Swift role in Target2 up for grabs; ECB ponders blockchain prospects

Interbank payments network Swift may lose its status as the sole network supplier to the European Central Bank's Target2 real-time gross settlement (RTGS) platform as the Eurosystem enters consultation on the future for payments and settlement across the eurozone.

The European Central Bank is contemplating a merger of the Target2 real-time gross payment system with the T2S securities settlement mechanism, providing a single platform for the processing of cash and securities across the Eurosystem.

In the consultation paper, the ECB says that bringing the two platforms together could allow Target2 to benefit from the multi-currency capability of T2S, the possibility of accessing the platform via different network service providers or the extensive and systematic usage of ISO20022 standards.

The Central Bank says that the decision to select Swift as the sole network provider for Target2 in 2004 was motivated by time constraints and the preference of market participants for a system to which they were already connected.

"As a consequence Target2 relied heavily on a number of specific/proprietary solutions developed by Swift (e.g. InterAct, FileAct, RBAC roles)," notes the ECB.

For T2S, the ECB went to public tender to select two network providers - ultimately won by Swift and SIA/Colt - in order to provide a network agnostic solution and drive competition in the market.

Technical consolidation of the two platforms would enable a similar outcome, suggests the ECB, robbing Swift of its monopoly status and introducing further competition between network providers and improved resilience.

Other issues addressed by the paper include the emergence of new technologies, including blockchain-based innovations.

"As part of its vision, the Eurosystem intends to assess their relevance for the different services it provides to the banking communities (payments, securities settlement as well as collateral)," states the document. "This investigation will identify opportunities that these new technologies may provide, as well as the challenges that they create."

The ECB is inviting input from market participants on the proposals, with a view to holding an open information session in Frankfurt on 22 March.


By Finextra, February 16, 2016