EDITORIAL. I hope that you will enjoy this issue of T2S OnLine and wish our readers a merry Christmas and a very happy new year 2015!

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1 T2S OnLine I No 20 19, December July T2S OnLine P R O J E C T R E V I E W No 20, December 2014 EDITORIAL NEWS FROM THE T2S PROJECT INTERVIEW WITH MEHDI MANAA T2S PREPARING FOR OPERATIONS T2S FROM ISSUER TO INVESTOR INTERVIEW WITH OLIVIER GUERSENT AND MARC BAYLE

2 T2S OnLine I No 20 December Jean-Michel Godeffroy EDITORIAL MOVING ON This editorial of T2S OnLine will be my last. On several occasions, I had indicated that I was thinking about leaving the ECB when T2S opens, after serving more than sixteen years as one of its Directors General. However, I decided to take early retirement from the ECB sooner than planned, on 31 December 2014, because this date is, financially, more interesting for me (I promised always to be transparent!). I hope that I will not be seen as a captain who leaves his crew. Because for our ship, the harbour is already in sight and we are very confident that T2S will open on time next June. The T2S testing is going well, even if various bugs still need to be fixed (see the News from the T2S project and the Interview with Mehdi Manaa in this newsletter). Besides, I do not have to worry about leaving T2S because it will be in safe hands. On 4 December the Governing Council officially appointed Marc Bayle as the new Chairman of the T2S Board. He will take up this function as soon as I retire. I wish him and our project the best of luck. Of course, partir c est mourir un peu. It is, of course, not easy to leave a project like T2S, with which my name has long been closely associated. But I will not withdraw completely from professional life and may still have the pleasure of seeing some of you during my new endeavours. I enjoyed working for T2S because it is a genuine European project, which involves very motivated people and allows the public and private sector to collaborate fruitfully. I am grateful to all those T2S stakeholders who helped us to adapt our project to market needs. In addition to the pieces mentioned above, in this newsletter edition there is an interview with Olivier Guersent (European Commission) and Marc Bayle on T2S and the new European regulatory environment, an article by Patrick Hess on the T2S operational workstream, and a report by Christine Löser about a panel discussion on T2S from issuer to investor that took place at the latest T2S Info Session. I hope that you will enjoy this issue of T2S OnLine and wish our readers a merry Christmas and a very happy new year 2015! Jean-Michel Godeffroy Chairman of the T2S Board

3 T2S OnLine I No 20 December Marc Bayle Director General Market Infrastructure and Payments NEWS FROM THE T2S PROJECT With the year coming to an end, I can look back at a successful year full of intensive testing activities: Eurosystem Acceptance Testing (EAT) started as planned on 31 March and was completed by the end of November. Some pilot testers already started testing on 1 July, and the T2S platform was then opened to all central securities depositories (CSDs) and national central banks on 1 October to allow them to test how their internal IT systems interact with the platform. Testing activities are progressing according to plan (see below), thanks to the joint effort of all stakeholders involved in this project. The tremendous results of a great deal of hard work, not only during the past year, but ever since the launch of the project, have also been recognised outside the T2S Community: T2S received an award for being the most innovative project of the year 2014! T2S receives award for Most Innovative Project of the Year On 11 November Jean-Michel Godeffroy, Chairman of the T2S Board, received on behalf of the Eurosystem the European Award for the Most Innovative Project of the Year, granted by the magazine Custody Risk. T2S was given the award in recognition of the contribution it will make in the future, as a European financial market infrastructure, to reducing cost and complication. The T2S team would like to thank everyone who has contributed to making this innovative vision a reality the 24 participating CSDs and the 21 national central banks in T2S as well as the T2S Board for managing the delivery of T2S and the 4CB that have developed and will operate the platform. Thanks to their hard work and excellent cooperation, T2S will move from a project to an existing infrastructure on 22 June Start of user testing and preparation of migration On 29 August the T2S Board decided that the Eurosystem was ready to start user testing as scheduled on 1 October Among other things, this decision was based on an assessment of the results of Eurosystem Acceptance Testing (see also Entering a year of testing insight on the what, who and how in the April issue of T2S OnLine). The defects identified during Eurosystem Acceptance Testing were not considered critical and their resolution is being pursued with full dedication, said Jean-Michel Godeffroy, Chairman of the T2S Board. The results were shared with the CSDs and national central banks, which consequently started their testing activities (i.e. user testing). With this, another important milestone in the project plan was reached. The experience gained so far has been positive, both on the part of the Eurosystem and the 4CB as well as on the part of the CSDs and national central banks. In addition, the preparations for migration have continued as planned. On the weekend of 22 to 23 November, a migration rehearsal for the participants of the first wave was conducted successfully. T2S Manual of Operational Procedures During its meeting on 25/26 November, the Operations Managers Group (OMG) agreed to send the Manual of Operational Procedures (MOP) for approval to the T2S Steering Level. The MOP is a reference guide providing T2S stakeholders with a framework for smoothly conducting their daily operations in both normal and

