Target2/T2S Consolidation -Lessons Learned in View of The

Target2/T2S consolidation - Lessons learned in view of the ISO 20022 migration SIBOS – London 23rd September 2019

TAS Group | 2019 EU Roadmap to ISO20022 ISO20022 as global standard for cross-border payments

USD, JPY, GBP, CNY, CHF 2021-2025

T2-T2S - 2021

80% of global high value payments volumes will adopt ISO 20022 by 2025 T2S - 2015

Source: SWIFT SEPA - 2008

Big Bang ISO15022 vs ISO20022 Y-copy vs V-Shape 21/11/2021 SWIFT vs ESMIG T2 vs Target Services

• Consolidating the Eurosystem settlement infrastructure • Harmonising new technical aspects (ISO20022, ESMIG) • Unifying the Eurosystem services (Billing, Static Data, Data Warehouse) • Innovating and improving liquidity management tools • Improving liquidity efficiency with a single pool of resources and the aggregated minimum reserve requirement across T2, T2S and TIPS • Developing settlement finality / segregation for HVP, securities, instant payments, CB monetary operations • Extending business hours • Offering modular services SIBOS – 23rd September 2019 TAS Group | ©2019 3 Introduction of ISO20022

‘’ The most New data components - richer De-structured data in new ISO important information standard functionality benefit of ISO Increased payment transparency - Implementation cost - all business 20022 XML secure payments processing and areas impacted relates to the compliance regulations enhanced Enhanced customer service - Continuity/Duality of SWIFT shared structured provision of rich payment data, STP services (e.g. SWIFT FIN for trade payments data and reconciliation finance/TX Treasury) and its ability to Future Cost Saving – single format support across the bank’s core applications innovative products and services’’ – Final Report Europe The introduction of ISO20022 will harmonize the payments landscape, but Banks Economics 2016 ! need to introduce a common practice to avoid fragmentation of data usage

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Community

• More than 40 banks in Italy, Germany, Spain, UK and Switzerland • Requirements, roadmap, testing approach, troubleshooting shared in a Consolidation Working Group (composed of 30 banks, 2 outsourcers, 5 market infrastructures) • Partnership with and for the Aquarius Liquidity Management System ECB Assessment • NUG participation • Cash and liquid assets operational management: • Banking experts • large value payment systems, • Testing tools • automated clearing and settlement systems • ECB Consultation • direct/correspondent banking relationships. • Real-time and forecast view of liquidity usage, and that of any sponsored entities, in order to Projects ongoing efficiently allocate liquidity as per targeted • 4 Assessments business models or compliance request • 5 Solution Implementations in progress

Project perception and discoveries 01

02 Legacy systems & ISO 20022

03 Digital opportunities 04 Treasury model

• Another IT project affecting core payments IMPACTED AREAS processing and other banking systems • Plenty of time to finish in 2021 • Business does not play a key role • No need for top management to be involved TREASURY ACCOUNTING

RISK & PAYMENTS Project scope and complexity requires: COMPLIANCE • Governance • Budget • Commitment

Critical timing: Scope of the project from Consolidation to wider need for clear priorities and planning ISO20022 migration: • Correspondent banking • Other market infrastructures

Bank’s internal applications are more likely to be affected by the ISO20022 migration

Ancillary Systems

Payment Gateway

Forecasting

HV Payments RTGS CB DCA Payments Back-office Liquidity Nostro Management • Message conversion vs Legacy change Intraday (capex vs opex) Liquidity • Data management • End-to-end payment system rationalisation Accounting

Financial Processes Target 2 – Target 2 Securities Processes

Ancillary Systems

Treasury Retail payment systems (RS) Treasury

Risk Large value payment systems Management (LVPS)

Front to Back Foreign exchange (FX) systems Target 2

Accounting Money market systems

Clearing houses Target 2 Securities Securities settlement systems (SSS)

Main challenges: Main opportunities: • Manual processes • Automated processes • Multiple databases • Less database fragmentation and accessibility • Lack of historical data to historical data • Difficult forecast projection, real-time • Real-time processes to enable intra-day monitoring and Regulatory compliance monitoring and forecasting (LiST19, SSM Liquidity Exercise, LCR • Improved Regulatory compliance and intraday…) adaptability to new requirements

Liquidity management integrated vision • From intraday to funding plan 01 • Centralised/decentralized amongst the Group’s Treasury 01 Strategy entities • Visibility on all liquidity sources Treasury reorganisation 02 Limits management and escalation processes TREASURY • Real-time end-to-end integration MODEL • Single database across all systems 03 • 360° view from liquidity sources to settlement channels 03 02 • Alerting Integrated Target • Analytics and stress-testing (what-if scenarios) application Operational Model

• New funding channels (collateral) Treasury Strategy • Accounts structure Treasury Strategy • Top management/competent authority reporting Analytics e reportingContract • Intra-day liquidity management Analytics and Reportings • Improve front to back processes Back-office efficiencyProduct Back-office efficiency s • Automation and robotics DigitalizationModel • Rationalise multiple systems/messages/interfaces Digitalization s • Data Warehouse; data retention; traceability Data Management • Data protection (access) and Cyber security • Data analytics and behavioral models • Data visualization for a user friendly experience

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