Practitioners Creating Europe-Wide Payment Infrastructures March 2012 About the Cover Art Building Connections for the Future Takes Vision, Know- How and Passion

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REPORT ON ACTIVITIES 2011 Practitioners creating Europe-wide payment infrastructures March 2012 About the cover art Building connections for the future takes vision, know- how and passion. Sustainable infrastructures are designed to efficiently channel traffic flows, mitigate risks and flexibly adapt to changing usage patterns andre- quirements.

EBA CLEARING is pleased to present to you selected design studies on public transport hubs for the city of the future, created by Atelier d’Architecture et de Design Jim Clemes s.a.

Photography The photos in this report were taken in the Paris and Brussels offices of EBA CLEARING. We would like to thank everyone who participated in this photo project.

1205/650 REPORT ON ACTIVITIES 2011

EBA CLEARING 4

Overview 2011 5

EURO1 Service 6

STEP1 Service 10

STEP2 Platform 12 STEP2 SCT Service 14 STEP2 SDD Core and B2B Services 16 STEP2 XCT Service 18 STEP2 ICT Service 19 STEP2 IET Service 19

MyBank e-payment initiative 20

System performance, maintenance 22 and enhancements

Resilience, information security and 23 business continuity management

Customer support 24

Outlook 2012 25

Board Committees, User Advisory Groups 26 and Working Groups

The Board 28

The Management 28

Country Representatives 30

EBA CLEARING report on activities 2011 3 EBA CLEARING Cost-saving infrastructure solutions for an integrated euro payments environment

EBA CLEARING is a bank-owned provider of pan- The Company is also working on pan-European so- European payment infrastructure solutions. Estab- lutions in the e-payment area. MyBank, an online lished in 1998 by 52 banks, the Company had 65 banking based e-authorisation service, will start into shareholders by March 2012. The mission of EBA its technical pilot phase on 4th June 2012. CLEARING is to offer efficient and cost-effective solutions in the co-operative space, which generate Through regular user group meetings as well as savings within its user banks. information and training sessions, both at Europe- an and country level, EBA CLEARING entertains a EBA CLEARING is the leading private sector pro- direct and intensive exchange with its user com- vider of pan-European payment services in euro. munity. This user-centred approach has forged the It owns and operates EURO1, a large-value pay- Company’s unique market responsiveness as a co- ment system with an RTGS-equivalent net settle- operative and country-neutral undertaking in a fast ment arrangement, and STEP1, a single payment changing environment. system for small and medium-sized banks, as well as STEP2, a Pan-European Automated Clearing In co-operation with the Euro Banking Association, House (PE-ACH) platform processing retail credit EBA CLEARING takes an important part in the bank- transfers and direct debits. By March 2012, close to ing industry’s efforts to create, maintain and evolve 300 banks across Europe were directly connected an integrated pan-European payments environment to the services offered by EBA CLEARING. meeting the needs of the banks and their customers in the Single Euro Payments Area (SEPA).

4 EBA CLEARING report on activities 2011 Overview 2011

Over the past year, the pan-European infrastruc- Reform Program saw a first set of deliverables im- ture solutions of EBA CLEARING affirmed their key plemented throughout the year, which were geared position in the European payments industry, pro- at further improving the participants’ liquidity recy- viding efficient and reliable services to the Com- cling and credit risk management capabilities. pany’s large user community across the continent. The services proved to be crucial components of Preparations were made on the STEP2 platform the banks’ strategies for successfully dealing with to equip the SCT Service with additional settle- the key challenges of 2011 and preparing for future ment cycles in February 2012 and a batch pro- challenges. cessing functionality in April 2012. These enhancements tied in with the Company’s ongoing efforts By supporting banks in maximising their liquidity to prepare the STEP2 SEPA Services for the con- usage and minimising risk, the EURO1 system was siderable pick-up of domestic traffic expected in of major value to its participants in a year that was the run-up to the SEPA migration end-date. EBA again marked by considerable liquidity constraints CLEARING launched the SEPA Large Volume Ex- and increasing risk concerns in the market. The change Project in late 2011 to ensure readiness for sound and smooth operation of the system was the SEPA ramp-up phase both at the level of the reconfirmed in 2011 in the oversight assessment senders and receivers of large domestic volumes conducted by the European Central Bank. and at the level of STEP2.

STEP2 reinforced its position as a cornerstone The Company also continued its efforts aimed at of the industry’s SEPA migration strategy: EBA further strengthening the operational robustness of CLEARING’s PE-ACH accounted for over a third its services by reinforcing the underlying organisa- of the SEPA Credit Transfers channelled through tional structure and processes. Following the cre- CSMs. The platform attracted further domestic ation of a dedicated Unit centralising Information volumes in 2011, as the Finnish community com- Security and Business Continuity related matters, pleted the migration of its credit transfers to STEP2 the Company rolled out an Information Security SCT and a dedicated Irish Transfer Service was Management System over the past year. launched for Irish legacy retail payments. STEP2 also provided banks with an easy and cost-effective In September 2011, EBA CLEARING put in place way to implement D+1 end-to-end service levels, a risk management function, including the creation which the Payment Services Directive made man- of a Board Risk Committee. The Committee assists datory from 1st January 2012 on. the Board in fulfilling its oversight responsibilities with regard to the risk appetite of the Company and As a result of an extensive consultation with its the risk management and compliance framework. users, EBA CLEARING took a number of important steps in 2011 to further evolve its services in line with their future needs as well as with the regulato- ry and oversight outlook. The EURO1 Review and

EBA CLEARING report on activities 2011 5 EURO1 Service

Key facts and figures Participation (status: March 2012) 65 Participants / 50 Sub-Participants