4 T2S OnLine I No 20 December NEWS FROM THE T2S PROJECT abnormal situations and includes procedures for decision making during a crisis. Awareness of and adherence to the procedures set out in the MOP is of key importance for the smooth functioning of T2S. See also the insight article in this issue T2S preparing for operations. Change requests since July 2014 The T2S Board has approved nine non-critical change requests since July. Two of them were related to the T2S software, one affected a tool outside the T2S software. Four change requests stem from the 4CB s testing activities. The other two are of an editorial nature. These change requests have neither an impact on the T2S scope, nor on the project plan. New T2S Special Series issue In September the latest issue of the T2S Special Series, called "T2S: from issuer to investor, was published. It sheds light on the changes expected along the securities chain from issuer to investor as a result of T2S. In it, representatives of the market participants most affected by the changes (i.e. issuers, investors, banks, CSDs, and a central counterparty) answer specific questions, for example on how issuer services offered by banks and CSDs, and the relationship of banks and CSDs with issuers, are going to change with T2S, or on how T2S will affect the interactions and relationships between investors and their intermediaries. At the latest T2S Info Session a panel also discussed this topic and an Insight article in this issue is dedicated to it. Sibos 2014 From 29 September to 2 October the annual Sibos conference took place in Boston. T2S was one of the most discussed topics, during the events as well as in the media. There was general agreement that T2S is a key enabler of harmonisation and of improved collateral management. With well over 100 attendees, the Eurosystem s panel session on 30 September entitled Ready, steady, go! How CSDs are preparing for T2S attracted great interest at Sibos. As it coincided with the start of user testing, CSDs used this opportunity to stress their readiness for it. On 1 October Jean-Michel Godeffroy, Chair of the T2S Board and Co-Chair of the Payment and Settlement Systems Committee, and I discussed the future of market infrastructure and payments in an event at Sibos, based on input provided by stakeholders via our online survey. We also used the occasion to present our new video, entitled "Integration of market infrastructure". I invite you to watch the full record of the session. Harmonisation: CSDR published in the EU Official Journal The Central Securities Depositories Regulation (CSDR) was published in the Official Journal of the European Union on 28 August It entered into force on 17 September The CSDR provides a set of common requirements for CSDs operating securities settlement systems. It will reduce the regulatory complexity for market operators and CSDs to operate on a cross-border basis, thus promoting competition between CSDs. T2S will provide the operational and technical framework to make all of this possible. Marc Bayle Director General Market Infrastructure and Payments

