Europe's Core Payments Network Disrupted by Technical Malfunction
October 28 2020 - 12:11PM
Dow Jones News
By Tom Fairless
FRANKFURT -- The European Central Bank blamed a software defect
for a disruption to the region's main wholesale payment system last
week that left banks unable to process transactions and securities
trades for almost 11 hours.
The outage on Friday paralyzed the ECB's Target2 payments
system, which provides the plumbing that allows money to flow
across the bloc's single market. Owned and operated by the region's
central banks, it processes around EUR2 trillion in transactions a
day, equivalent to $2.35 trillion and to around a fifth of the
eurozone's annual economic output.
The "major incident" took place at about 2:40 p.m. on Friday,
according to the ECB. After a backup system failed, commercial
banks couldn't process transactions through about 1:20 a.m. the
following morning. While European businesses and individuals could
continue to make payments, the money wasn't landing where it
should.
The glitch also affected a parallel ECB system,
Target2-Securities, which helps to process more than EUR1 trillion
in bond and stock trades each day across the region. While the
settlement of securities transactions remained available, funds
couldn't be transferred to or from the system for several hours,
the ECB said.
"It's a bit scary. Eleven hours is really, really long for such
a critical" piece of infrastructure, said Nicolas Veron, a senior
fellow at the Peterson Institute for International Economics in
Washington, and at Bruegel, a Brussels-based economic-policy think
tank.
"It's manageable, but not reassuring, and a bit embarrassing for
the ECB, " Mr. Veron said.
Banks were updated on the outage through the afternoon and
evening. Eventually engineers switched operations to a parallel
system operated by another European central bank. The two systems
are managed by the German and Italian central banks.
After a brief investigation, the ECB on Wednesday blamed a
software glitch in a third-party network device used in the
internal network of the central banks operating the Target2 system.
The ECB had previously ruled out a cyberattack.
European financial markets have grown choppier as the continent
is engulfed by a second wave of the Covid-19 pandemic. There were
also outages last week at Euronext NV, one of the region's biggest
exchange operators. Euronext blamed those interruptions on a
technical problem affecting a so-called middleware system used to
manage the storage of data.
Target2 has experienced technical problems in the past, though
last week's incident appears to be the most severe in recent years.
Outgoing messages from the payments system were delayed in July
2019, and a failure following an upgrade to Target2's technical
infrastructure hindered settlement processing for around 40 minutes
in November 2018, according to annual reports. A problem with the
sending and receipt of payments in December 2017 was resolved in
around 25 minutes, though some participants reported further
payment delays.
Prolonged outages in major payment systems are relatively rare.
The Bank of England launched an investigation in late 2014
following a 10-hour outage to its own automated payment system.
The ECB said Wednesday it has "taken measures to prevent this
from happening in the future and will discuss it with the vendor."
The payment system opened and closed normally on Monday and Tuesday
this week, it said.
"Market participants have confirmed that they have resumed
normal business operations and only a small number of
reconciliation investigations is still ongoing," the central bank
said.
--
Joe Wallace
contributed to this article.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
October 28, 2020 11:56 ET (15:56 GMT)
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