Function Reach RTGS-equivalent large-value payment system on a multi- Close to 10,000 participant BICs and over 20,000 additional lateral net basis, for single euro transactions of high priority BICs reachable via EURO1/STEP1 Participants as listed in and urgency, and primarily of large amount EURO1/STEP1 Directory

Live date end-of-day Settlement 4th January 1999 in TARGET2 via Ancillary System Interface (ASI)

Technical Operator Special facts or features in 2011/2012 SWIFT • Volume rise of 5.5 percent in 2011, including a new all-time volume record with 260,978 payments processed Average daily volume on average per day in December 2011 248,163 transactions • EURO1 Review and Reform Program successfully kicked off in 2011 with liquidity and credit risk management Average daily Value enhancements EUR 245 billion

Legal basis • Single Obligation Structure (SOS) recognised and enforceable in every EU jurisdiction and OECD jurisdictions outside the EU where participants have their registered Head Offices • Compliant with the 10 Core Principles for Systemically Important Payment Systems (SIPS) • Overseen by the European Central Bank

EURO1: average daily volume of payments processed

250,000

200,000

150,000

100,000 2009 2010 2011 2012

6 EBA CLEARING report on activities 2011 A compelling combination of high liquidity December 2011 saw an all-time record with 260,978 efficiency and minimal credit risk payments processed on average per day, which was EURO1 proved to be a very helpful tool for banks 13.6 percent up on the previous month and con- over the past year in the face of rising liquidity cost siderably surpassed the previous peak of 249,042 and credit risk constraints. Combining a high level back in March 2008. This significant increase was of liquidity efficiency and low levels of collateral partly a result of the closing down of the STEP2 with sound settlement and counterparty risk man- XCT Service on 5th December 2011. agement mechanisms, the service was well-placed to support banks in their efforts to maximise their Wide reach: 30,000+ BICs across the world liquidity recycling capacity and minimise risk expo- addressable through EURO1/STEP1 Participants sure. EBA CLEARING continued to enhance the The number of EURO1 Participants and Sub-Par- EURO1 platform in both of these key areas through- ticipants slightly decreased in 2011 and early 2012, out 2011 as part of the EURO1 Review and Reform due to mergers and other market consolidation pro- Program. cesses. By the end of March 2012, EURO1 counted 65 direct participants and 50 sub-participants, rep- On the rise: volumes and values in EURO1 resenting close to 10,000 participant BICs. The attractiveness of the EURO1 offering was reflected in the rise of the average daily volumes In addition, over 20,000 identities were addressa- service volumes in 2011 by 5.5 percent. The daily ble via EURO1/STEP1 Participants or Sub-Partic- average value increased by 4 percent and stood at ipants based on the EURO1/STEP1 Directory. To- EUR 249 billion throughout the year. gether with SWIFT, EBA CLEARING has started a project to enhance the functionality and usage of the EURO1/STEP1 Directory.

EBA CLEARING report on activities 2011 7 8 EBA CLEARING report on activities 2011 Positive assessment: EURO1 system complies EURO1. The new measures have enabled banks to with all 10 Core Principles more flexibly define the extent of their counterpar- In November 2011, the European Central Bank ty exposures in the EURO1 system and to adjust (ECB) published the results of an assessment of these more quickly. the EURO1 system against the Core Principles for Systemically Important Payment Systems (SIPS), EBA CLEARING moved the deadline for chang- as defined by the Committee on Payment and ing the discretionary bilateral limits in EURO1 from Settlement Systems (CPSS). The report concluded 18:00 CET on D-1 to 07:00 CET on D. This has that EURO1 complies with all 10 Core Principles. put participants in a position to adjust the limits they grant to other banks on a discretionary basis un- Successful kick-off: EURO1 Review and til just before the start of the EURO1 system. The Reform Program delivers first set of enhance- changes then become effective immediately. This ments new deadline allows banks to promptly react to any The EURO1 Review and Reform Program, which deteriorating events that may occur overnight, over was kicked off in early 2011, led to a series of en- a weekend or over a bank holiday. hancements implemented throughout the year. The program was launched to support participants in Additionally, the minimum amount to be allocated better dealing with the growing pressure in the areas as bilateral limits in EURO1 was considerably re- of liquidity efficiency and credit risk management. It duced. The mandatory element of the bilateral is also geared at optimally positioning EURO1 in an limits, which banks have to extend to every other integrated euro payments environment. EURO1 Participant, was reduced by 60 percent from EUR 5 million to EUR 2 million. This has al- Faster recycling of funds: EURO1 improves lowed the banks to decrease their credit exposure liquidity distribution to other participants and significantly mitigate the A first set of measures was implemented in May risk of loss. At the same time, the maximum dis- 2011 to further improve the EURO1 liquidity effi- cretionary element of the bilateral limits was raised ciency: from EUR 25 million to EUR 50 million. Banks are • Two additional liquidity distribution windows were now able to distribute the limits required to generate introduced in the system at 11:00 and 12:00 CET, liquidity for their payments more in accordance with bringing the total number of liquidity windows their own credit risk policies. throughout the day to six. • The distribution algorithm was adjusted to ensure The EURO1 Participants embraced the new bilater- that an even higher percentage of the pre-funded al limit structure as soon as it was introduced: 3,650 amounts could be distributed intra-day. About 50 bilateral adjustments took place within the first banks now benefit from liquidity distributions on few days following its implementation. This led to a an average day. better recalibration of liquidity in the system. As a result of these measures, almost 98 percent of the pre-funded amounts paid in by the EURO1 Outlook on 2012: more enhancements to follow Participants are now distributed each day. The in- In co-operation with the EURO1 community, EBA creased efficiency of the distribution algorithm has CLEARING is continuing its EURO1 Review and further sped up the participants’ liquidity recycling Reform Program throughout 2012 and beyond. As capability, allowing for additional intra-day liquidity a next step, EBA CLEARING is intending to further savings. reduce the mandatory element of the bilateral limit setting requirements in order to reflect participants’ More flexibility: EURO1 enhances risk manage- credit concerns as a result of the ongoing financial ment capabilities crisis within the euro area. In the second half of 2011, a second set of deliverables was implemented to provide banks with more control over the granting of bilateral limits in