5 T2S OnLine I No 20 December Mehdi Manaa T2S Programme Manager INSIGHT INTERVIEW WITH MEHDI MANAA, THE NEW T2S PROGRAMME MANAGER After some internal reorganisation at the ECB, Mehdi Manaa, who heads the Market Infrastructure Development Division in the new Directorate General Market Infrastructure and Payments (DG/MIP), has taken over from Marc Bayle as T2S Programme Manager. Although he is already well known to many in the T2S project, we met with Mehdi to discuss his new role. First of all, congratulations on the new position! To start with, what does programme management in general mean to you? Programme management involves making decisions even when some important elements are still unknown. While in other areas you can take decisions based on facts and figures, when managing a programme, choices need to be made in a constantly changing environment. Thus, programme management seeks to increase the level of confidence and certainty by delivering the different pieces of the programme even when the environment is new and, by construction, totally uncertain. This entails a component of risk. As a consequence, it is important for a programme like T2S to have the right governance, the right structure, the right processes and the right measures to monitor and manage that risk. These procedures allow us to gain as much certainty as possible and enable us to take the appropriate decisions at the critical moments of the programme. Thus, we can navigate safely through the whole life of the project. Can you give us an example of a situation where a decision regarding the T2S programme had to be taken while important elements remained unknown? One example was the decision on whether to start user testing as planned: we had to take this decision at the end of August based on the results of the internal tests, which were not 100% up to our expectations. We considered various arguments and facts, but none of the information we had at that time indicated a choice that was completely risk-free. In order to decide whether or not to start the user testing phase, we needed to make our own judgement by taking into account all arguments on the table as well as the impact the decision would have on each stakeholder. Eventually, the T2S Board announced the Eurosystem s readiness to start user testing based on enhancements that were expected, but not yet visible and measurable at the time of the decision. Only afterwards was it proven that we had made the right choice as internal testing results improved considerably. However, this is not an unusual example: we have to make these kinds of decisions on a daily basis, even when approving the simplest document. We never know whether it will be the final version or if we will have to revise it, but our job is to move forward and increase certainty as we go. If we tried to achieve 100% certainty before taking any decision, T2S would never go live (laughter).

6 T2S OnLine I No 20 December INTERVIEW WITH MEHDI MANAA Speaking now about the handover of the role of T2S Programme Manager from Marc to you, how will you ensure continuity in the management of the T2S programme? Are there things that you intend to handle differently? Marc and I have been working together on T2S since almost the beginning, to be precise since May 2007 when the first phase of the project was launched. At that time both of us had different ways of doing things we still do in some regards (laughter) but we have collaborated well, we have learned from each other and we have developed more and more joint ideas. This will, of course, remain the case after the handover because Marc will continue following T2S closely in his new role as Director General Market Infrastructure and Payments. Obviously, we are two different people and I will do a few things in different ways. This is inevitable, but the stability and continuity of the project will be ensured and market participants and T2S actors will not see any radical changes following the handover. If we were in the political environment, I would say that Marc and I have varied views, but we would certainly be from the same party and the handover will therefore mean continuity and stability. We may have different personalities, but we share many ideas and we have a single objective: to ensure that the four migration waves take place on time and with the projected quality and cost. What will happen to your current roles and responsibilities as chairman of several groups? Of course, I won t be able to take over this new role as T2S Programme Manager on top of my current responsibilities. But here too, a smooth transition and continuity in the different tasks and groups must and will be ensured. Karen Birkel will become chair of the Change Review Group (CRG), Ignacio Terol will be chair of the Cross-border Market Practices Sub-group (XMAP), Wolfgang Sommerfeld will chair the Information Security Sub-group (ISSG) and Holger Thiemann the User Testing Sub-group (UTSG) as well as the Migration Sub-group (MSG). As with the handover from Marc to me, continuity will be ensured following all of the new appointments. This is possible because these colleagues have many years of experience in the T2S programme and have been closely following the respective dossiers. In fact, they are in charge of the teams that supported me in my role as chairman of the respective groups. Obviously, in my new position as T2S Programme Manager and as chairman of the Project Managers Group (PMG), I will continue following these activities, like Marc will do for the whole of the T2S programme. Let s now turn to the T2S programme itself: what s your view on its current status? Which challenges are you facing? You know my view regarding programme management in general. As for T2S, in a programme of such sheer scope, every day and every decision is, to a certain extent, a

