MARCH 2008

REPORT ON ACTIVITIES 2007 Practitioners creating European-wide payment infrastructures

Content I. EBA CLEARING: The pan-European processing centre 2

II. EURO1: The cost-effective choice for clearing and settling payments 4

III. STEP1: A low cost offering for commercial euro payments 12

IV. STEP2: The PE-ACH with the reach for SEPA 16 1. The STEP2 XCT Service 17 2. The STEP2 Italian Credit Transfer (ICT) Service 20 3. The STEP2 SEPA Credit Transfer (SCT) Service 21 4. The STEP2 SEPA Direct Debit (SDD) Service 25

V. System performance and enhancements 26

VI. Customer support 27

VII. Outlook 2008 29

VIII. Committees and User Advisory Groups 30

IX. The Board 32

X. The Management 34

XI. Offi ces 36 I. EBA CLEARING: The pan-European processing centre

EBA CLEARING is the leading private sector Through regular meetings as well as train- provider of euro clearing and settlement ser- ing and briefi ng sessions, both at European vices in Europe. The Company was established and country level, EBA CLEARING entertains a in 1998 by 52 banks and had 69 Shareholders close dialogue with its users. This customer- by March 2008. It owns and operates EURO1, friendly approach has forged the Company’s a clearing and settlement system for fi nan- unique market responsiveness as a co-operative cial and commercial payments, and STEP1, undertaking in a fast changing environment. a single for small and medium- sized banks, as well as STEP2, the fi rst and so In co-operation with the Euro Banking Associa- far only pan-European tion, EBA CLEARING takes an important part (PE-ACH) for mass payments in euro. Close to in the banking industry’s efforts to create and 300 banks across Europe are directly connected maintain an integrated pan-European payments to the services offered by EBA CLEARING as environment meeting the needs of the banks participants or sub-participants. and their customers in the Single Euro Pay- ments Area (SEPA).

EURO1 Single payments, same-day, STP and non-STP, credit and debit

STEP1

Payment fi les, STEP2 full STP: XCT, ICT, SCT, SDD

2 EBA CLEARING | REPORT ON ACTIVITIES 2007 Overview 2007 legal framework for this pan-European direct debit instrument has been transposed into national In 2007, EBA CLEARING contributed a crucial law by the different communities. cornerstone to the pan-European payment infrastructure landscape: the Company success- Besides these major deliveries for the new SEPA fully implemented and tested a SEPA Credit era, EBA CLEARING continued its work on further Transfer Service with SEPA-wide reach on its enhancing its existing services and optimising PE-ACH platform STEP2. The timely delivery the underlying system infrastructure. The success and launch of the STEP2 SEPA Credit Transfer of the Company in meeting the requirements of Service on 28th January 2008, the fi rst day of its users showed in the continued expansion the Single Euro Payments Area, responded to of both the market share and volumes of the the need of the European banking community different services. for a central infrastructure able to distribute SEPA Scheme-compliant payments across all As the EBA CLEARING services are attracting 31 participating countries. This outstanding more and more “domestic” payment volumes, result was achieved with the support of over the Company has continued to expand its 100 banks and the excellent development work geographical proximity to the users of its carried out by SIA-SSB. services in order to better accommodate their specifi c local needs in their migration process A SEPA Direct Debit Service was implemented to SEPA. In line with these efforts, EBA and tested on the STEP2 platform over the same CLEARING opened a regional offi ce in Italy in period and is ready to go live as soon as the early 2008.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 3 II. EURO1: The cost-effective choice for clearing and settling euro payments

The EURO1 Service

EURO1 is a real-time net clearing and settlement system for fi nancial and commercial pay- ments in euro. It went live in January 1999 in order to process individual inter-bank payments at intra-European level. In March 2008, EURO1 processed on average 249,042 payments per day for a value of EUR 290 billion.

EURO1 is open to banks with a registered address or branch in the with own funds of at least EUR 1.25 billion, a short-term credit rating A2 P2 equivalent and a head offi ce in an OECD or an EU country. By the end of Q1 2008, the system counted 69 Clearing Banks and 62 Sub-Participants.

The EURO1 platform is based on a messaging and IT infrastructure provided by SWIFT. EURO1 provides low cost processing services for single payments. In addition, its processing mode provides banks with important liquidity savings. The Single Obligation Structure, the legal backbone of the EURO1 real-time net clearing and settlement arrangements, has been vali- dated for 25 EU jurisdictions (with legal opinions for Bulgaria and Romania still pending) and all other countries where headquarters of EURO1 Clearing Banks are located. EURO1 is fully compliant with the Lamfalussy standards and with the 10 Core Principles for Systemically Important Payment Systems (SIPS), as certifi ed by the (ECB).

EURO1 is the only private sector clearing and settlement system for individual fi nancial and commercial euro payments at the pan-European level. The system is the leading processing infrastructure in this segment of the European payments market.

