The “TARGET2 / T2S Consolidation” project was launched by the Eurosystem back in 2017. The aim was and is to modernize the existing market infrastructure of the Eurosystem, to leverage potential and to increase the integration of the European financial market. In addition, the modernization ensures increased protection of the system against external attacks.
The core elements of the T2 / T2S consolidation are:
- Separation of classic individual payment transactions from central bank operations
- Introduction of a central liquidity management with a new user interface
- Comprehensive introduction of the ISO 20022 message standard for RTGS and central liquidity management
In summary, the payment transactions of all participating banks are undergoing extensive change. Technical components such as IT infrastructures, IT systems, IT interfaces etc. and specialist business processes such as payment instructions, money laundering checks and compliance have to take account of the new requirements.
After the project was officially launched by the Governing Council on December 6, 2017, it was originally supposed to go live in November 2021. The COVID-19 pandemic and the postponement of the SWIFT ISO 20022 migration resulted in the Governing Council postponing the start of operations by a year. The new target date is now November 21, 2022, which all banks are diligently working towards.
Due to the large number of participating and thus projecting banks (in Germany there are around 1,200 institutes), the ECB regularly inquires about the general mood within the participating banks in Europe. This “Community Readiness Monitoring” is carried out on behalf of the ECB by the national central banks both at the systemically important institutions of the respective country, the “Closely Monitored Participants” (CMPs) and the other participating institutions “Regularly Monitored Participants” (RMPs). In addition to a questionnaire, the institutes can use a “traffic light system” to indicate their project status and their expectations for the coming quarter.
In Germany, at the beginning of the second quarter, the mood in the first quarter of 2021 was surveyed, consolidated and then evaluated. The exact results were published in the 46th edition of the Bundesbank’s payment transactions newsletter on June 23 and are only briefly summarized here.
Compared to the previous year, the mood of the German credit institutions is somewhat more pessimistic with regard to a successful migration in November 2022. This can be seen from the increased number of yellow reports from the institutes.
This is mainly due to resource bottlenecks, dependencies on third parties, waiting for documents that have not yet been published (e.g. User Detailed Functional Specifications Version 2.2) and uncertainties due to the ongoing pandemic situation.
On the positive side, the planned milestones for the first quarter were almost completely completed by both the CMPs and the RMPs. On the other hand, the banks’ view of the achievement of the milestones in the second quarter is divided.
The individual houses see the connection to the network service provider (SWIFT or SIA-Colt) as less critical than the timely completion of the software development for the necessary adjustments to RTGS, CLM and the common components. A closer look at the mood light shows that there are several color gradations and interpretations for “yellow” and “red”. The Bundesbank reports that institutions have increasingly chosen an agile project approach and that there are therefore deviations between the internal sprint plans and the Bundesbank’s external milestones. We can also observe this. Gravning advises two institutes on their T2 / T2S consolidation; one house in agile project planning and one in the classic project approach. These different types of planning alone make it difficult to compare the project status. Due to the size of the project, some institutes then opt for a yellow notification rather than a green notification.
For the coming milestones this year, the Bundesbank emphasizes the importance of the test activities and highlights the start of the user test on December 1, 2021.
In preparation for this, the participants should have completed their internal tests of the key functionalities by August 31, 2021. The IT systems should be able to enable the connection to RTGS, CLM and the common components. This is followed by the test activities (connectivity tests) between the banks and the various parties involved. The connectivity tests phase enables the institutes to establish a network connection to the pre-production test environment (UTEST) via the ESMIG gateway.
A successful connection via U2A and / or A2A must be proven by the directly connected banks by November 30, 2021. Institutes that will not be directly connected to TARGET2 will have to confirm that their partner has successfully established a connection to the test environment.
The end of this year is the start of the user tests on December 31, 2021. The central banks and their participants will take part in the user test phases planned until September 30, 2022, which will include software tests, execution of prescribed test cases for the migration weekend, business day tests, operational tests and special test scenarios.
So there is still a lot to do before the Big Bang in November 2022. It will be especially exciting in the second half of this year, when a possible fourth COVID-19 wave could make project work more difficult again, resulting in an increased number of cases and thus possible restrictions in social interaction.
from Marius Wiehr and Fabian Wehr