Launched by the Governing Council of the European Central Bank in 2006, TARGET2-Securities (T2S) is the most transformational initiative to affect capital markets infrastructure in the past several decades. T2S seeks to overcome Europe’s fragmented post-trade landscape by breaking down cross-border settlement barriers between member states.
With T2S rollout well underway, Accenture surveyed senior-level representatives from Europe-based banks of all sizes to find out how they are preparing. Leveraging the survey findings, Accenture completed a report together with Clearstream, learning which access models they are choosing, why asset servicing has become such an important decision and what the emerging landscape could look like.
The survey revealed that banks believe they are operationally prepared for T2S. Ninety percent of survey respondents have a T2S readiness strategy in place and began working on implementation in 2014 or earlier. The remaining 10 percent feel that their organizations are sufficiently flexible to manage new regulations.
Most banks have adopted a “wait-and-see” approach, focusing on mandatory changes first and leaving broader strategic shifts for future consideration. Others are still assessing what T2S means for their organizations from a business strategy perspective. A few are taking this opportunity to completely rethink their European infrastructure.
T2S is accelerating bank strategy, forcing organizations to take a closer look at their business and technology operating models—particularly in markets facing significant reforms. Beyond network rationalization, liquidity management, settlement efficiency and collateral management are expected to be the top three areas most positively affected when the dust settles.
Sixty percent of survey respondents plan to mix TARGET2-Securities access paths while they wait to see which operating model becomes standard practice. On the securities side, 90 percent of survey respondents will include some form of central securities depository (CSD) access. On the cash side, 75 percent of respondents said they will settle in central bank money using one or multiple Dedicated Cash Accounts (DCAs) opened in their own name at a T2S central bank.
In the new TARGET2-Securities world, settlement will be handled via T2S, while asset servicing will remain with central securities depositories (CSDs). The choice of asset servicing solution will therefore be a critical part of any bank’s T2S strategy. It is no surprise, then, that asset servicing scored an average eight out of 10 in terms of importance among survey respondents, with nearly 50 percent rating it nine or 10.
Banks can opt to use in-house custody capabilities or leverage the services of an external custody service provider. If the latter, they must choose between a traditional local agent or the bundled services of a CSD. Although a majority of survey respondents were leaning toward self-production or the use of a specialized provider, no clear industry-favored approach has emerged.