The “Eurosystem oversight policy framework” provides a comprehensive overview of the methods, policies and instruments that the Eurosystem applies in its oversight activities.
The framework describes the statutory role of the Eurosystem in the field of oversight. The central banks monitor and assess the safety and efficiency of financial market infrastructures and induce change where necessary.
For payment systems, the Eurosystem has translated its oversight objectives into specific standards and requirements that these systems should meet. These standards and requirements are based on the international standards (Core Principles for Systemically Important Payment Systems – CPSIPS) that were developed by the Committee of Payment and Settlement Systems (CPSS). Moreover, the Eurosystem has developed specific standards on business continuity that apply to the systemically important payment systems. For further information, see Business continuity expectations.
Oversight of clearing and securities settlement infrastructures is conducted under the "Recommendations for securities settlement systems and recommendations for central counterparties in the European Union" published by the ESCB and the Committee of European Securities Regulators’(CESR) in June 2009.
The main aim of the ESCB-CESR recommendations is to promote efficient, safe and sound pan-European post-trading arrangements in order to
The recommendations also seek to improve the efficiency of the market infrastructure, which should in turn promote and sustain wider financial market integration and efficiency in Europe.
The recommendations are based on the Recommendations for security settlement systems (RSSSs) and the Recommendations for central counterparties (RCCPs) issued by the CPSS and the Technical Committee of the International Organization of Securities Commissions (IOSCO).
Currently the CPSS and IOSCO are reviewing the standards for financial market infrastructures (i.e. the CPSIPS, RSSSs and RCCPs) and aim to issue a proposed revision of all revised standards for public consultation by early 2011.
The Eurosystem is reviewing the oversight standards for euro retail payment systems in order to update oversight requirements and to adapt the classification of the retail payment systems to the SEPA environment.
Global financial integration has increased the importance of market infrastructures that settle in euro or clear euro-denominated transactions outside the euro area (offshore infrastructures). These developments have a bearing on how the Eurosystem conducts its oversight activities.
A market infrastructure can affect the stability of the financial system largely through its design characteristics, but also through its location.
Relevant aspects of market infrastructures include:
While the Eurosystem has a legal obligation to influence these aspects in the context of domestic clearing, payment and settlement infrastructures, its ability to influence offshore infrastructures is, in practical terms, restricted.
In 1998, the Eurosystem issued a Policy statement on euro payment and settlement systems located outside the euro area.
In 2001, the Eurosystem issued its policy line with regard to consolidation in central counterparty clearing.
These policy principles were further elaborated with respect to the decision on central counterparty (CCP) clearing for over-the-counter (OTC) derivatives of 18 December 2008 and the ECB Governing Council’s decision on infrastructure for OTC derivatives of 16 July 2009. The location policy aims at defining thresholds for payment infrastructure and the specification of “legally and operationally located in the euro area”.
A series of major incidents and disruptions over the last few years (terrorist attacks, power outages, etc.) has shown to what extent the payments industry is critically dependent on a resilient payment system infrastructure with appropriate operational and communication procedures.
The Eurosystem considers that business continuity preparedness is crucial for all financial market participants across Europe due to the existence of common infrastructures and the high degree of interdependencies between them.
The Eurosystem has decided to coordinate business continuity policies and plans at euro area level to make the financial system of the euro area as a whole more resilient. A set of business continuity expectations for systemically important payment systems was issued – with regard to Core Principle VII of the Committee on Payment and Settlement System (CPSS) – to be integrated into its oversight policy framework.
The framework identifies four key elements for business continuity management:
The further development of CPSS Core Principle VII is meant to provide central banks, financial institutions and market infrastructures with implementation guidelines. These include common expectations which are applicable to all systemically important payment systems (SIPS) and which define the required level of resilience, as well as “good practices” to ensure that such a level is delivered.