4 EBA CLEARING | REPORT ON ACTIVITIES 2007 2007 contributed another chapter in the success Integration of domestic volumes boosts story of EURO1. The service attracted a large volume growth proportion of domestic payment volumes, in particular from two national communities that In 2007, volumes in EURO1 continued to grow had been phasing out their local high-value by 15 percent in comparison to 2006. In terms systems. This development illustrates that EURO1 of daily average volume, EURO1 exceeded has taken full advantage of its pan-European 180,000 transactions in all but three months positioning in the consolidation process of single throughout 2007. Towards the end of the year, payment infrastructures. As a prime provider of volume growth accelerated to an average daily clearing and settlement services for single pay- volume of 197,118 in October, followed by a ments in euro – fi nancial and commercial – EBA record average of 231,863 in December. CLEARING expects to attract additional volumes at a time when banks across Europe are reas- In addition to the steady volume growth over sessing their payment strategies and routing the previous years, the service experienced decisions in the new SEPA environment. signifi cant upward boosts through the integra- tion of domestic payment fl ows: Throughout 2007, EBA CLEARING accommodated to the staged changeover of the clearing banks u In July 2007, EURO1 saw an increase of 18 from TARGET to the TARGET2 system, ensuring percent over the same period in 2006 due a smooth continuation of the clearing and set- to the fact that the major Dutch banks had tlement process for the migrating banks. The started to feed the volumes of their phased- system’s own migration to the TARGET2 platform out domestic system Telegiro into EURO1. will take place in May 2008.

In early 2008, EURO1 extended its role to be- come as well the settlement engine for the new STEP2 SEPA Credit Transfer Service.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 5 u From the beginning of 2008, transactions in 2007. Sub-Participant numbers in EURO1 did that had formerly been processed by not see any major changes in 2007 but have the Net Settlement System (PNS) were soared from 57 to 62 since the beginning of gradually shifted to EURO1. By mid-February, 2008, with another four banks scheduled to this migration of volumes was completed. join in April, including the fi rst Sub-Participant from Lithuania. Since the beginning of 2008, EURO1 has com- fortably exceeded the 200,000 threshold each The launch of the STEP2 SCT Service had Pre- month, demonstrating the continuing steady fund Participation (PFP) reach new heights, growth of transactions processed by the service. with the number of PFP Banks rising from On 25th March 2008, EURO1 reached a new nine to 23 by the end of March 2008. Pre-fund peak with 328,058 processed transactions in Participation was introduced as an additional one day. option for fi nancial institutions to settle their STEP2 obligations. At EBA CLEARING’s request, SWIFT has started to assess the potential for increasing the capac- EBA CLEARING is currently looking into the de- ity in EURO1/STEP1 in order to accommodate velopment of a dedicated EURO1/STEP1 directory future volume growth. to further facilitate the usage of the system.

Sub-Participation and Pre-fund Participation Active use of the liquidity bridge on the rise Launched in mid-2006, the liquidity bridge has In spite of the ongoing consolidation process in established itself as an important liquidity the European banking industry, the number of management tool for banks participating in EURO1 Banks remained relatively stable through- EURO1. By March 2008, 25 banks pre-funded out 2007. By 31st March 2008, the number of their positions in EURO1 on a regular basis, clearing banks stood at 69, compared to 70 with pre-funding transactions totalling EUR 21.5

6 EBA CLEARING | REPORT ON ACTIVITIES 2007 EURO1: average daily volume of payments processed

300,000

250,000

200,000

150,000

100,000

50,000

0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 2007 2008

REPORT ON ACTIVITIES 2007 | EBA CLEARING 7 billion per day. Thirty banks of the 52 institu- The new workstation is based on the SWIFT- tions available for liquidity distribution receive Net Browse, InterAct and FileAct services and distributions on a regular basis for a total value provides the EURO1 and STEP1 Banks with a of EUR 13 billion per day. The liquidity bridge secured, standardised, cost-effective and user- has been so successful that the market for friendly channel for accessing and interacting inter-system swaps between TARGET and EURO1 with the EURO1/STEP1 system. The IWS uses has virtually disappeared. the UNIFI (ISO20022) XML message standard for Cash Management reporting. Banks can EBA CLEARING will continue its work on opti- monitor the processing of their payments and mising the liquidity distribution functionality their position in the system, cancel payments, in EURO1, including a review of the distribu- change limits and manage their reporting with tion algorithm geared at further increasing the the help of the IWS. Through its standardised distribution percentage from the 83 percent architecture and its alignment with TARGET2 reached in March 2008. Discussions are held formats, the IWS was easy to integrate in the with the ECB on the matter of implementing banks’ back offi ce infrastructure and has helped additional distributions. the banks to considerably save cost in software maintenance and messaging.

Delivery of the full range of functionalities Phase two of the IWS project, the Application for the Interactive Workstation (IWS) Programming Interface (API), which enables The implementation of the full set of function- banks to download and integrate data into alities of the Interactive Workstation (IWS) was their back offi ce systems, was delivered for completed in 2007 as foreseen and led to the live operation in August 2007. replacement of the Clearing Workstation (CWS) with the IWS.

8 EBA CLEARING | REPORT ON ACTIVITIES 2007 The CWS was fi nally phased out in December of its Business Administration System (BAS2) 2007. The FIN requests and reports used in the was completed. Testing for the fi rst joining date EURO1/STEP1 system have not been discontin- on 19th November 2007 and the second win- ued, so banks that have not yet migrated to dow on 18th February 2008 started well in time, use the IWS can still use the CWS, although it so that the migration proceeded smoothly and is no longer supported by SWIFT. successfully. The testing programme included the PFP Banks and the liquidity bridge usage.