7 T2S OnLine I No 20 December INTERVIEW WITH MEHDI MANAA challenge. So far, however, despite everything we encounter on a daily basis, very promising progress has been made in all our activities and there is substantial evidence to show that the programme is well on track. In the first month and a half, user testing has progressed smoothly and no major issues have been discovered. Preparations for migration are continuing. A first migration rehearsal for the T2S actors who will migrate in wave 1 was conducted successfully on 22 and 23 November But, of course, many challenges remain. In spite of the fact that preparations for the tests and for migration are moving forward, keeping to the T2S time schedule is something that requires a lot of effort, not only by the Eurosystem, but also from the whole T2S Community, especially those actors migrating in the first wave. These market participants know that they can fully rely on the support of the teams here at the ECB and at the 4CB during the whole testing period, the launch and beyond. Whatever happens, we are in this together! I am confident that we are in an excellent position to reach our destination: we have an efficient governance structure and organisation, multiple testing and migration phases and, of course, the right people on all sides to secure the successful delivery of the programme. Let s dare to think about the future what ideas and developments do you foresee for T2S once it is fully live and all markets have migrated to it in February 2017? To ensure the launch takes place as scheduled, we agreed some time ago that only the mandatory change requests would be taken on board. As a result, we have put some change requests on hold for future releases of T2S. Of course, we will soon, even before the launch, start discussing with the market participants how to package, plan and prioritise these change requests. Regarding more substantial developments, the future users of T2S are currently giving us the impression that they will need some time after the launch in order to digest T2S before coming up with new ideas. Personally, I expect the opposite: as soon as T2S goes live, users will show appetite for more T2S and will start putting forward ideas about which services could be added or amended. What do you mean by appetite for more T2S? In order to deliver value-added services to their customers, each central securities depository (CSD) has to implement several tasks and processes in its IT platform. This generates costs which are, strictly speaking, not part of the delivered value-added service. I am convinced that CSDs will soon realise that having these processes centralised, which is what T2S will do with settlement, will help to increase efficiency and save costs for the whole industry. I used the term appetite because the T2S users must be the ones to generate these ideas. Obviously, the Eurosystem will act as a catalyst to trigger and promote new ideas. But for this appetite to emerge, we need to have a positive precedent and be able to see the concrete benefits delivered by T2S. This is why, for now, our focus should remain on the successful delivery of T2S. Mehdi, thank you very much for this interview!

8 T2S OnLine I No 20 December INSIGHT T2S PREPARING FOR OPERATIONS Meike Stroẗer Marco Pieroni The first version of the T2S Manual of Operational Procedures (MOP) was approved by the Operations Managers Group (OMG) on 26 November, and subsequently by the T2S Steering Level in December. This is an important project milestone. Meike Ströter, who heads the ECB s Stakeholder Management Section and chairs the OMG, explains why: For the launch of T2S it is not only necessary that the system works properly and that users have adapted their systems to it. It is also of great importance that the T2S operational procedures are agreed and in place, and that the operational staff has been trained accordingly. The T2S platform can only go live and will only work if everyone knows how to use it and what to do in which situation. This is why it is key to have operational procedures that are clear and concise and that fit with the internal procedures of all the stakeholders, adds Annemieke Bax, who chairs the OMG Drafting Group, which supports the OMG in drafting the operational procedures for T2S. The OMG and the OMG Drafting Group are formed of operational experts from central securities depositories (CSDs), national central banks (NCBs) and the ECB. In addition, some representatives from banks attend the OMG as observers. So far, two dozen meetings of the OMG and OMG Drafting Group have been held, along with almost a dozen workshops on specific topics such as crisis management or change, release and deployment management. The main deliverable of the operational workstream is the MOP. It describes all daily operations and procedures, which are necessary in the interaction between T2S Operations and the CSDs and NCBs in both normal and abnormal situations. Unlike the testing and migration workstreams, whose experts were involved in the negotiations of the T2S Framework Agreement (FA), the operational workstream only started after the signing of the FA. This meant that the team had to assemble and be brought up to speed rather quickly, and that its members had first to be made familiar with what had been agreed in the FA. Annemieke Bax Fortunately, this worked quite well and progress in drafting the MOP was fast, thanks to the good team spirit among the workstream participants and their ability to find solutions, including for controversial issues such as decision making in crisis situations. For many, agreement on the latter felt like squaring the circle owing to the multi-lateral nature of such decisions: a crisis situation in an infrastructure like T2S requires the reaching of a unanimous decision among multiple stakeholders in a very short time. Annemieke confirms this with the words: As long as everything is working smoothly, no one pays attention. The moment of truth is when there is a problem. This is when well-defined procedures and the operators are needed. Meike understands the position the operators are in. As she says: The best an operator can achieve is that nobody cares about him or her. Once they are in the spotlight, it means that something went wrong, and I think they should be praised more for handling these crucial situations in such a competent way.

