Collateral management harmonisation
Part of the Eurosystem’s mandate is to foster European financial market integration and promote a truly domestic single market in Europe. Harmonised collateral management processes are a key prerequisite for achieving this. Yet, barriers and obstacles still exist on account of fragmented legacy standards, structural constraints and complex and diverse market practices.
What is the Eurosystem doing?
The harmonised collateral management processes laid down in the Single Collateral Rulebook for Europe (SCoRE) will ultimately make it easier for:
- Market participants to move their securities and collateral safely and efficiently between EU countries, without friction or restrictions;
- Investors to buy securities in any EU country and use them as collateral in the same or any other EU country;
- Banks to move collateral and securities quickly to where they are needed, instead of keeping them in different locations.
It will also lead to:
- Increased efficiency, by enabling collateral management across Europe from a single account using the same procedures;
- Lower costs, as a single rulebook will allow market participants to implement a single set of procedures;
- Interoperability, resulting from common messaging based on a common set of data across financial market infrastructures;
- Lower risk in managing securities and collateral as a result of the standardisation of processes;
- A level playing field for all market participants across Europe;
- Increased reach beyond domestic markets.
What harmonisation standards have already been agreed?
Triparty standards for Europe – to be implemented by November 2022
Common processes for interaction between all major European triparty service providers and their participants, including the Eurosystem, using ISO 20022 messaging.
Billing processes standards for Europe – staggered implementation from November 2022
A single set of rules for the transmission of billing information by post-trade service providers related to custody and collateral management, including the alignment of billing frequency and dates and using ISO 20022 messaging.
Corporate actions standards for Europe – staggered implementation from November 2022
A first set of harmonised business processes and workflows for debt instruments has been endorsed, foreseeing the use of ISO 20022 messaging. Work on other instruments, such as equities, is ongoing.
What still needs to be harmonised?
In December 2017, the Advisory Group on Market Infrastructures for Securities and Collateral (AMI-SeCo) identified ten areas where further harmonisation was needed. Harmonisation standards have already been agreed in three of these areas (see above). Work to produce harmonised standards in the following areas is ongoing:
- Harmonisation of tax processes in the context of collateral management (taking into account the identification of parties in collateralised transactions).
- Harmonisation of workflows for bilateral collateral management (covering non-cleared OTC derivatives and securities financing). Interoperability and leverage of existing infrastructures and market platforms.
- Interoperability and leverage of existing infrastructures and market platforms for margin processes.
- Minimum requirements for end-of-day cut-off times to avoid possible different value dates in cross-infrastructure transactions in different markets, which may create frictions for market participants active in different markets.
- Harmonisation of data exchanges to ensure that information/data is available where necessary. Market practices needed for use of data.
- Minimum requirements for sourcing/movement of collateral across Europe.
- Market practices for the handling of non-euro-denominated collateral (including related corporate action processes).
How are we moving towards harmonisation?
A dedicated taskforce under the AMI-SeCo brings market participants together to define harmonised rules for managing collateral in Europe. The taskforce puts forward and endorses harmonisation standards as follows:
- For each harmonisation activity, the harmonisation needs are analysed in depth (taking into account existing industry standards and market practices) and harmonisation proposals are prepared.
- For each harmonisation proposal, a harmonisation standard is defined, accompanied by a detailed rulebook.
- The standards and the accompanying rulebook are submitted to the AMI-SeCo for approval.