EBA CLEARING report on activities 2011 9 STEP1 Service

Key facts and figures Participation (status: March 2012) 88 Participants / 41 Sub-Participants

Function Reach Payment service for single euro payments of high Close to 10,000 BICs directly addressable and over priority and urgency, complementary to EURO1 and 20,000 BICs reachable via EURO1/STEP1 Participants geared towards small and medium-sized banks as listed in EURO1/STEP1 Directory

Live date Settlement st 21 November 2000 A STEP1 Participant settles with a EURO1 Bank of its choice Technical Operator SWIFT Special facts or features in 2011/2012 • Bank of New York Mellon, Frankfurt Branch, connected Average daily volume to STEP1 as new participant in March 2011 18,906 transactions • Kookmin Bank International Ltd. connected to STEP1 as new participant in June 2011 Average daily value EUR 1.5 billion

Legal basis STEP1 benefits from the solid legal framework underpinning of EURO1

Participation in STEP1 (as of March 2012) 41 STEP1 Participants 88 STEP1 Sub-Participants

10 EBA CLEARING report on activities 2011 A turn-key solution with wide reach and low While the ongoing consolidation process in the running costs industry led to a slight decline in both volumes The STEP1 Service provides a simple, direct and processed and participant numbers over the past inexpensive access to a highly resilient single euro year, STEP1 remained an efficient solution for payment processing infrastructure. Thanks to these cost-conscious banks that want to directly manage benefits and the low running costs it causes at the their payment business. With 88 participants, 41 level of its participants, the STEP1 offering contin- sub-participants and over 3,000 additional identi- ues to be of great value to smaller and medium- ties listed in the EURO1/STEP1 Directory by March sized banks as well as to banks with a limited single 2012, STEP1 also considerably widens the reach of euro payments business. the EURO1/STEP1 Services.

The successful connection to STEP1 of the Bank of In 2012, EBA CLEARING will continue to evalu- New York Mellon from its Frankfurt office in March ate possible enhancements that could be brought 2011 and of Kookmin Bank International from to the STEP1 Service. The aim is to ensure that its London office in June 2011 testified to the con- STEP1 will remain the service of choice for smaller tinued attractiveness of the service as a turn-key and medium-sized banks that want to process sin- solution for exchanging single euro payments with gle euro payments at a cross-border as well as at a a large community of European banks. Kookmin domestic level. Bank was the first bank from South Korea to join the STEP1 Service.

EBA CLEARING report on activities 2011 11 STEP2 Platform

Key facts and figures legal basis (status: March 2012) • Fully compliant with the 6 Core Principles applying to Prominently Important Retail Payment Systems (PIRPS) Function • Fully compliant with the Pan-European ACH (PE-ACH) Pan-European Automated Clearing House (PE-ACH) requirements of the European Payments Council’s platform for processing euro retail payments PE-ACH/CSM Framework • Overseen by the European Central Bank Launch 28th April 2003 Special facts or features in 2011/2012 Continued steep and rapid volume increase: the overall Technical Operator STEP2 traffic grew by over 48 percent from March 2011 SIA to March 2012

Average daily volume 4,232,934 transactions

STEP2 Services average daily volume 2009–2012

1m 2009 2010 2011 2012

12 EBA CLEARING report on activities 2011 PE-ACH services supporting the banks’ migration The end-date challenge: getting ready for large- efforts volume pick-up STEP2 affirmed its position as a key SEPA infrastructure In line with the requirements of the future large volume over the past year, providing reach to more than 4,600 users of STEP2, EBA CLEARING has started to imple- financial institutions across Europe and processing over ment the following upgrades to prepare the platform for a third of the SEPA Credit Transfers handled by CSMs. the large volume ramp-up in the run-up to the migration The platform’s traffic continued its steep rise, with aver- end-date on 1st February 2014: age daily volumes increasing by 2 million in 2011. • Performance: STEP2 today is capable of handling over 50 million transactions per day. By 2013, STEP2 will be EBA CLEARING further deepened its fruitful co-opera- in a position to smoothly process all credit transfer and tion with its user banks and other infrastructure provid- direct debit volumes that exist in SEPA. ers in 2011 to help the industry make optimal use of the • Operational resilience: A third processing centre will be benefits of its PE-ACH. In detail, the Company strove to implemented for committed volumes. • offer to the banks cost-effective, efficient and resil- • Functionality: ient SCT and SDD Services with full SEPA reach and – Introduction in November 2012 of the SDD Core D-1 based on a country-neutral governance model option for submitting direct debits • ensure that its STEP2 Services support the banks – Implementation of a later same-day cut-off for SCT in providing their customers with service levels that – Enhancements to the SCT batch processing service match or even exceed their current domestic service level, which was introduced in April 2012 levels – Introduction of the batch processing service level in • assist domestic communities in adjusting their work SDD flows to the SEPA requirements in a flexible and timely – Multiple distribution of direct debit information manner throughout the day – Secure mass cancellation feature To fulfil these objectives, EBA CLEARING took some • Additional services: The introduction of the “Change important steps in 2011: Account Identification – CAI” optional service is • In co-operation with the STEP2 SEPA BWG, the Com- planned for November 2012. Further enhancements, pany further improved the functionalities around its such as functionalities facilitating the management SEPA Services. This included implementing addition- and storage of mandates or IBAN-only routing and al settlement cycles in STEP2 SCT and improving BIC enrichment are under investigation. intra-day cut-off times by postponing the last settlement cycle by one hour. The platform is thus getting ready to optimally support • October 2011 saw the launch of the STEP2 Irish Trans- the banks with regard to their evolving processing needs fer Service, which enabled the Irish banks to offer bet- in SEPA. ter service levels to their customers and will serve as a stepping stone for the community’s migration to SEPA. For more details on the evolution of the different STEP2 • In view of the SEPA migration end-date, EBA CLEAR- Services in 2011, please consult the following pages. ING launched the SEPA Large Volume Exchange Pro- ject. A key aim of this program has been to obtain the specific requirements in terms of scale, operations and resilience of users intending to channel very large volumes of retail payments through STEP2. • The STEP2 XCT Service was closed down in Decem- ber 2011, which contributed to the industry’s effort to phase out legacy infrastructure on its move to SEPA.