9 T2S OnLine I No 20 December T2S PREPARING FOR OPERATIONS Together with the procedures, the people committed to putting them into practice are the other necessary ingredient of a smooth management of operations, but also of a correct handling of incidents and critical situations. Once the procedures are drafted and set up, they have to be fully absorbed and put into practice by the people responsible for ensuring their correct application, so that the users will receive clear and easily predictable responses from the platform. The T2S Service Desk is the first and single contact point for the users of the platform, Marco Pieroni (Deputy 4CB Operational Manager) explains. It collects any requests for information or for solutions to problematic situations. Therefore it has a crucial role, where each operator has to react to a multitude of events and user needs in a prompt and correct way. We are fully aware of the importance of this role, which is performed by each individual operator and by the Service Desk as a whole: this is why we put effort into the in-depth training of operational staff, focusing both on the quality of their communication with the users and on their thorough knowledge of the system. The training of the operators has already taken place over the summer of 2014 as part of the overall T2S training framework, of which Meike s team is also in charge. Now that the MOP has been approved, the next steps will be the testing of the T2S operational procedures and their translation by the CSDs and NCBs into their own operational procedures. Translation is meant both literally and figuratively: the MOP will be shared exclusively with the CSDs and NCBs, who will translate it into their national languages and incorporate its procedures into their own, to then share these with their clients, the banks. For this purpose, a dedicated sub-workstream has been set up, which works to ensure that the same level and detail of information is given by all the CSDs and NCBs to their clients. The significance of the MOP goes far beyond the go-live of T2S in June For any future change to T2S, operations managers will be involved from the beginning, in line with international best practice. The OMG managed to ensure that operations managers are involved in the change management process from idea to implementation, as Meike puts it. This means assessing at an early stage the operational impact of any change request, to avoid nasty surprises at the end because no one has thought about the respective operational implications. Patrick Hess

10 T2S OnLine I No 20 December INSIGHT T2S FROM ISSUER TO INVESTOR The significant impact T2S is expected to have on the post-trading landscape has been widely discussed, particularly the benefits it will bring to the financial industry. What is more important, however, is the value this settlement platform will bring to real economy actors, such as issuers and investors. One topic that has not received quite as much attention is how T2S may affect the securities chain, i. e. the journey a security travels all the way from issuer to investor, and how it will affect the interaction between the players along this chain. This topic has recently been given more prominence with a new issue of the T2S Special Series T2S: from issuer to investor as well as a panel discussion dedicated to this subject at the latest T2S Info Session in Frankfurt, which took place on 5 December. This article provides an overview of the different perspectives of the parties affected. Issuers certainly see the benefits of T2S, such as the easier access foreign investors will have to their securities. On top of that, issuers will also gain from the efficiencies and security provided by the platform, which will reduce their funding costs. It will most likely also support issuers yield curves and provide greater transparency for new issuance pricing. In addition, several central securities depositories (CSDs) are seeking to develop value-added services which will be accessible from one location, thereby benefiting issuers. However, as Michael Kempe said provocatively: T2S could be a game changer for issuers, though right now it isn t, given that not all aspects of cross-border issuance will be addressed by T2S, e. g. it may become more difficult for issuers to access information about what will then likely be their more international shareholder base. Lower shareholder transparency would present a challenge for issuers. This aspect was raised as a key concern among the panel members representing issuers at the T2S Info Session. After Marc Younes of BNP Paribas introduced the subject, Michael Kempe of Capita Asset Services said: What makes CSDs happy in T2S the efficiency of settlement does not support issuers by increasing transparency regarding individual shareholders, e. g. for corporate actions. Alexandre De Schaetzen of Euroclear called this the trade-off between the transparency of segregated accounts and the efficiency of investor CSD omnibus accounts. For CSDs, it is both an opportunity and a challenge to be able to offer access to a large number of markets; on the one hand because this will increase business opportunities for each CSD, but on the other hand it will result in greater competition between them. The design of value-added services is something which CSDs perceive to be one of the deciding factors in this competition. For them, asset servicing, particularly an efficient corporate actions service, and collateral management will grow in importance. Markus Kaum of MunichRe sees an implicit risk in T2S because it adds another technical layer and thus may negatively affect the current level of shared knowledge between issuers and investors. Robert Head of BNY Mellon CSD holds a different view, however: he sees T2S as an efficient tool for offering issuer services relating to shareholder transparency and shareholder voting processes.