Successful support of TARGET2 migration From November 2007 on, EURO1 has managed process its settlement process with a combination of Migration to TARGET2 was one of the key TARGET and TARGET2 payments. Preparations topics for EBA CLEARING in 2007 and early are on track for the migration of EURO1/STEP1 2008. The Company placed a major focus on to TARGET2 on 19th May 2008. EBA CLEARING’s supporting the banks in a manner that would participation in this third joining window has ensure a reliable and smooth continuation of allowed for both migrated and non-migrated their settlement services in EURO1 with as little EURO1/STEP1 users to carry on their business as migration-related change impact as possible on usual as far as possible and to keep the legal their processes. work involved at a minimal level.

Throughout 2007, EBA CLEARING prepared for Preparations are under way for introducing di- the gradual migration process from TARGET to rect debit as a means for banks to settle their TARGET2 in co-operation with the European EURO1 obligation in TARGET2. Settling via a Central Bank and the different country user direct debit option was not available in the old groups. The EURO1/STEP1 system became TARGET system but will become an option for TARGET2-ready by mid-June when the upgrade banks as soon as the whole TARGET2 migration

REPORT ON ACTIVITIES 2007 | EBA CLEARING 9 programme has been completed. It will provide special offer to these institutions for becoming banks with even more fl exibility in organising Pre-fund Participants in EURO1 in addition to and streamlining their settlement process. being STEP1 Participants. By March 2008, eight STEP1 Banks had already accepted this offer. Once the EURO1/STEP1 settlement has moved Additional banks are expected to follow as the to the TARGET2 platform, EBA CLEARING plans STEP2 SCT volumes continue to rise and the to start preparations for a staged migration second SCT processing and settlement cycle process to the Ancillary System Interface. goes live. An increase of the maximum credit cap from EUR 100 million to EUR 500 million for PFP Banks was planned for April 2008 in order Smooth settlement of STEP2 SEPA Credit to accommodate these developments. Transfer Service in EURO1/STEP1

In its preparations for the launch of the SEPA Following the successful start of the STEP2 SCT Credit Transfer Service on the STEP2 platform, EBA Service and a close monitoring of the settle- CLEARING placed a major emphasis on taking the ment process, EBA CLEARING decided to put necessary steps to ensure a smooth settlement in place a second STEP2 SCT processing and process of the new SEPA service, which handles settlement cycle for May 2008. The Company payments that have no value limit. developed and tested a dedicated enhanced circles processing functionality for the EURO1 Particular attention was given to the settlement platform, which will allow for the payments of process of the STEP1 Banks in EURO1 because the second SCT cycle to be settled while the of the considerable impact the SCT traffi c could processing of normal EURO1 payments is briefl y have on the banks’ limits in the system. In put on hold. Combined with an additional order to facilitate a full-scale participation in liquidity distribution window and an extended the STEP2 SEPA Services for the STEP1 com- settlement window starting later in the day, this munity, EBA CLEARING decided to extend a approach will help to minimise the effect the

10 EBA CLEARING | REPORT ON ACTIVITIES 2007 second SCT cycle might have on the debit and credit caps of the EURO1 Banks and on their existing internal arrangements for managing EURO1 payments.

Exchange of Priority Payments via EURO1 platform

Participants in the Priority Payment Scheme developed by the Euro Banking Association exchanged the fi rst scheme-compliant urgent euro credit transfers in February after the offi cial launch of the scheme on 28th January 2008. As the Priority Payment Scheme is nonproprietary and channel-independent, banks are free to choose any processing system that allows for an end-to-end execution of an urgent payment within no more than four hours. The EURO1 platform was one of the channels used for this exchange. EBA CLEARING will introduce enhancements in the second half of 2008 geared at further facilitating the processing and identifi cation of prioritised payments in EURO1 and STEP1.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 11 III. STEP1: A low cost offering for commercial euro payments

The STEP1 Service

STEP1 is a payment service for individual commercial payments in euro. The system uses the EURO1 platform and enables STEP1 Banks to exchange payments with each other as well as with the entire community of EURO1 Banks. In March 2008, 112 Participants and 54 Sub-Participants exchanged an average daily volume of 27,670 payments for a value of EUR 1 billion. Through the implementation of STEP1 in November 2000, EBA CLEARING opened access to the EURO1 processing platform to banks that did not comply with the strict EURO1 admission criteria. Admission to STEP1 neither involves a minimum credit rating nor a mini- mum own funds requirement. Each STEP1 Participant settles with a EURO1 Bank of its choice, which provides the STEP1 Participant with the liquidity it requires in the system.

STEP1 benefi ts from the sound technical and legal infrastructure of EURO1 and complies with the latest industry standards and business practices. The limited technical arrangements required for connecting to STEP1 and the operational simplicity of the system allow for sig- nifi cant cost savings by the participating banks.