EBA CLEARING report on activities 2011 13 STEP2 SCT Service

Key facts and figures (status: March 2012)

Function PE-ACH service for processing SEPA Credit Transfers

Live date 28th January 2008

average daily volume 2,310,567 transactions

average daily value EUR 8.6 billion

Legal basis Compliant with the SEPA Credit Transfer Scheme Rulebook and Implementation Guidelines of the European Payments Council (EPC) Onboarding domestic volumes The STEP2 SEPA Credit Transfer (SCT) Service participation attracted a significant proportion of the domestic 123 Direct Participants volumes that individual banks and communities started to send through the SEPA channels in 2011: reach in December 2011, average daily volumes had al- More than 4,600 reachable banks, of which 50 percent are most doubled compared to January. In early 2012, reachable via Direct Participants and the other 50 percent STEP2 SCT processed more than a third of the via links established with 14 other SEPA CSMs SEPA Credit Transfers channelled via ACH infrastructures. This underlined the leading role of EBA settlement CLEARING’s PE-ACH platform in facilitating the Positions provided by Multilateral Netting Module (MNM) are European banks’ migration to SEPA and providing settled in TARGET2 via Ancillary System Interface (ASI) full reach to banks adhering to the SEPA Schemes.

Special facts or features in 2011/2012 During 2011, the Finnish banking community com- • Steep volume growth in late 2011: by December 2011, pleted the migration of its domestic credit transfers the average daily volumes had almost doubled compared to SEPA, using STEP2 SCT as its prime clearing to January 2011 system. In total, 70 percent of all payments sent to • December 2011 witnessed a new record volume peak STEP2 SCT were domestic, with banks from Italy, with 5,249,914 payments settled in one day, largely France and Germany having significantly stepped surpassing the 5 million mark for the first time and thus up the sending of transactions in 2011. highlighting the suitability of the STEP2 SCT Service for domestic high-volume usage Additional cycles: improving end-to-end • Introduction of additional settlement cycles in service levels February 2012 Two new morning cycles and one optional night-time • Implementation of batch processing option in April 2012 settlement cycle were introduced in STEP2 SCT in February 2012. To enable same-day end-to-end processing for an increased percentage of SEPA Credit

14 EBA CLEARING report on activities 2011 3

STEP2 SCT Reach: overview 135 of reachable banks by country 13 13

101 26

11 19 90 63 41 76 2,606 72 24 17 9 190 120 25 245 23 31 29 24 410 43 173 35

16 18

Status: April 2012 Transfers, EBA CLEARING also postponed the last volumes and involves only the basic validation that settlement cycle in the afternoon by one hour. This is standard practice in a domestic processing con- brought the cut-off for sending transactions to the text today. The major benefits of this processing service to 14:00 CET. These arrangements were put mode consist in it being: in place to support banks in further optimising their • offered at half of the cost of the full validation liquidity management and to allow them to offer bet- mode ter service levels to their customers. • more efficient and faster in terms of end-to-end processing New batch processing functionality: a low-cost • particularly useful for domestic volumes ex- option for large domestic volumes changed within a community or a specific group Despite rising volume figures, the rejection rates in of banks, where return rates are significantly low- STEP2 SCT continued to considerably decrease in er than in the cross-border area 2011: they fell from one rejection for every 10,000 transactions in January 2011 to one rejection for More to come: preparing STEP2 SCT for mass every 40,000 transactions sent during December migration 2011. For certain banks, this figure was even re- The batch processing mode is a key step towards duced to one rejection for every 2 million transac- readying STEP2 SCT for the ramp-up of volumes tions sent. This extremely high straight-through pro- in the run-up to the SEPA migration end-date. EBA cessing rate led EBA CLEARING to create a batch CLEARING is committed to supporting financial processing mode removing redundant validation institutions in their preparations for this massive processes for transactions sent under this low-cost migration of domestic credit transfers to the SEPA service level. formats and channels by 1st February 2014. In close consultation with the STEP2 SEPA Business The batch processing functionality was success- Working Group, the Company is working on further fully implemented in April 2012 and enables banks extending the STEP2 SCT intra-day cut-off and on to submit batches of payments that are already other service enhancements geared at optimally pre-sorted by receiving counterparties. The batch assisting the banks in their SCT migration. processing option is offered for the handling of high

EBA CLEARING report on activities 2011 15 STEP2 STEP2 SDD Core Service SDD B2B Service

Key facts and figures Key facts and figures (status: March 2012) (status: March 2012)

