Banks and broker-dealers are the least prepared to cope with the European Union’s much-vaunted new settlement system, which is set to go live from 2015, according to a new report.

“We have found that while most market participants have a good high-level understanding of the Target2Securities platform, there are some significant gaps in the industry’s Target2Securities adaptation plan,” said Axel Pierron, author of the report and senior vice-president of consultancy Celent’s securities and investments group.

The European Central Bank initiative, called Target2Securities, or T2S, will provide a single harmonized platform on which almost all heavily traded securities circulating in Europe can be settled and the ECB says it will substantially cut cross-border settlement and make it more competitive with the U.S., which only has one settlement provider.

However, not all central securities depositories (CSDs) in Europe have signed up. Despite all of the 17 eurozone nations apart from Ireland signing up to the project, as well as six non-euro countries, the U.K., Switzerland and the Nordic countries have all kept their currencies out.

The new research by Celent and Swift, a financial messaging provider, found that the major players in the European post-trade space—such as CSDs and custodians—that would be most impacted by T2S are the most advanced in their preparation but it is the market participants that will be impacted to a lesser extent, such as banks and broker-dealers, who are still navigating the complexity of T2S.

“We recognize that the coming migration to the new T2S platform will require extensive harmonization,” said Antti Turunen, deputy head of product management at Euroclear Finland, one of the participating CSDs.

“This will impact both our clients as well as many of the current market practices, which calls for close dialogue with the market. At the same time, T2S will open up new opportunities to achieve further efficiency and to expand our service coverage.”

The Celent/Swift report, which interviewed major participants in the space when compiling the research, looked at the short-term challenges that banks, CSDs and custodians are facing. It estimated that the level of investment required to adapt a back office to the T2S ecosystem will range from €7 million for a market player that modifies its existing system using a communication hub plus adaptation layers to as much as €27 million for a player that decides to revamp its back office systems for both settlement and custody.

“Market participants will have to operate in an ecosystem that relies on disparate messaging formats, and where many local specificities remain,” the report said. “This situation not only generates additional cost but also raises some concerns about the operational risk incurred by market participants in case of communication failure and mismanagement.”

T2S, which has encountered long delays and disputes since it was launched in 2006, is set to go live in three waves within 18 months from the June 2015 date. And assumptions made in 2007 by T2S, shortly before the financial crisis took hold, also appear to be wide of the mark now and doubts are beginning to grow as to how the project will be able to meet costs and also set transactions at such low levels due to the due to the continued depressed volumes in Europe. The ECB has recently warned that it may have to revise upwards the fees for trades.capabilities.