11 T2S OnLine I No 20 December T2S FROM ISSUER TO INVESTOR With T2S, central counterparties (CCPs) expect that fewer trades will fail to settle on the due date. It could also encourage growth in the trading of certain securities and thus mean more business volumes for CCPs. They will also benefit from more efficient cash and collateral management and mobilisation. Banks share the view that T2S will facilitate the process of adapting to regulatory changes. Nevertheless, in order to improve the issuer to investor chain, Stephen Lomas of Deutsche Bank mentioned that asset servicing must be standardised further and T2S should extend its reach to more markets and currencies. From the perspective of investors, several gains are expected, such as the streamlining of the currently fragmented and complex market infrastructure as well as increased competition between CSDs. Both could result in significant reductions in settlement costs and in turn lead to cost reductions for the real customers of financial markets end investors and real economy firms, says Mick McAteer of the Financial Services User Group. Besides, the shortened settlement cycle clearly improves the safety of settlement. T2S could also help standardise what information is made available and thus help investors in their choice of investments. However, the envisaged benefits of T2S will only materialise if the existing market infrastructure and IT infrastructure, especially at global and local custody level, is improved accordingly so as to ensure state-of-the-art operations for issuers and investors, believes Markus Kaum of MunichRe. Many actors in the chain are of the opinion that, in addition to the expected savings in settlement, even more cost savings could be achieved by harmonising standards along the chain from issuer to investor. Arnaud Delestienne of Clearstream did not fully share this view: multiple categories of issuers and instrument types require different degrees of standardisation. According to him, standardisation could thus inhibit innovation in certain segments. Mick McAteer, in turn, strongly disputed this, saying that standardisation rather drives good innovation, i. e. innovation that makes markets more stable and resilient. Concluding the panel, Paul Bodart, member of the T2S Board, addressed the worries of issuers and investors. He went on to stress that this collection of different views from among the whole range of actors in the securities industry shows that many more parties besides just the direct stakeholders, the CSDs, are affected, for the most part positively, by the settlement platform T2S. While it is clear that, as with all projects, there are some areas where T2S could still improve further, there is no doubt that T2S will be a revolution for the whole financial industry when it goes live on 22 June All market participants highlighted that it will provide vast business opportunities in terms of geographical reach as well as regarding the possibility to offer new innovative services. As such, it is a great step forward on the journey to a more integrated financial market in Europe. Christine Löser

12 T2S OnLine I No 20 December INSIGHT T2S AND THE NEW EUROPEAN REGULATORY ENVIRONMENT: INTERVIEW WITH OLIVIER GUERSENT AND MARC BAYLE A new Directorate General Financial Stability, Financial Services and Capital Markets Union, which reports to Commissioner Hill, has recently been set up at the European Commission. We met with its Deputy Director General Olivier Guersent and with the ECB s Director General of Market Infrastructure and Payments, Marc Bayle, to discuss the implications of the Commission s new DG for T2S and other Eurosystem activities related to payments and market infrastructure. T2S OnLine: Olivier, which areas fall under the responsibility of the new DG, and what is the common theme or mission statement tying all these areas together? Olivier Guersent Olivier Guersent: The newly established Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) brings together those areas of the Commission dealing with the monitoring and analysis of the financial sector and those responsible for financial regulation. By doing so, we aim to contribute to a dynamic European economy by integrating financial markets, restoring confidence and stability in the financial sector and stimulating productive investment. The aim should be to build a pan-european financial system that is less crisis-prone and better focused on delivering the services required by end-users, i.e. citizens and businesses. In this way, we help create an environment that is more conducive to economic growth and employment. T2S OnLine: Marc, the ECB has also recently undergone a reorganisation of its payments and market infrastructure areas, with you as the new Director General. How would you describe your mission, and what implications does the new DG in Brussels have for your work? Marc Bayle Marc Bayle: Our mission as the new Directorate General Market Infrastructure and Payments (DG/MIP) is to support safety, efficiency and innovation for financial market infrastructures and payments in Europe. We provide payment and soon also securities settlement services, oversee financial market infrastructures and payment instruments, and cooperate with market stakeholders to achieve financial market integration in Europe. More specifically, we have three main roles: we act as operator, overseer and catalyst. As an operator we are responsible for the development, management, client relations and further enhancement of the TARGET2 and TARGET2-Securities systems and the monitoring of the correspondent central banking model (CCBM). Our oversight and catalyst roles are performed in the areas of payment and settlement systems and payment schemes, policy issues concerning market infrastructures used for clearing and settlement of payment and securities operations, and collateral management, including the Eurosystem operations. As witnessed with the CSD Regulation (CSDR) and T2S, Brussels regulatory agenda is an important complement to our infrastructure projects and we are also working closely together in the field of oversight. I am sure that the new DG under Commissioner Hill is going to continue this good and close cooperation with the ECB in the field of payments and settlement. In the years to come I will be very happy to

