There are various ways of achieving a more integrated and efficient European financial market.
The establishment of area-wide integrated services for payments and financial instruments means that participants:
- are subject to a single set of rules;
- have equal and open access to the services in question; and - are treated equally when using those services.
Integration includes standardisation, harmonisation (i.e. common rules, standards and business practices), interoperability and/or the consolidation of systems. Financial integration facilitates competition and creates economies of scale.
Financial development involves a process of financial innovation and organisational improvement which makes markets more complete, increases agents’ options when engaging in financial transactions, improves market transparency, reduces transaction costs and increases competition.
State of play
Current state of affairs
Most of the euro area’s payment and securities clearing and settlement systems were originally created to meet domestic needs. They were relatively diverse in nature and not designed to meet the needs of a single currency area. The most important needs include area-wide infrastructures based on common standards, rules and business practices in order to allow an efficient and effective flow of payments and securities at low cost.
With the introduction of TARGET in January 1999, the Eurosystem, in its operational role, provided a system enabling the euro area-wide real-time settlement of euro payments. In parallel, the private sector EURO1 system provided an alternative means of processing large-value payments in euro. These systems allowed a considerable degree of integration in the large-value payments segment.
Retail payments and securities
The same cannot be said for the retail payment and securities segments, where the euro area infrastructure still suffers from fragmentation, resulting in inefficiencies and high costs, especially for cross-border transactions. The euro area’s highly complex and fragmented infrastructure prevents the area from benefiting fully from the considerable economies of scale (and scope) present in the processing of payments and securities.
The Eurosystem has a keen interest in furthering the integration of the euro area market infrastructure for payments and post-trading services for financial instruments. It does so in its complementary roles as operator, overseer and facilitator.
The Eurosystem is the provider of the TARGET2 system which has become the benchmark for the processing of euro payments in terms of speed, reliability, opening times and service levels. Counterparties throughout the euro area can transfer central bank funds directly between each other with immediate intraday finality.
Another important Eurosystem service contributing to the integration of the money market is the CCBM, which allows the cross-border transfer of collateral within the euro area in Eurosystem credit operations.
With its TARGET2-Securities (T2S) project, the Eurosystem is setting up a neutral single settlement platform with a view to fully integrating settlement activities in central bank money and thereby making cross-border settlement as cheap and efficient as domestic settlements.
To ensure equal treatment, the ECB and the Eurosystem as a whole apply the same oversight policies to all systems – i.e. to both private systems and those operated by the central banks themselves. In this context, reference can be made to the ESCB-CESR recommendations for SSSs and CCPs in the EU, which are used by authorities with a view to ensuring both the soundness and efficiency and the existence of a level playing field for the relevant infrastructures.
The Eurosystem seeks to facilitate the efficiency of the overall market arrangements for payments, clearing and settlement. It facilitates integration of the retail payments market and of the securities infrastructures, inter alia by promoting harmonisation and technical standardisation and by sharing the Eurosystem’s expertise. It cooperates closely with the payments and securities industry and with the European Commission.