Function Function PE-ACH service for processing SEPA Core Direct Debits PE-ACH service for processing SEPA Business-to- Business (B2B) Direct Debits Live date 2nd November 2009 Live date 2nd November 2009 legal basis Compliant with the SEPA Core Direct Debit Scheme Legal basis Rulebook and Implementation Guidelines of the European Compliant with the SEPA B2B Direct Debit Scheme Payments Council (EPC) Rulebook and Implementation Guidelines of the European Payments Council (EPC) participation 88 Direct Participants Participation 72 Direct Participants Reach Over 3,800 reachable banks, of which 50 percent are Reach reachable via Direct Participants and the other 50 percent Over 3,300 reachable banks, of which 50 percent are via links established with 13 other SEPA CSMs reachable via Direct Participants and the other 50 percent via links established with 13 other SEPA CSMs settlement Positions provided by Multilateral Netting Module (MNM) Settlement are settled in TARGET2 via Ancillary System Interface (ASI) Positions provided by Multilateral Netting Module (MNM) are settled in TARGET2 via Ancillary System Interface (ASI) Special facts or features in 2011/2012 Record peak of close to 120,000 average daily transactions Special facts or features in 2011/2012 in December 2011 Volume numbers almost tripled from January 2011 to March 2012

16 EBA CLEARING report on activities 2011 STEP2 SDD traffic begins to evolve SDD Core Scheme Option D-1 to be introduced Following the massive increase in STEP2 SEPA The introduction of the SDD Core Scheme Option Direct Debit Services Participants in late 2010, D-1 in November 2012 will further enhance the STEP2 SDD volumes slowly started to pick up STEP2 SDD Core Service and allow a shorter time throughout 2011. STEP2 SDD Core saw a promi- frame (D-1) for the submission of first, recurrent nent rise in terms of daily average volumes at the and one-off SEPA Core Direct Debits. This will put end of the year with close to 120,000 transactions the creditor’s bank in a position to send payment processed in December. This represented six times collections to the payer’s bank up to one inter-bank more traffic than the service had processed dur- business day prior to the due date. The D-1 option ing the previous month and constituted a new peak can be used by all participants that sign up for it. record. Volumes in STEP2 SDD B2B tripled from January 2011 to March 2012. Further enhancements are in the pipeline to prepare the STEP2 SDD Services for the migration of legacy direct debits to the STEP2 platform.

EBA CLEARING report on activities 2011 17 STEP2 XCT Service

Key facts and figures (status: March 2012)

Function Payment service processing retail payments governed by the Convention on Credit Transfers in Euro, i.e. payments of up to EUR 50,000 carrying a BIC and IBAN and sent between banks in the European Economic Area (EEA)

Live date 28th April 2003

closing date 5th December 2011

Peak average daily volume Service closedown as part of SEPA migration 434,133 transactions (December 2007) After more than eight successful years of processing retail payments governed by the Convention on Peak participation Credit Transfers in Euro, the STEP2 XCT Service 104 Direct Participants (October 2010) saw its last operation day on 5th December 2011. The closedown of the service marked another settlement milestone in the industry’s migration from legacy to in the EURO1/STEP1 system SEPA-compliant payment services and infrastructures. Special facts or features in 2011 Closedown of the service on 5th December 2011 In April 2003, the STEP2 XCT Service was the first service to go live on the STEP2 platform and the first mass payment service for cross-border euro transactions. It allowed banks throughout Europe to efficiently and effectively meet the requirements of Regulation (EC) 2560/2011 and laid the basis for a Pan-European Automated Clearing House (PE-ACH) due to its full European reach.

18 EBA CLEARING report on activities 2011 STEP2 ICT Service STEP2 IET Service

Key facts and figures Key facts and figures (status: March 2012) (status: March 2012)

Function Function Euro retail payment service for Italian domestic credit Euro retail payment service ensuring the settlement of Irish transfers designed to facilitate the progressive migration of domestic credit transfers and direct debits. STEP2 IET is these payment flows to SEPA designed to facilitate the progressive migration of these legacy payments to SEPA. Live date 24th November 2006 Live date 10th October 2011 average daily volume 1,166,331 transactions average daily volume 658,398 transactions participation 6 Direct Participants / 67 Indirect Participants participation 6 Direct Participants settlement in the EURO1/STEP1 system settlement Positions provided by Multilateral Netting Module are settled Special facts or features in 2011/2012 in TARGET2 via Ancillary System Interface (ASI) Volume rise of 2.2 percent in 2011

Speeding up end-to-end processing of Irish payments Start of progressive migration to SEPA In October 2011, the STEP2 Irish Transfer (IET) Service went The STEP2 Italian Credit Transfer (ICT) did not witness any live on EBA CLEARING’s PE-ACH platform. The new service significant changes in processing activity over the past year. ensures the settlement of all retail credit transfers and direct Volumes increased by 2.2 percent, and while the number of debits processed in the Irish legacy formats. direct participants did not change, a consolidation of a banking group resulted in the withdrawal of two indirect partici- STEP2 IET has sped up the end-to-end processing of Irish pants. legacy payments and has enabled the banks to offer later cut- off times and D+1 end-to-end payment execution to their cus- As announced in February 2011, one of the service partici- tomers for both cross-border and domestic euro retail trans- pants started to progressively move its volumes from STEP2 actions. Re-using the pan-European infrastructure of STEP2 ICT to SCT in the course of the year; this first migration of for domestic transactions prevented the Irish community from an ICT Participant to the STEP2 SEPA channel was close to having to invest into major developments at the level of its complete by March 2012. legacy infrastructure.

The move to STEP2 will allow the Irish banks to migrate to SEPA with more ease and flexibility.