13 T2S OnLine I No 20 December T2S AND THE NEW EUROPEAN REGULATORY ENVIRONMENT work with you, Mr Guersent, and your colleagues, many of whom we have known for a long time, on the joint objective of making payments and settlement in Europe more efficient, harmonised and customer-friendly. T2S OnLine: Broadly speaking, the aim of capital markets union is to reduce the dependence of European financial markets on bank-based financing through the provision of capital markets-based financing. What are the main elements of capital markets union, and how can you contribute to it? Olivier Guersent: In his mission letter to Commissioner Hill, the Commission s President, Jean-Claude Juncker, underlined that despite the considerable steps forward made in recent years in creating a sound and efficient financial system, significant fragmentation remains. In this respect, he asked the new Commissioner to work on a plan to develop and integrate capital markets as a source of financing for innovative projects and long-term investment. Capital markets union will cover all 28 Member States. Its foundations will be a stable and sound financial system, with a single rulebook that is effectively and consistently enforced. But on these foundations, we should strive to ensure a high level of investor protection as well as to remove barriers to cross-border investments in order to attract investment from all over the world. Some short-term measures have already been announced in the Commission s Investment Plan for Europe which was published on 26 November 2014, such as swift action in order to enable the establishment of European Long Term Investment Funds (ELTIF), high quality securitisation markets, standardised credit information for SMEs, private placement, and a review of the Prospectus Directive. A consultation on other possible medium to long-term measures will take place at the beginning of 2015, with a Capital Markets Union Action Plan planned for the summer of Marc Bayle: I think that capital markets union will help accelerate existing initiatives to overcome fragmentation, e.g. in the field of market infrastructures that support capital markets in Europe. One example is of course TARGET2-Securities (T2S). Moreover, in retail payments, since August 2014 there has been no distinction between national and cross-border credit transfers and direct debits of businesses and individuals. IBAN and SEPA are now commonplace terms and have become a part of our daily lives. However, despite the important progress made, many challenges remain before the euro area can become a single euro payment and settlement space. These include barriers that result from differences in market practices and standards as well as tax, accounting and legal systems in the Member States. The removal of these remaining barriers once T2S has removed some others as of next June is in my view an important ingredient in making capital markets union a reality.

14 T2S OnLine I No 20 December T2S AND THE NEW EUROPEAN REGULATORY ENVIRONMENT T2S OnLine: Olivier, the past few years have seen a full regulatory reform agenda, including for example MiFID, EMIR and the CSD Regulation on the securities side, and PSD2, SEPA-related regulations and the regulation on interchange fees on the payments side. What policy priorities can we expect over the next five years? Will we, for example, be seeing proposals relating to the recovery of CCPs following recent guidance at global level? Olivier Guersent: On the payments side, our first priority is the implementation of the various initiatives that have been adopted, such as the SEPA end-date regulation, or will be adopted in the coming months, such as PSD2 and the regulation on interchange fees. Nevertheless, we are also looking to the future. For instance, mobile payments are a subject we have been following closely. In this respect, we work through the Euro Retail Payments Board (ERPB) and the dedicated working groups dealing with proximity (Near Field Communication, NFC) mobile payments and person-to-person m-payments. The ERPB is also looking at instant payments which might be the next step following SEPA. Virtual currencies are also on our radar screen. On the financial infrastructures side, there is also a lot of implementation work ongoing. The European Securities Markets Authority (ESMA) and European Banking Authority (EBA) are currently working hard together with the Commission on the draft technical standards for MiFID and CSDR, and are providing technical advice on related delegated acts. The draft technical standards will be published soon and will be subject to public consultation in early The CSDR requirements will become fully applicable towards the end of 2015, but before that will come the launch of the T2S platform in June, to which we are already looking forward with great interest. Both T2S and the CSDR are milestones in the integration of the European settlement market. Implementation work also continues in the area of derivatives, with the first clearing decisions expected to be adopted shortly and work on bilateral margins still in the pipeline. But time has flown by and we are already beginning the process for a review of the EMIR which is due by August Finally, Commissioner Hill announced in his hearing in the European Parliament in September that he intends to come forward with a proposal for CCP recovery and resolution in the course of next year. This implementation work is vital in putting into place the regulatory reforms adopted over the last five years. But we also need to take a step back and see what else could be done to make our markets and infrastructures work better for investors and the economy at large. The forthcoming reviews, such as that on EMIR, will undoubtedly play a role, but our work on capital markets union also plays a vital role in helping us to assess our priorities. T2S OnLine: Marc, you have already mentioned the link between T2S and the CSD Regulation, which entered into force on 17 September Why was the CSDR important for T2S? Marc Bayle: T2S provides a single IT platform used by 24 European CSDs for settling securities transactions in central bank money. The CSD Regulation has laid down the legal basis for this outsourcing, as well as for some harmonised European rules

