The Eurosystem’s Vision 2020 is an ambitious project to unify the Eurosystem’s market infrastructure. The aim was and is to harmonise, strengthen the Eurosystem and leverage possible potential. In addition to the Target2 consolidation, which is currently the focus of all attention, this vision also includes the introduction of the new European Collateral Management System ECMS for 2023.
What is the ECMS all about and do you as a bank have to participate?
To anticipate: Yes!
The current and future Collateral Management System is used to manage eligible collateral for monetary policy lending operations (e.g. collateral submission). Today, each national central bank in the Eurosystem provides its national banks with its own solution. Thus, there are currently 19 national heterogeneous ones systems.
This will change with the introduction of the ECMS. The advertised goal is a common collateral management system in the form of a platform for everyone. The key data of the new ECMS are as follows:
- Introduced as Big Bang in November 2023
- Harmonised, uniform standards for all national central banks
- Central access via ESMIG (as well as for all other target services)
- Collateral pool as a central component and platform for calculating the possible drawdown of the credit line (calculation based on information from the central bank, central securities depositories (CSDs) and third-party agents (TPAs)
- Use of the ISO20022 standard
- New/additional functionalities (e.g. automatic mobilization of cash collateral in the event of a shortfall)
- Participation is mandatory, after the introduction of the Big Bang in 2023, monetary policy instruments should continue to be deposited as collateral and the collateral account should be accessible
The points mentioned present the participating banks with the challenge of adapting workflows, IT and processes and integrating the new functions.
So the next mammoth task for the banks after the Target2 consolidation ? We would say YES .
- access to the ECMS will take place in the same way as the other target services via a network service provider and the uniform gateway ESMIG. A path that should (hopefully) be known and established by 2023.
- The adjustments to the message formats in ISO 20022 “only” affect monetary policy operations and not the more complex message adjustments analogous to the Target2 consolidation
- the banks had to deal with a large number of new issues during the Target2 consolidation (including individual payment transactions and ancillary system clearing as well as the new message format and the new account structure). However, the ECMS deals almost exclusively with monetary policy operations. Thus, the complexity in the overall picture seems a little less than in the case of the target2 consolidation.
- no changes to OMTOS (OffenMarkt Tender Operations System), which will remain the bidding system.
No integration, but connection to MACC (Mobilization and Administration of Credit Claims), i.e. the local system for managing credit claims
- Well-established procedures and processes as well as systems (e.g. the CAP of the Bundesbank or the new operating hours of the ECMS) have to be questioned and adjusted.
- the use of new message types in xml (relevant when using A2A communication) takes place.
- the use of monetary policy instruments varies greatly from institution to institution (depending on the bank’s business model).
- an extensive test phase over months will use resources in different places.
- additional departments that were not yet involved in the Target2 environment must also be involved.
- future monetary policy operations depend on participation in ECMS.
For many banks, these challenges still sound very theoretical, superficial and far away. The focus is on a successful Big Bang Target2 consolidation. But the issue is too important to be taken lightly. At the latest when Community Readiness Monitoring queries the next milestones in June 2022, it becomes clear that we are already (should be) in the middle of the project. The query here is for the milestone IAD6 “Completion of (internal) software development for the necessary adjustments to ECMS” followed by the start of the next milestone IAD7 “Start of testing of internal applications” on July 1st, 2022.
By the way, with the start of the new year 2023, the test phase with the Bundesbank will also start. Is your institute ready for this?