12 EBA CLEARING | REPORT ON ACTIVITIES 2007 The STEP1 Service continued to prosper throughout Continued volume growth and stable 2007, registering volume growth for every month participation levels over the 2006 fi gures. EBA CLEARING implemented a number of changes on the system to enable Volumes in STEP1 kept rising throughout 2007 the STEP1 Banks to fully profi t from the major with the average growth rate reaching 5.6 percent new enhancements on the EURO1/STEP1 platform. over the 2006 fi gures. The service witnessed The extension of the STEP1 minimum credit limit a record peak on 10th April 2007 with 32,788 to EUR 2 million (the maximum limit remains payments processed and a new record month set at EUR 25 million) and a special Pre-fund in December, with an average daily volume Participation offering for STEP2 SCT settlement of 26,411. The general trend in 2008 is once facilitated the full-scale participation of the again very positive: In spite of the number of STEP1 Banks in the STEP2 SEPA Credit Transfer STEP1 Banks decreasing slightly, the average Service by ensuring the smooth settlement of volume increase during the fi rst three months their SCT obligations. The postponed sending compared to the year before was at 9.9 per- and cancellation cut-off by half an hour enabled cent. In 2008, STEP1 hit an all-time peak with the STEP1 Banks to participate in the Priority 34,250 payments processed on 26th March. The Payment Scheme as developed by the EBA. new record month is also March 2008, with an average daily volume of 27,670.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 13 Participation levels in STEP1 decreased slightly Extension of credit limit and PFP option en- due to several mergers, with the number sure smooth STEP2 SCT settlement for STEP1 of Direct Participants oscillating around 112 Banks and the number of Sub-Participants reaching 54 by April 2008. In anticipation of growing payment volumes in the STEP2 SCT Service, the minimum credit limit for STEP1 Banks was increased from EUR New cut-off time in STEP1 facilitates process- 1 million to EUR 2 million from 19th March ing of priority payments 2008. As a consequence, all STEP1 Banks will In view of the launch of the Priority Payment be able to receive individual payments of up Scheme of the Euro Banking Association in the to EUR 2 million. fi rst quarter of 2008, the STEP1 sending and cancellation cut-off was postponed by half an In addition to this measure, EBA CLEARING hour. The extended cut-off for sending payments extended a special offer to the STEP1 Banks through the service became applicable on 11th for becoming Pre-fund Participants in EURO1 in February 2008 and facilitates the processing of addition to their STEP1 status. By March 2008, urgent payments within the maximum end-to- eight banks had already accepted this offer, end time frame of four hours foreseen by the which will make it easier for STEP1 Banks to scheme. Thus, the new timing has enabled the manage their limits in the EURO1 system once STEP1 Banks to use the service as a channel SCT volumes start to rise considerably. for sending and receiving priority payments at a pan-European level. EBA CLEARING will continue to evolve the service with a view to ensuring that the STEP1 community of medium-sized and smaller banks can take full advantage of the Company’s service offering for SEPA.

14 EBA CLEARING | REPORT ON ACTIVITIES 2007 Cut-off time and processing cycle (all times are in C.E.T)

STEP1 STEP1 Potential net balance STEP1 Start up Cut-off for value D sent to banks Balances at zero

Sending STEP1 Payments

07:30 14:30 14:40 16:00

STEP1 Processing

Capacity Transfers

EURO1 Processing

REPORT ON ACTIVITIES 2007 | EBA CLEARING 15 IV. STEP2: The PE-ACH with the reach for SEPA

Over the past year, the STEP2 platform has In the second half of the year, the two services evolved at two levels: continued stable growth of in the live mode were joined by two services in the XCT and ICT Services and major implementa- the test environment: the SEPA Credit Transfer tion and testing activity at the level of the SEPA (SCT) and SEPA Direct Debit (SDD) Services. Services followed by a timely start and steep More than 100 banks successfully completed ramp-up of the SCT Service in early 2008. The testing in preparation of the launch of the successful go-live of the STEP2 SEPA Services for STEP2 SCT Service. the launch of the SEPA Credit Transfer Scheme positioned STEP2 as the only Pan-European The SEPA Credit Transfer Service went live as Automated Clearing House (PE-ACH) in SEPA. The scheduled on the fi rst day of SEPA, with fi le prompt launch of the service is also the result sending to the system starting on 25th Janu- of the effective co-operation between SIA-SSB ary 2008. The service has been experiencing and EBA CLEARING. It marked another milestone a smooth ramp-up phase with volumes rising on EBA CLEARING’s excellent track record in to over 150,000 on a daily average within the delivering practical infrastructure solutions that second full month of operation. This evolu- meet market needs and timelines. tion went hand in hand with a slow decrease of traffi c in STEP2 XCT, as a number of banks Throughout 2007, traffi c in STEP2 witnessed immediately started migrating credit transfers a steady rise. With the XCT and ICT Services to the new SCT Service. running on the platform, STEP2 in May passed the mark of 1 million payments being processed on a daily basis.

16 EBA CLEARING | REPORT ON ACTIVITIES 2007 1. The STEP2 XCT Service

The STEP2 Service for payments governed by the Convention on Credit Transfers in euro (STEP2 XCT Service) processes euro retail transactions exchanged between banks located in the European Economic Area (EEA). The mass payments handled by STEP2 XCT fall under the Convention on Credit Transfers in euro, which means that they must not exceed a value of EUR 50,000 and need to carry the International Bank Account Number (IBAN) of the benefi ciary and the Bank Identifi er Code (BIC) of the benefi ciary bank.