EBA CLEARING report on activities 2011 19 MyBank e-payment initiative

Ready for pilot launch In the second half of the year, the Company MyBank will start into its technical pilot phase in launched a promotion campaign, including meet- June 2012, less than a year after the Company an- ings with e-merchant and consumer organisations nounced its commitment to delivering a pan-Eu- as well as public authorities, at a pan-European ropean e-payment solution. The aim of the pilot is level and nationally. A dedicated MyBank website to prove that the different components of MyBank (www.mybankpayments.eu) was launched in Sep- work together seamlessly and give an excellent tember 2011. By the end of the year, MyBank was end-user experience. The solution will be tested at firmly embedded in the minds of those interested in both national and cross-border level by payment e-payments and e-mandates. service providers (PSPs), merchants, customers, integrators and routing service providers. …and intense engineering In order to deliver a state-of-the-art solution from a Extensive consultation… technical and security point of view, EBA CLEAR- In early 2011, EBA CLEARING started to exam- ING drew on leading specialists in the area of ine various models for creating a pan-European e-transactions and processing from all across e-authorisation service. Based on a blueprint doc- Europe. In early 2012, the technical and secu- ument, the Company conducted a wide consulta- rity documentation as well as specifications were tion process involving its shareholders and other ready and shared with PSPs and integrators relevant stakeholders. It confirmed the keen inter- supporting the MyBank initiative. The software est among the consulted parties in a solution that components of the solution were delivered at the would enable Internet shoppers to initiate payments same time. Since April 2012, PSPs and integrators via their online banking platforms or similar pay- have been able to test the security protocols in the ment applications. Following this positive outcome, MyBank test environment in a stand-alone mode as EBA CLEARING continued the detailed definition of part of their preparations for the pilot. Supporting the MyBank solution and the planning for its deploy- material for merchants has also been put at the dis- ment. posal of future participants.

A secure customer experience

MyBank

20 EBA CLEARING report on activities 2011 After a six-month-long investigation of the technical Live launch expected for early 2013 features, the MyBank security report was delivered As a pan-European initiative based on online bank- by Fraunhofer Institute, Europe’s largest organisa- ing, MyBank responds to the regulator’s expecta- tion in application-oriented research, in late March tions articulated in the EC Green Paper “Towards 2012. The MyBank security concept was given full an integrated future for card, internet and mobile clearance in this report, which concluded that the payments” and to the merchant requirements for- solution provides end-to-end security in terms of mulated by the E-Payments Merchant Initiative. confidentiality, integrity, availability and non-repu- Work is ongoing in different European countries diation. The report also noted that MyBank suc- to roll out e-payment solutions that will rely on the cessfully balances these security needs with the MyBank functionality. E-merchants and govern- participants’ business requirements for customer ment agencies alike are eagerly waiting for a so- usability, practical usability and cost efficiency. lution that will allow customers to pay for online purchases by initiating SEPA payments via their online banking. It is expected that MyBank will be deployed in a live environment in early 2013.

EBA CLEARING report on activities 2011 21 System performance, maintenance and enhancements

EBA CLEARING continuously manages, moni- In October 2011, EBA CLEARING organised an tors and controls the payment processing and set- internal ‘Live’ Crisis Management Exercise, which tlement processes of its services. As in previous simulated the simultaneous outage of one of EBA years, their overall performance was excellent: the CLEARING’s Operational Centres and SWIFT. The availability of EURO1, STEP1 and STEP2 stood at simulation demonstrated that the internal crisis pro- 100 percent throughout the full year of 2011 and the cesses in place operate well, even under extreme- first quarter of 2012. ly stressful circumstances. It is planned to repeat such an exercise at least once a year. The considerable traffic increase in EURO1/STEP1 and STEP2 throughout the year and in early 2012 On 31st March 2012, the yearly STEP2 Crisis Simu- had no impact on the processing behaviour and lation Exercise was carried out successfully with 38 speed of the central systems. The EURO1 end-of- participating banks. The exercise was designed to day settlement and the settlement of the STEP2 test the availability and functionality of the Disaster Services cycles in TARGET2 continued to function Recovery Site for the STEP2 SEPA Services and to full satisfaction throughout the whole year. the Real-Time Window (RTW) as well as notifications via the SMS Alert Facility. For the first time, Crisis management tests the new STEP2 IET Service was part of the exer- Numerous testing exercises for all live services cise. took place throughout 2011. These exercises were carried out in co-operation with service participants In addition, EBA CLEARING participated in the an- and key suppliers and mainly focused on the test- nual SWIFT Cold Start Test in April 2012. During ing of emergency procedures, the simulation of cri- the exercise, SWIFT simulated the loss of all of its sis events and tests executed for self-certification operating centres, allowing participants to test the purposes. recovery process in such an exceptional situation. EBA CLEARING successfully simulated the recov- EBA CLEARING participated in the Bi-Annual ery process of the EURO1/STEP1 central system SWIFT Crisis Coordination & Communication and SWIFTNet connectivity. What is more, EBA (SC3) Exercise, which took place in May 2011. The CLEARING simulated the EURO1/STEP1 busi- event was attended by a large delegation from all ness day, allowing test participants that are also principal SWIFT banks, leading central banks and EURO1/STEP1 Participants to send their pay- key market infrastructures. The exercise success- ments and monitor their processing via the Interac- fully achieved its desired goals and objectives. tive Workstation (IWS) application.

