Regulation of the European Central Bank (EU) No 795/2014Show full title

Regulation of the European Central Bank (EU) No 795/2014

of 3 July 2014

on oversight requirements for systemically important payment systems

(ECB/2014/28)

THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK,

Having regard to the Treaty on the Functioning of the European Union and, in particular Article 127(2) thereof,

Having regard to the Statute of the European System of Central Banks and of the European Central Bank and, in particular Article 3.1, Article 22 and the first indent of Article 34.1 thereof,

Whereas:

(1) The fourth indent of Article 127(2) of the Treaty and the fourth indent of Article 3.1 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’) empower the Eurosystem to promote the smooth operation of payment systems.

(2) The Eurosystem promotes the smooth operation of payment systems, inter alia, by conducting oversight.

(3) In January 2001, the Eurosystem adopted the Core Principles for Systemically Important Payment Systems developed by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) as minimum requirements for systemically important payment systems (SIPS)(1).

(4) In April 2012, the Core Principles for Systemically Important Payment Systems were replaced by the CPSS and the Technical Committee of the International Organization of Securities Commission's (IOSCO) principles for financial market infrastructures (hereinafter the ‘CPSS-IOSCO principles’)(2), which harmonise and strengthen existing international oversight standards for, inter alia, SIPS.

(5) According to the CPSS-IOSCO principles, SIPS should be subject to effective oversight, against clearly defined and publicly disclosed criteria, because of their potential to trigger systemic risks if insufficiently protected against the risks to which they are exposed. In addition, competent authorities should have sufficient powers and resources to fulfil their respective tasks, including taking corrective action. The CPSS-IOSCO recommends implementing these principles to the fullest extent allowed by the national legal and regulatory frameworks.

(6) Therefore, and in order to ensure the efficiency and soundness of SIPS, the European Central Bank (ECB) has decided to implement the CPSS-IOSCO principles by means of a regulation. Authorities in other countries are also expected to similarly introduce and apply the CPSS-IOSCO principles in their respective legal and regulatory framework to the fullest extent allowed by such framework.

(7) This Regulation covers SIPS, including both large-value payment systems and retail payment systems of systemic importance. It applies to payment systems operated both by central banks and private operators. The CPSS-IOSCO principles acknowledge that there are exceptional cases where they are applied differently to payment systems operated by central banks due to requirements laid down in relevant law, regulation, or policy. The Eurosystem has public policy objectives, responsibilities and an institutional set-up defined in the Treaty and the Statute of the ESCB meaning that Eurosystem SIPS may be exempted from certain requirements under this Regulation. Against this background, Eurosystem SIPS should be exempted from specific requirements on governance, wind-down plans, equity and liquid assets, collateral and investment risks, which cover the same areas as the respective requirements formally adopted by the Governing Council. These exemptions are specified in several provisions of the Regulation.

(8) Under Guideline ECB/2012/27 of 5 December 2012 on a Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2)(3) TARGET2 has a decentralised structure linking together a multiplicity of payment systems. The TARGET2 component systems are harmonised to the greatest extent possible with certain exceptions in the event of national law constraints. TARGET2 is also characterised by a single technical platform called the Single Shared Platform. The Governing Council has final competence in relation to TARGET2 and safeguards its public function: this governance arrangement is reflected in the oversight of TARGET2.

(9) The efficiency and soundness of a SIPS requires compliance with applicable national laws and clear rules, procedures and contracts under which it operates. Compliance with the law refers to the legal systems of all countries in which a SIPS operator or its participants operate.

(10) The efficiency and soundness of a SIPS also depends on the clarity and appropriateness of its governance arrangements, which must be clearly documented.

(11) A sound and evolving framework to comprehensively manage legal, credit, liquidity, operational, general business, custody, investment and other risks is essential to identify, measure, monitor and manage the entire range of risks that arise in or are borne by a SIPS operator. This also holds true for the soundness and resilience of a SIPS operator's collateral framework participant default rules and procedures and business continuity plans.

(12) The reduction of systemic risk requires, inter alia, settlement finality. The Union has adopted Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems(4). Directive 98/26/EC requires the rules for systems designated under it to define the moment of entry (after which transfer orders shall be legally enforceable and, even in the event of insolvency proceedings against a participant, binding on third parties) and the moment of irrevocability of transfer orders. Intraday or real time settlement may also be advisable if compatible with the SIPS general business model and necessary to enable the SIPS operator and participants to manage their respective credit and liquidity risks.

(13) Objective, risk-based, and publicly disclosed criteria for participation in a SIPS, permitting fair and (subject to acceptable risk control standards) open access to a SIPS, promote the safety and efficiency of the SIPS and of the markets it serves, while not restricting free provision of services to a disproportionate extent.

(14) Provisions of this Regulation requiring a SIPS operator to collect, process and transmit data should be without prejudice to any applicable rules on protection of data of participants or customers.

(15) An overall efficient and effective SIPS, with clearly defined, measurable and achievable goals and objectives, is best equipped to meet the needs of the SIPS participants and the markets it serves.

(16) The ECB has recourse to the national central banks to carry out ESCB tasks to the extent deemed possible and appropriate.

(17) The requirements laid down in this Regulation are proportionate to the specific risks and exposures of SIPS.

(18) The possibility for competent authorities to request corrective measures to remedy or avoid repetition of non-compliance with this Regulation, and the possibility for the ECB to impose effective, proportionate and dissuasive sanctions for infringements of this Regulation are essential elements in implementing the CPSS-IOSCO principles to the fullest extent allowed under the Treaty and the Statute of the ESCB.

(19) It is necessary to subject compliance with the oversight requirements set by this Regulation to a transitional period, allowing for the SIPS operators to familiarise themselves with and to implement the requirements,

HAS ADOPTED THIS REGULATION:

(1)

Available on the BIS's website at www.bis.org/publ/cpss43.pdf

(2)

Available on the BIS's website at www.bis.org/publ/cpss101a.pdf

(3)

OJ L 30, 30.1.2013, p. 1.

(4)

OJ L 166, 11.6.1998, p. 45.