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New trends in the financial sector - Prospects of growing electronification in the capital markets (fintech, blockchain, electronic platforms…)

The future of Europe’s financial market infrastructure

By Bayle Marc - Director General of the Directorate General Market Infrastructure & Payments, European Central Bank (ECB)

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Market integration in Europe is an ongoing project. This started with the creation of the European Coal and Steel Community in 1950, followed in 1957 by the Treaty of Rome, which set up the European Economic Community. The signing in 1986 of the Single European Act marked a major step towards establishing the Single Market. These and numerous other measures led to the launch of the euro in 1999. Since then the integration project has continued apace, with the creation of the banking union and then the launch last year of the capital markets union project.

In conjunction with these key political steps, essential projects, although less prominent, have pushed forward an integrated financial market infrastructure. This major achievement promotes business opportunities on a European scale, opening the continent’s market to issuers and investors and allowing citizens to make payments in euro in the same way across Member States.

Two European market infrastructures, TARGET2 and TARGET2-securities (T2S) – along with two retail payment schemes launched by the Single Euro Payments Area (SEPA) project – allow money and financial assets to flow across Europe. Although it has come a long way, the Eurosystem is constantly looking for ways to improve efficiency, promote innovation and lower costs. However, advances in technology, the emergence of fintech companies and increasing globalisation pose new challenges to the Eurosystem in its endeavours to ensure the security and resilience of payments. The Eurosystem aims to stay abreast of these changes and make sure the market infrastructure evolves to cope with and take advantage of them. Action points have thus been developed to investigate what the Eurosystem could pursue in the years ahead. We will do this by continuing to promote collaboration between the public and private sectors and, with this in mind, an initial market consultation was held in March 2016. The high response rate shows that the market has seen the business opportunities which we want to foster by enhancing the Real-time gross settlement (RTGS) services of our future financial market infrastructure. In the consultation a number of topics were put forward to the market, including for example:
• expanding the current liquidity management and monitoring tools to meet market demand;
• extending operating hours, given increased globalisation but also for payment services and to support instant payment initiatives;
• developing specific services to support banks in complying with increased regulation;
• reflecting on the opportunities and challenges arising from new technologies, such as distributed ledger technologies;
• preparing to migrate RTGS services to ISO 20022, thus optimising end-to-end business processing and transporting richer payment information related to remittances;
• exploiting possible technical and functional synergies between the TARGET2 and T2S platform and integrating the access and interface of these Eurosystem services where possible.

Following the end of the consultation, more analysis will be needed. But as we look towards the future, the objective is to create a market infrastructure starting with a blank canvas. Building a truly Single Market in Europe is not a task for the public sector alone – it is a joint effort. Therefore, we very much welcome the input and suggestions provided in this consultation. We will continue to work closely with the market in order to make use of its knowledge and experience as well as ensure that Europe’s future financial market infrastructure meets the needs of its users in full.