22 EBA CLEARING report on activities 2011 Resilience, information security and business continuity management

The EBA CLEARING resilience levels are tested, the roll-out of EBA CLEARING’s Information Secu- revised and enhanced at regular intervals. In 2011, rity Management System throughout 2011, in line the Company continued to perform its daily tasks with ISO/IEC 27001 certification requirements. This in parallel for all systems from both its operating activity stream is geared at ensuring that the Com- centres. Machine and staff rotation were conducted pany’s assets are effectively protected based on throughout the year in order to keep the staff famil- standardised measures and controls. iar with both operation centres. In 2011, EBA CLEARING advanced its project on In early 2011, EBA CLEARING created the Informa- optimising the notification and alerting processes, tion Security and Business Continuity Management which included the implementation of the SMS Alert Unit to centralise all information security and busi- Facility for incident notifications via mobile text ness continuity tasks. The new Unit is in charge of messages. the maintenance of the Company’s Business Con- tinuity Management System, which was aligned with British Standard (BS) 25999. It also prepared

EBA CLEARING report on activities 2011 23 Customer support

As in the previous years, EBA CLEARING contin- end of the year. Briefing meetings with newly con- ued to nurture strong ties with its shareholder and necting participants were held throughout the year. user community. Responding to and satisfying cus- Throughout 2011, EBA CLEARING also partici- tomer needs stood at the centre of all the Compa- pated again in a number of industry events, includ- ny’s activities. This user-centred focus shaped EBA ing EBAday, the SPIN conference in Italy, the Euro CLEARING’s approach to day-to-day issue-solving Finance Week in Frankfurt and Sibos, in order to just as much as it marked the Company’s strategic provide the banking industry at large with updates considerations. on ongoing Company activities and projects.

High customer satisfaction rate Introduction of a newly structured change Throughout 2011, the Investigations and Customer management process for STEP2 Support Unit (ICU) successfully continued its mis- In 2011, EBA CLEARING put in place a newly sion to offer the users of the EBA CLEARING Ser- structured and very transparent change manage- vices a single point of contact and extensive sup- ment process for STEP2, in analogy to the ex- port. During 2011, ICU staff received and followed isting change management process of EURO1. up on over 2,410 enquiries, a reduction of 25 per- It enables STEP2 users and banking communi- cent over 2010. This trend was largely attributed to ties to directly submit change requests to EBA fewer contact list update requests due to a more CLEARING. The Company will analyse the impact frequent use of shared e-mail addresses at the lev- of a change request and share the outcome with el of the banks and to a decrease in offline data the SEPA Business Working Group, whose mem- requests. Customer satisfaction with regard to the bers will then involve their respective community. user support provided by the Company stood at a Once it has been established which changes are very high rate of 83 percent in 2011. supported by the large majority of the users, EBA CLEARING will submit the list to its Board for ap- Informational meetings and conferences proval. All approved changes are taken into ac- To keep the user community updated on EBA count for the next annual release. On an excep- CLEARING activities, representatives of the Com- tional basis, i.e. upon business requirements and pany participated in the different country group user demands, EBA CLEARING may decide to im- meetings held across Europe. In addition, the plement some changes outside the annual release Company organised a SEPA Information Session dates. and two MyBank Information Sessions towards the

24 EBA CLEARING report on activities 2011 Outlook 2012

The European payments industry must have migrat- SEPA-wide user community will continue to develop ed the great bulk of its 135 million daily credit trans- the services and functionalities on the STEP2 plat- fers and direct debits to SEPA-compliant formats and form in a concerted approach and with a view to channels by 1st February 2014. Supporting the indus- supporting market integration and system interoper- try in this major effort will be one of the key activity ability across Europe. strands of EBA CLEARING in 2012 and 2013. Be- sides reinforcing the STEP2 platform for the future Evolving the EBA CLEARING Services in line with processing of high volumes, the Company will also oversight standards, as laid down in the Report of strive to assist the different banks and banking com- the CPSS and IOSCO on Principles for financial munities in putting their respective migration strate- market infrastructures, will be another important gies into reality. A particular focus will be placed on topic on the agenda of the Company in 2012 and creating the level of certainty required amongst large beyond. EBA CLEARING will carry on its work on volume users on the capability of each one to handle reducing the risk profile of the EURO1 system in such volumes as a sending and as a receiving bank. this context. In co-operation with the Future Devel- opment Group, the Company will continue to drive In order to ensure a successful integration of the the EURO1 Review and Reform Program and study currently fragmented payments markets, it will be the impact of possible further enhancements to be important for the providers and users of payment brought to the service rules and functionalities in services to overcome the multitude of divergent response to user needs and expectations. business rules and services that exist across Eu- rope. EBA CLEARING shares the concern raised in Following the technical pilot launch of MyBank the industry about the risks of continued fragmenta- in June 2012, EBA CLEARING will fine-tune the tion that such local arrangements – which are often e-authorisation solution based on the feedback of required by local legislation – represent. the pilot participants in preparation for its use in a live environment. The Company will continue its While the Company recognises that this matter re- open dialogue with all stakeholders and take the quires in a first place public authorities to cause rel- necessary steps to foster the deployment of the so- evant actors to change and to adjust towards har- lution at a pan-European level. This is in line with monised business rules, EBA CLEARING wishes to the mission of EBA CLEARING to provide the Eu- contribute to this effort by bringing in its expertise ropean payments industry and its customers with as a pan-European operator. The Company and its cost-saving pan-European infrastructure solutions.

EBA CLEARING report on activities 2011 25 Board Committees, User Advisory Groups and Working Groups