15 T2S OnLine I No 20 December T2S AND THE NEW EUROPEAN REGULATORY ENVIRONMENT facilitating the use of the platform, such as the new settlement cycle T+2 and the new settlement discipline regime. T2S OnLine: Your DGs have in common that they work for greater European integration through the single currency. 15 years after its introduction, there is still room to improve the efficiency, harmonisation and customer-friendliness of payments and settlement in Europe. Looking ahead to the next 15 years, how do you envisage such improvements being made, so that the single market for financial services can become a reality? Olivier Guersent: SEPA is still not completely implemented. The 1 August 2014 deadline was a big step forward regarding efficiency and harmonisation but 2016 will be the final end-date. Domestic niche products and conversion services into SEPA payments will still be present in some countries until the legal deadline expires in February We still have some issues to fix such as service providers not allowing foreign IBAN for payments, which impedes the consumer friendliness of (and reduces confidence in) SEPA payments. Directive 2014/92/EU, the Payment Account Directive, when transposed by Member States by September 2016, will also increase the transparency and the comparability of fees charged by payment service providers to consumers. For securities settlement, we expect the launch of T2S to bring fundamental changes, including cross-border access to settlement services, greater efficiency and lower costs. With the CSDR becoming fully applicable in the near future to both T2S and non-t2s markets, we are hoping to see many existing barriers removed and further integration of settlement markets in Europe. We will closely monitor whether our expectations and hopes indeed come true. Further efforts are nevertheless needed to facilitate the emergence of a true single market for financial services, in particular for the retail financial services. This is definitely a lasting challenge. We have addressed some aspects of it with our recent European legislation. Still, we need and want a market in which competition, transparency and freedom of choice do not amount to a quest for the Holy Grail but are an everyday reality for all European consumers, not a privileged few. Marc Bayle: Our vision is to create a single borderless payment and settlement space in the euro area and in Europe. T2S is another key step towards making such a vision come true. As of 2018, for example, the Danish krone will join the euro as a settlement currency in T2S and I expect more non-euro currencies to follow later as an important contribution to the European capital markets union and the single market for financial services.

16 T2S OnLine I No 20 December T2S IS ONLINE FOR YOU What is T2S OnLine? T2S OnLine is the T2S Programme s review. It provides you with updates on the project and insights into T2S as well as into related topics. We hope that you will find T2S OnLine an enjoyable tool for obtaining up-to-date information about T2S and more. Where can you find T2S OnLine? T2S OnLine is published on the T2S website ( with the option to print if you would like to have a hard copy. How can you contribute? We are happy to hear your views on T2S OnLine. If you have any comments, or if you would like to propose a subject for an article, please contact us by at mb-t2scommunication@ecb.europa.eu Elin Amundsen, Anna Nuzzolo, Patrick Hess and Christine Löser, Communication team Follow us on Twitter@T2SECB T2S Youtube channel: European Central Bank, December 2014 Postal Address European Central Bank Frankfurt am Main, Germany Website