STEP2 XCT provides full coverage for these Convention-compliant payments to banks in the EEA through Direct and Indirect Participation (95 percent) as well as through Entry Point arrangements (5 percent). In March 2008, the service was used by 109 Direct Participants and 1,709 Indirect Participants, processing on average 315,844 transactions per day with a value of EUR 1.34 billion.

The XCT Service was launched in April 2003 as the fi rst service on EBA CLEARING’s Pan-European Automated Clearing House (PE-ACH) platform STEP2. The platform is operated by SIA-SSB, enjoys the highest level of resilience and was the fi rst to provide XML-based messaging. STEP2 is the only retail payment system in Europe to have met all six Core Principles for Prominently Important Retail Payment Systems (PIRPS) when assessed by the European Central Bank (ECB).

REPORT ON ACTIVITIES 2007 | EBA CLEARING 17 The STEP2 Service for payments governed by cent throughout the year. The service handled the Convention on Credit Transfers in euro, a record daily average of 434,133 transactions known as the STEP2 XCT Service, continued in December, including a new peak day with to evolve very positively throughout its fourth 562,012 payments on 4th December. In the full year of operation, providing a reliable fi rst two months following the launch of the processing and settlement service as well as STEP2 SCT Service on 28th January 2008, daily outstanding reachability to a large community volumes processed by the STEP2 XCT Service of users from EEA30. started to decrease by around 56,000 pay- ments, which were migrated from the XCT to While Direct Participation fi gures have remained the SCT Service. stable, close to 90 additional Indirect Partici- pants were included into the system, bringing As the general migration towards SEPA instru- the number of Indirect Participants to 1,656 by ments will continue and accelerate, more traffi c 31st December 2007 and growing beyond the is expected to gradually move from the XCT 1,700 mark in 2008. to the SCT Service. Together with the STEP2 XCT User Advisory Group, EBA CLEARING will The average daily number of transactions closely monitor the evolution of the service and processed was around 372,000 in 2007, which maintain or adapt its operation in line with the represented an increase in volumes of 18.4 per- needs of its users.

18 EBA CLEARING | REPORT ON ACTIVITIES 2007 Direct and Indirect Participants in the STEP2 Services

XCT SCT Indirect Participants 1,709 Indirect Participants 3,127 Direct Participants 109 Direct Participants 107 Total 1,818 Total 3,234

ICT Indirect Participants 49 Direct Participants 9 Total 58

REPORT ON ACTIVITIES 2007 | EBA CLEARING 19 2. The STEP2 Italian Credit Transfer (ICT) Service

In November 2006, the Italian Credit Transfer (ICT) Service was launched on the STEP2 platform. The service includes a set of generic functionalities, which also served as a basis for the development of the STEP2 SEPA Credit Transfer Service, as well as specifi c national features and functionalities requested by its Italian user community. Through this combination, the service is able to facilitate the progressive migration of the ICT Banks’ domestic payment fl ows to SEPA. In March 2008, nine Direct Participants and 49 Indirect Participants exchanged a daily average of more than 1 million credit transfers over the ICT Service.

The STEP2 ICT Service continued to provide a exceptional month with a higher than usual high-quality processing service for intra-Italian average number of payments processed (close credit transfers to its user community. After a to 1.3 million credit transfers) and a peak day short ramp-up phase in late 2006 and early of 1,555,060 transactions. 2007, participant numbers from December 2006 had nearly doubled to reach nine for Direct The fl exible architecture of the STEP2 ICT Participants and 49 for Indirect Participants. Service, which allows for the processing of Italian domestic scheme payments on a SEPA- The daily average volume for the year 2007 ready platform, will enable its user banks to stood at 882,104 transactions with the last progressively migrate their credit transfers to few months of 2007 showing a small increase the new SEPA environment in a seamless and on that average, which continued well into the effi cient way. fi rst quarter of 2008. December 2007 was an

20 EBA CLEARING | REPORT ON ACTIVITIES 2007 3. The STEP2 SEPA Credit Transfer (SCT) Service

The STEP2 SEPA Credit Transfer (SCT) Service went live on 28th January 2008, at the start of SEPA. In March 2008, 107 Direct Participants and 3,127 Indirect Participants, representing 35 SEPA country codes, were con- nected to the newly launched service, exchanging at the current stage of the ramp-up period 152,385 transac- tions per day on average with a value of EUR 467 million.

Two months after the launch of the SCT Scheme, the reachability of the STEP2 SCT Service already stood at over 90 percent among banks that had signed the EPC SCT Adherence Agreement.

Through its unique coverage of nearly all banks in the SEPA countries, EBA CLEARING’s STEP2 platform is a true Pan-European ACH (PE-ACH). The SCT Service on this platform processes euro credit transfers that comply with the SEPA Credit Transfer Scheme Rulebook and Implementation Guidelines of the European Payments Council (EPC). In line with the EPC’s PE-ACH/CSM Framework, the service is geared at providing banks with full reachability across SEPA and is based on a country-neutral governance structure.