Board Committees and technical enhancements to the infrastructure of The Audit & Finance Committee (AFC) has the mis- the company. The OTC is composed of business sion of setting out the policy and the guidelines for and technical experts from Shareholder Banks ap- the internal and external audit of the company and pointed by the different national user communities. its activities, and to define and monitor the internal audit requirements as well as the tasks entrusted to The Strategy & Policy Committee (SPC) focuses on external auditors. The AFC is further entrusted with addressing the longer-term positioning and devel- the review and monitoring of the financial situation opment of EBA CLEARING. Through its monitor- of the Company. The AFC is composed of Board ing of the payments industry, it aims to identify and members only. assess the banks’ needs in order to propose and evaluate the development of new products and The Board Risk Committee (BRC) has the pur- services. The SPC is composed of Board members pose of assisting the Board of Directors in fulfilling only. its oversight responsibilities with regard to the risk appetite of the Company and the risk management User Advisory Groups and Fora and compliance framework. The BRC is composed The STEP1 User Advisory Group (STEP1 UAG) of Board members only. serves as a decision-making platform within the STEP1 user community and as a channel to ex- The Innovation Committee’s (InnoCo) mission is to press requirements or proposals towards the Board survey market developments, trends and needs in of the Company and its Committees. The STEP1 order to assess the practical implications and spe- UAG is composed of representatives from each cific business opportunities for EBA CLEARING. country or grouping of users. The InnoCo is composed of payment experts from EBA CLEARING Banks with knowledge in key ar- The STEP2 SEPA Business Working Group (SEPA eas, such as IT systems architecture and business BWG) serves as a forum in which direct participants development. in the STEP2 SEPA Services can discuss and provide feedback on issues and developments con- The Legal Advisory Group’s (LAG) mission is to cerning these services. The SEPA BWG is formed analyse and review proposals from a legal point of by bank representatives of the different national view and to formulate recommendations regarding communities in SEPA. Once the SEPA migration the same. The LAG also assists in the monitoring of has reached a critical mass, this interim user forum legal projects and formulates recommendations re- will give way to a more formally defined user say garding the resourcing for such projects. The mem- body. bers of the LAG are in-house lawyers at banks that are members of the Euro Banking Association and/ The STEP2 XCT User Advisory Group (STEP2 XCT or shareholders of EBA CLEARING. UAG) was dissolved in December 2011. During the operation of STEP2 XCT, it served as a decision- The Operations & Technical Committee’s (OTC) making platform within the STEP2 XCT user com- focus is to recommend enhancements to the munity and as a channel to express requirements operational, procedural, functional and technical as- or proposals towards the Board of the Company pects with regard to the EBA CLEARING Systems, and its Committees. The STEP2 XCT UAG was EURO1, STEP1 and (where relevant) STEP2. Its composed of representatives from each country or major task is to examine and propose operational grouping of users.

26 EBA CLEARING report on activities 2011 Steering & Working Groups The Treasury and Liquidity Group (TLG) acts as an The e-Services Working Group was created as an advisory group of experts to the Board and Man- ad-hoc working group to accompany the Manage- agement on issues relating to the use of liquidity ment’s examination of various options and models within EURO1. The TLG is composed of represent- for creating a pan-European e-services solution. atives from the treasury departments of EURO1 The group reports to the Innovation Committee and Participants. provides practical recommendations to the discus- sion around the design and implementation ap- The Steering Group on SEPA Large Volume Ex- proach for such a solution. It is composed of EBA change (SEPA LVE SG) is geared at facilitating the CLEARING Bank representatives from relevant ar- migration of large domestic retail volumes to EBA eas of expertise. CLEARING’s SEPA infrastructure. The SEPA LVE SG offers a coordination platform aimed at helping The Future Development Group’s (FDG) mission is all involved parties to ensure that end-to-end pro- to carry out a review to ensure that the EURO1 set- cessing of these volumes will take place in a reli- up continues to meet the users’ needs in terms of able and stable manner. The group is composed liquidity efficiency, risk control and the loss sharing of representatives of banks that are direct partici- arrangements. The FDG acts as an advisory group pants in one or several STEP2 SEPA Services and to the Company’s Board and Management. It is wish to prepare for the exchange of large domes- composed of representatives from the treasury and tic SEPA volumes on the sending and/or receiving operations departments of EURO1 Participants that end. wish to make more use of the service.

EBA CLEARING re port on activities 2011 27 The Board

Chairman Deputy Chairman Giorgio Ferrero Robert Heisterborg Intesa Sanpaolo ING Bank

Daniele Danese Kristine Bart Guns Thomas Egner Banco Popolare De Lepeleire (as of 13th April 2012) Commerzbank Società Cooperativa KBC Bank KBC Bank

Diarmuid Hanrahan Olli Kähkönen Hays Littlejohn Kirstine Nilsson Allied Irish Banks Nordea Bank Finland UBS Swedbank

The Management

Chief Executive Officer François Boels John Broxis Eric Charles gilbert lichter Finance, Budget and STEP2 Services User Administration and Accounting Corporate Secretariat

28 EBA CLEARING re port on activities 2011 Jean-Paul Narinda Viguier Yannick Chagnon Marie Cheval Aeberhardt (as of 14th June 2011) Société Générale (as of 1st January 2012) Crédit Agricole Crédit Agricole Société Générale

Pip Evans Paul Nixon José Luis Fernández Rui Fonseca Barclays Bank (as of 4th November 2011) Iglesias Caixa Geral de HSBC Banco Bilbao Depositos Vizcaya Argentaria

Christian Westerhaus Deutsche Bank

Eva Herskovicova Daniel Szmukler Alan Taylor André Vink Operations Offices Administration and EURO1/STEP1 Services Information Security and Business Management Continuity Management

EBA CLEARING re port on activities 2011 29 Country Representatives

Eva Herskovicova Katja Heyder Claus F. Hilles Czech Republic and Slovakia Austria, Germany, Senior Advisor Austria, Switzerland Germany, Switzerland

Luis Minguez David Renault Jette Simson Spain France Denmark, Finland, Norway, Sweden and Baltic Countries

Alan Taylor Daniela Vinci André Vink Ireland and Italy The Netherlands United Kingdom

Concept and text EBA CLEARING 40 rue de Courcelles F-75008 Paris

Graphic design formfellows Kommunikations-Design Frankfurt am Main

Photographs Michael Meinhard Bosse und Meinhard, Bonn

Reproductions ORT Studios Frankfurt GmbH

Printing h. reuffurth Mühlheim am Main

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