Processing the financial transactions of the ESM

The ESM engages in substantial financial operations daily. The Middle and Back Office division performs a vital role in validating and processing these transactions.

The Middle and Back Office supports three teams: ALM and Lending, which monitors liquidity risk and manages the outstanding loans to programme countries; Funding and Investor Relations, which raises the money to finance lending operations; and Investment and Treasury, which manages the paid-in capital of €80.5 billion,^[1] the reserve fund, and the liquidity buffer.

The Middle Office embeds risk management and control procedures in its transaction processing. The Back Office ensures that securities and financial instruments are bought or sold for the correct amount of money, at the appropriate time, and with the right counterparty. It also transfers the money.

The Middle Office helps to draft lending documents for disbursement, verifies the accurate recording of loan details in the system, and provides invoices for all financial assistance programme countries. The Back Office executes disbursements and subsequently monitors in- and outflows to and from programme countries.

Once Funding issues a security, the Middle Office validates the trade. Then the Back Office confirms that the trade details match those of the purchasing institutions. Finally, the Back Office ensures that the trade is correctly delivered.

Once Investment initiates a trade, the Middle Office validates it, ensuring details are correctly recorded, and investment limits are respected. The Back Office then instructs an external provider to settle the trade. The Middle and Back Office each have separate post-trading activities to make sure trades are correctly executed.

As part of the Middle Office, the portfolio performance team supports Investment and Treasury, the investment management committee, and other functions through performance measurement, appraisal, attribution, and maintenance of benchmark portfolios.

Together with Middle and Back Office, the Coordination team and the Commercial Legal and Procurement team constitute the department: Middle & Back Office and Portfolio Performance, Coordination and Commercial Legal and Procurement.

The Coordination team drives change across the ESM through project management and business analysis. It leads the ESM’s strategic planning and contributes to the continuous improvement of the organisational planning cycle. It hosts the outsourcing committee and oversees the implementation and further development of the outsourcing policy.

In 2018, the Coordination team organised the technical assistance mission to Greece and finalised the definition of the ESM’s functional model, the first pillar in the institution’s overall operating model. The functional model influences, in particular, sourcing decisions, IT strategy, and human resource management. The Coordination team also led and/or contributed to a number of internal projects including the introduction of new products, improved risk management and portfolio performance, records management, and operational improvements.

The Commercial Legal and Procurement team supports the fulfilment of the ESM’s operational needs in line with the strict standards of the ESM procurement policy. Created at the start of 2018 with the merger of two teams, the new unified team supported several key procurement procedures and contracts, including for a Risk Management and Portfolio Analytics Software and a critical upgrade to the ESM’s SWIFT infrastructure. The team also introduced a planning tool and an information portal, standardising and automating various internal processes. In addition, the team started using the Eurosystem Procurement Coordination Office (EPCO), enabling the ESM to procure at better commercial terms due to economies of scale.