EBA CLEARING’s processing service for credit for message exchanges in the fi rst half of the transfers governed by the EPC SEPA Credit year. Monthly information sessions were held Transfer Scheme Rulebook and Implementation to inform more than 200 bank representatives Guidelines was successfully implemented and about the preparations involved in the joining tested in 2007. process. All relevant documents, including the pricing of the service, were made publicly avail- A timely and structured implementation able via the Company’s website. In line with the and testing process not-for-profi t philosophy of EBA CLEARING, SCT In co-operation with the SCT Pilot Banks, EBA transaction fees were waived for the ramp-up CLEARING fi nalised the documentation describ- phase of the service, corresponding to the full ing the functionality and features of the service year 2008. as well as the interface specifi cations required

REPORT ON ACTIVITIES 2007 | EBA CLEARING 21 The SCT Service was implemented with the ally seemed to have reached a fi rst plateau of support of EBA CLEARING’s partner SIA-SSB around 150,000 payments a day. and submitted to extensive acceptance testing throughout the summer. Three joining windows The volumes in STEP2 SCT are expected to pick stretching from late August to late November up steam again in the upcoming months as provided banks with the necessary fl exibility to banks are fi ne-tuning their internal processes test their technical connectivity and carry out based on their experience with these fi rst few scripted testing. months of operation and are beginning to feed additional payment fl ows into the new SEPA EBA CLEARING completed the major administra- infrastructure. tive exercise of processing the SCT adherence documentation in a record time, registering 104 Reaching over 90 percent of SEPA Scheme Direct Participants and 2,967 Indirect Participants Adherents on the SCT Service for 28th January 2008. From 28th January on, the STEP2 SCT Service extended reachability to over 90 percent of A smooth launch and steep ramp-up the banks having signed the EPC’s Adherence SEPA Credit Transfers were processed in STEP2 Agreement to the SEPA Credit Transfer Scheme. and settled in EURO1/STEP1 in a smooth and Participant banks were able from day one to reliable manner from the launch date on. On exchange payments with counterparties from the fi rst day, the service distributed payments all SEPA countries via EBA CLEARING’s PE-ACH received from 90 Direct Participants. The early platform. The coverage is expected to increase ramp-up was steep, with volumes rising from to close to 100 percent within the fi rst half of an average 65,000 transactions per day in early 2008 when most of the remaining banks have February to over 150,000 payments a day a completed ongoing internal preparations for month later. In March, the service witnessed a their connection to the STEP2 SCT Service. peak day of 231,727 transactions but gener-

22 EBA CLEARING | REPORT ON ACTIVITIES 2007 Reachability of STEP2 SCT Service in SEPA

Coverage (in %) of banks having signed the SEPA Credit Transfer Scheme Adherence Agreement of the EPC

100 > 95 > 90 > 80 > 30

REPORT ON ACTIVITIES 2007 | EBA CLEARING 23 In order to facilitate the connection of the Upcoming enhancements broader community of medium and smaller Following the successful start of the service, sized banks to the STEP2 SCT Service, EBA EBA CLEARING will considerably enhance the CLEARING had deepened dialogue with all local STEP2 SCT Service in the upcoming months. Clearing and Settlement Mechanisms (CSMs) A second processing and settlement cycle in across Europe throughout 2007 in view of the early afternoon is going live in May. establishing interoperability between STEP2 and local platforms. This enabled a number of The next release of the STEP2 SCT system Direct and Indirect Participants in the STEP2 planned for the end of 2008 will take several SCT Service to rely on the technical support of additional steps at the same time. With the their local CSM provider in connecting to the support of a group of Pilot Banks from the PE-ACH platform. At the start of SEPA, 15 CSM Finnish community, EBA CLEARING had set up operators from 12 different SEPA countries had a study project in late 2006 to look into further created links between their respective platforms enhancements of the SCT Service. As a result, and STEP2 SCT. the Company plans to implement a night-time settlement cycle based on a multilateral netting system and settlement in TARGET2. Through its enhancements, STEP2 SCT will comply ahead of time with the key additional requirements of the upcoming version of the SCT Scheme Rulebook, which is to be fi nalised by the EPC for February 2009.

24 EBA CLEARING | REPORT ON ACTIVITIES 2007 4. The STEP2 SEPA Direct Debit (SDD) Service

The STEP2 SEPA Direct Debit (SDD) Service was implemented on the STEP2 platform in parallel with the SCT Service in the fi rst half of 2007 and tested by a number of banks in the second half of the year. It is ready for use among communities wishing to exchange SEPA Scheme-compliant direct debit transactions ahead of the Europe-wide transposition of the Payment Services Directive by November 2009, which will provide the necessary uniform legal foundation for a pan-European direct debit offering.

