “Vision 2020”, were developed with the aim of further strengthening the Eurosystem’s market infrastructure, leveraging potential and deepening the integration of the European financial market.

The TARGET2/T2S consolidation project was officially launched by the Governing Council of the ECB on 6 December 2017. It was originally scheduled to go live in November 2021. However, in light of the COVID-19 pandemic and the postponement of the SWIFT ISO 20022 migration in the area of correspondent banking, in July 2020 the Governing Council of the ECB decided to follow the market’s request and extend the timeline of the project by 12 months. The launch is therefore now scheduled for November 2022. The existing consortium known as the 4CB – Banca d’Italia, Banco de España, Banque de France and Deutsche Bundesbank – was entrusted with the development and subsequent operation of the platform. 

The aim of the project is to enhance the Eurosystem’s range of services in the area of high-value payments and securities settlement by making even greater use of common components and the further automation of processes, and to leverage synergies. It also focuses on optimising IT security and cyber resilience, which have become increasingly important in recent years. As is already the case with T2S and TIPS, the single shared platform will have multi-currency capability.

Core elements of the TARGET2/T2S consolidation project are the introduction of a central liquidity management (CLM) component, the separation of traditional high-value payments from central bank operations and the introduction of the ISO 20022 standard across the board. While T2S and TIPS are already using ISO 20022-compliant messages, all communication with T2 – and thus also the areas of high-value payments, ancillary system settlement and the settlement of monetary policy operations – will be switched to the ISO 20022 standard in future.

The TARGET Services are underpinned by common components. These include among others the harmonised access portal ESMIG (Eurosystem Single Market Infrastructure Gateway) and common reference data management.

The TARGET2/T2S consolidation will go live in November 2022. The migration will be realised as a “big bang” across all user communities currently participating in TARGET2. Prior to that date, extensive testing activities will take place. Key milestone in this context is the start of user testing in December 2021. 

With regard to the German market, the project affects around 1,200 institutions. The changes associated with consolidation should not be underestimated. They include (amongst others):

  • the introduction of ISO 20022-compliant messages across the board instead of the MT messages currently used in TARGET2;
  • the establishment of a network-agnostic connection to TARGET Services via Eurosystem-licensed network service providers and the associated switch from Y-shape to V-shape;
  • fundamental change in the account structure due to the separation of traditional high-value payments from central bank operations and the associated splitting of TARGET2 into the central liquidity management component and the RTGS settlement service.

In addition to the modifications in terms of connecting to TARGET Services, the consolidation will also have a considerable impact on institutions’ internal processes.

Institutions will be required to successfully adapt to the changes associated with the consolidation and thereby ensure their readiness to migrate, in order that they can still

  • participate in high-value payments in central bank money
  • as well as participate in the settlement of monetary policy operations (open market operations and standing facilities)
  • and meet the minimum reserve requirement.

Furthermore, successful migration is a prerequisite for participating in ancillary system settlement and thus also for the settlement of retail payments, provided that an ancillary system connected to T2 (e.g. the SEPA-Clearer) is used for this purpose.

In order to ensure that the German market is ready for the changeover on the migration date, the Deutsche Bundesbank is keeping a close eye on participants as part of community readiness monitoring. This is based on the milestones defined by the Eurosystem and harmonised across Europe.