Central banks in the new EU member states are at different levels of technological advancement, with some even ahead of their western counterparts. Michael Imeson reports.
The European Union gained 10 more countries last month, and with them 10 more central banks. For anyone doing business with central banks, the EU is a bountiful hunting ground, now with 26 such institutions – one for each country, plus the European Central Bank.
The central banks of the acceding countries have automatically joined the European System of Central Banks (ESCB) – which among other things defines and implements the EU’s monetary policy and conducts foreign exchange operations. In doing so they have had to meet several requirements.
How have these central banks met the twin challenges of EU and ESCB membership? They have had to take steps to prepare themselves, including changing their operational frameworks and procedures, and reviewing their IT requirements.
Ready steady
Kari Mäkelä, head of government at Trema, a provider of strategic software solutions for the financial services industry, says the level of IT-preparedness in the central banks of the 10 new member states varies. “The ESCB is placing many expectations on the shoulders of the central banks, that’s for sure,” he says. “Some are very advanced, some are behind.”
Trema is the main provider of central bank software in Europe. Its Finance KIT solution is a sophisticated web-enabled treasury, risk and asset management solution that integrates all business functions across front, middle and back office. It is used not just by central banks, but also by state treasuries, commercial banks, multinational companies and asset managers around the world.
Clients include the ECB and the central banks of France, Germany, Estonia, Poland, Spain, Portugal and Finland which means that 79% of European central bank assets are supported by Trema.
Among the leaders is Bank of Estonia which implemented Trema’s Finance KIT in 1994, making it the company’s first central bank client. Another is National Bank of Poland, which Mr Mäkelä says uses the most advanced central banking application in Europe – Finance KIT version 6 with special central banking functionalities. “It covers front to middle to back office. It’s straight through processing [STP], covering all asset classes a central bank needs.”
By contrast, central banks in some of the other new member states “are relying on Microsoft Excel spreadsheets and home grown-software, with no STP”.
Central banks need modern systems for real-time cross settlements and managing foreign reserves, monetary policy, surplus funds and pension funds. What sets Trema apart from its competitors, such as Reuters, OpenLink, SunGard and Misys, says Mr Mäkelä, is that it is the only provider with a specialised team to serve central banks.
Estonian evolution
Janno Luurmees, head of financial markets at Bank of Estonia, says that because the bank is only 14 years old, its IT systems are more modern than many of its Western counterparts. “Finance KIT has been a good solution, and it has developed with us,” he says. “At the beginning there were some difficulties, but it was a wise choice.
“We started preparing for EU accession in 1996. Most of the challenges were not on the technology side, but on the rules and procedures side. We had to change our central banking law slightly.”
Being in the ESCB gives stability and credibility to the economy. Mr Luurmees says that although it is a small bank with limited resources, and will not be able to speak on all subjects in the ESCB, it has one vote, just like the big members, and will its our best “to add value to the process”.
“We have to meet the Maastricht criteria before we can join the eurozone. One of these is joining ERM II, and to be in it for at least two years. We started making preparations in April and the intention is to join the ERM in a few months.
The other criteria relate to interest rates, inflation, budget deficit and national debt. Estonia currently meets these criteria, and Mr Luurmees says he is confident it will still meet them in two years’ time.