The STEP2 SEPA Direct Debit (SDD) Service Directive of the European legislators into their was delivered with the support of 59 Pilot national laws and decide to start using the Banks and was implemented on the STEP2 service for their direct debit transactions ahead platform in parallel with the SCT Service in the of November 2009. fi rst half of 2007. A number of banks tested the service in the second half of the year and With the support of its Pilot Banks, EBA CLEARING in early 2008. EBA CLEARING will continue to has started to look into B2B specifi cations and offer additional testing windows to the banks will continue to evolve the service in accord- throughout 2008. ance with the Company’s project of developing a fully fl edged Multi-Purpose Pan-European The SDD Service is ready to go live as soon Direct Debit offering and in line with the work as one or several national communities across done at the level of the EPC. Europe have transposed the Payment Services

REPORT ON ACTIVITIES 2007 | EBA CLEARING 25 V. System performance and enhancements

The overall performance of the EBA CLEARING day-to-day basis. Following a second round of systems, operated by EBA CLEARING in co-op- testing, migration phase 2 of TARGET2 went live eration with SWIFT and SIA-SSB, continued to on 18th February 2008 with EBA CLEARING’s be excellent: the availability of EURO1, STEP1 BAS2 platform migrating accordingly. and STEP2 stood at 100 percent throughout the full year of 2007 and the fi rst quarter of 2008. The regular testing of the end-of-day settlement Daily end-of-day settlement was completed in contingency procedures successfully continued a timely manner at 16:30 CET on average. Nei- in 2007 as an integral part of EBA CLEARING’s ther the continued increase in volume nor the procedures; a new set of tests following the same progressive migration of banks to TARGET2 or standards has been prepared for 2008. Machine the launch of the STEP2 SEPA Credit Transfer and staff rotation were conducted throughout Service had any palpable impact on the speed of the year in order to keep the staff familiar with payment processing or the interaction between both operation centres. the different operational platforms. EBA CLEARING implemented signifi cant resilience On 19th November 2007, following comprehen- upgrades to the EURO1 and STEP1 Services in sive regression testing between EBA CLEARING close co-ordination with SWIFT in early 2007 in and the European Central Bank, the connection view of ensuring the highest possible level of to TARGET2 was embedded within the EBA robustness known in the payments industry CLEARING live environment in the most trans- today. Moreover, EBA CLEARING continues to parent manner. In order to allow the Company be engaged in constant dialogue with the to operate in both TARGET and TARGET2 mode industry in order to remain at the forefront of for the various TARGET2 migration phases, EBA the latest developments in this regard. The EBA CLEARING’s Cristal BAS2 platform, provided CLEARING resilience levels are tested, revised by DIAMIS, was upgraded and continued to and enhanced on a regular basis. demonstrate its fl exibility and reliability on a

26 EBA CLEARING | REPORT ON ACTIVITIES 2007 VI. Customer support

As in the previous years, EBA CLEARING continued A new Customer Relationship Management to foster the strong ties with its shareholder (CRM) tool was introduced late in 2007 in and user community throughout 2007 and early order to provide an enhanced central over- 2008. A great deal of effort was put into further view of the EBA CLEARING user base of improving the Company’s response to the needs the different services and improved inquiry of its users both in its day-to-day interaction management functionalities. with the banks and at a strategic level.

Creation of representative offi ce in Italy ICU inquiries on the rise On 12th February 2008, EBA CLEARING offi cially In its third year, the Investigations and Customer opened its Italian representative offi ce with an Support Unit (ICU) successfully continued its evening celebration at the Italian Stock Exchange mission to offer the users of the EBA CLEAR- in Milan. The offi ce is located at Palazzo Bor- ING services a single point of contact for all romeo in Milan and headed by Daniela Vinci, services operated by the Company. With SEPA EBA CLEARING’s country representative for Italy. gone live in early 2008, ICU staff provided the EBA CLEARING opened the Italian offi ce with EBA CLEARING users with extensive support: an aim to further strengthen its co-operation While the unit had responded to 2,400 requests with the Italian banks and provide them with in 2007, it handled more than 1,000 requests on-the-spot support in their migration process in the fi rst quarter of 2008 alone. from their local payment infrastructure arrange- ments and formats to the SEPA world.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 27 Informational meetings, road shows and conferences

In the fi rst part of 2007, EBA CLEARING held to inform the banking communities of the two monthly briefi ng sessions to inform its user New EU Member States about the ongoing SEPA banks about the scheduled planning, adherence project in general and the pan-European reach process and testing for the SEPA Services of offered by the services of EBA CLEARING. EBA CLEARING. As in the previous years, EBA CLEARING also In early 2007, EBA CLEARING and the Euro participated in a number of industry events, Banking Association organised joint road show including EBAday and SIBOS, in order to provide events in Bulgaria and Romania with the sup- the banking industry at large with updates on port of the local banking associations in order ongoing Company activities and projects.

28 EBA CLEARING | REPORT ON ACTIVITIES 2007 VII. Outlook 2008

In 2008, EBA CLEARING has continued to further line with its balanced and country-neutral gov- improve its services in order to better serve its ernance structure. The focus will be placed on banks in the emerging SEPA environment. The catering to the specifi c needs of the different fi rst deliverable of this ongoing effort will be a local communities with a view to facilitating their second processing and settlement cycle for the migration process to effi cient and cost-effective STEP2 SEPA Credit Transfer Service in May with infrastructure solutions based on pan-European further enhancements of the different services standards and practices. following later in the year. To this effect, EBA CLEARING will continue its EBA CLEARING will plan and carry out the close exchange with its banks at pan-European, development and implementation of new func- country group and bilateral level. The Company tionalities and the fi ne-tuning of the existing will also continue its constructive dialogue with infrastructure in close co-operation with its other industry stakeholders. community of shareholder and user banks in

REPORT ON ACTIVITIES 2007 | EBA CLEARING 29 VIII. Committees and User Advisory Groups

Strategy and Policy Committee (SPC) Audit and Finance Committee (AFC)

The Strategy and Policy Committee focuses on The Audit and Finance Committee (AFC) has addressing the longer-term positioning and the mission of setting out the policy framework development of EBA CLEARING. as well as the guidelines for the internal audit and of monitoring the fi nancial status of the Through its constant monitoring of the pay- Company. The AFC is also in charge of liais- ments industry, the SPC aims to identify and ing with the external auditors in-between two assess the banks’ needs in order to propose Shareholders Meetings. and evaluate the development of products and services catering to these needs. The Committee The detailed tasks of the AFC range from drawing also considers the strategy for extending the up the internal audit plan and proposing the services of EBA CLEARING to new markets. appointment of external auditors to examining the external audit report and deciding on the Besides analysing market facts and prospects, follow-ups to be taken. the SPC also examines the strengths and weaknesses of EBA CLEARING and tries to Furthermore, the AFC reviews the effectiveness identify opportunities to enhance its competi- of the internal control systems of EBA CLEARING tive position. and considers any major fi ndings resulting from internal audit investigations.

30 EBA CLEARING | REPORT ON ACTIVITIES 2007 Operations and Technical Committee (OTC) STEP1 and STEP2 XCT User Advisory Groups

The Operations and Technical Committee (OTC) The STEP1 and STEP2 XCT User Advisory Groups focuses on the operational, procedural, functional (UAGs) represent the community of STEP1 and and technical aspects with regard to the EURO1, STEP2 XCT Participants, respectively, towards STEP1 and STEP2 payment services. Its major the EBA CLEARING Company. Both UAGs serve task is to examine and propose operational and as a decision-making platform within the User technical enhancements to the infrastructure of Community and as an effective channel to ex- EBA CLEARING and to the procedures that govern press interests, requirements or proposals of this infrastructure. their respective Participants towards the Board of the Company and its Committees. The OTC works in close co-operation with the EBA CLEARING Management, Country Group The creation of User Advisory Groups ties in Representatives and User Advisory Groups. OTC with the strong commitment of EBA CLEARING tasks currently include the validation of project to provide the users of its services with a fair plans presented by the EBA CLEARING Manage- say in the direction of the Company. ment for the implementation of new system releases as well as updating User Manuals and UAGs are composed of representatives from Codes of Conduct. each country or Grouping of Users. UAGs meet two to three times a year. Besides focusing on the payment services of EBA CLEARING, the OTC also serves as an expert forum for existing and future IT and communication developments, including trends in the European payments industry, both on a national and SEPA level.

REPORT ON ACTIVITIES 2007 | EBA CLEARING 31 IX. The Board

Chairman Deputy Chairman Board Members

Giorgio Ferrero Robert Luis Araújo Jean-Paul Intesa Heisterborg Caixa Geral Aeberhardt Sanpaolo ING Bank de Depositos Crédit Agricole S.A.

Olli Kähkönen Hays Nordea Bank Littlejohn Finland UBS AG

32 EBA CLEARING | REPORT ON ACTIVITIES 2007 Yannick Daniele Danese Kristine Thomas José Luis Fernandez Chagnon Banco Popolare De Lepeleire Egner Iglesias Société Générale Società KBC Bank Commerzbank Banco Bilbao Cooperativa Vizcaya Argentaria

Paul Rohan Roger Storm Gordon Stuart Christian Allied Irish Skandinaviska The Royal Bank Westerhaus Banks Enskilda Banken of Scotland Deutsche Bank

REPORT ON ACTIVITIES 2007 | EBA CLEARING 33 X. The Management

Gilbert Lichter José Beltran François Boels Eric Charles Chief Executive STEP2 Services Budget and General Offi cer Finance Administration

34 EBA CLEARING | REPORT ON ACTIVITIES 2007 Daniel Szmukler Alan Taylor André Vink Communications EURO1/STEP1 Operations and Corporate Services Governance

REPORT ON ACTIVITIES 2007 | EBA CLEARING 35 XI. Offi ces

France Germany EBA CLEARING Paris EBA CLEARING Frankfurt 4 rue de Galliéra Friedrich-Ebert-Anlage 2–14 75116 Paris 60325 Frankfurt Tel: +33 1 53 67 07 00 Tel: +49 69 75 61 49 0 Fax: +33 1 53 67 07 07 Fax: +49 69 75 61 49 17

Belgium Italy EBA CLEARING Brussels EBA CLEARING Milan 489 Avenue Louise 10 Piazza Borromeo 1050 Brussels 20123 Milano Tel: +32 2 643 27 70 Tel: +39 02 72 01 99 96 Fax: +32 2 643 27 71 Fax: +39 02 80 50 04 47

36 EBA CLEARING | REPORT ON ACTIVITIES 2007 Brochure prepared by Annick Moes and Verena Erdmann Image rights: gettyimages Design: A. Punkt, Darmstadt 0805/1000