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European Union: Detailed Assessment of Implementation of the European Central Bank Observance of the CPSS-IOSCO Responsibilities of Authorities for Financial Market Infrastructure
Summary:EXECUTIVE SUMMARY
The oversight framework of the European Central Bank (ECB) is comprehensive. The ECB has
developed a wide-ranging oversight policy, including quantitative and qualitative criteria to identify,
monitor, and remedy any potential systemic risks related to financial market infrastructures. It has
also developed oversight standards covering a broad range of infrastructures, service providers, and
payment schemes within the euro area (EA). Furthermore, it has extensive oversight cooperation
with a wide range of authorities both at the European level and globally. Within the European Union
(EU), the ECB has been a driving force to promoting stability and integrating financial infrastructures.
Globally, the ECB is deeply involved in shaping the regulatory framework for financial market
infrastructures (FMIs) by assuming the leadership in developing new principles. It is also involved in
several global cooperative oversight arrangements covering globally critical payment systems, posttrading
FMIs, and the service provider SWIFT.
The ECB should be entrusted to coordinate the Eurosystem oversight function to ensure that
international principles for FMIs are consistently enforced throughout the EA. The regulation
and oversight of systemically important FMIs has differed across the EA with potential contagion
systemic risk affecting the stability of the EA financial system. The adoption of the PFMIs as legally
binding is a step in the right direction. However, these principles are not sufficiently detailed to
ensure a uniformed and harmonized implementation across the EA, since their enforcement for post
trade FMIs will be conducted by national competent authorities on a decentralized basis (except for
trade repositories, for which the supervisory responsibility lies with ESMA). Currently, the ECB is the
lead overseer for payment systems, including TARGET2, EURO 1, STEP 2 and CLS (as concerns the
settlement of euro transactions), but not for systemically important post-trade FMIs with crossborder
reach. Therefore, there is merit in entrusting the ECB with responsibility to ensure that these
principles are consistently enforced throughout the EA. Assuming such a role would strengthen
financial stability across the EA by ensuring EA-wide policy objectives, harmonized regulation, and
consistent implementation.
The ECB should rely more on its power to issue legally binding corrective action to effectively
enforce its oversight responsibilities. To implement its oversight responsibilities, the ECB currently
relies mainly on ‘soft’ tools and measures such as moral suasion, publication of oversight
assessments, public statements, and cooperation with other authorities. These tools have worked so
far, but with more demanding oversight standards this may not be effective in all circumstances in
forcing the system’s operators to promptly address potential deficiencies. The ECB should rely more
on legally binding corrective action to effectively enforce its responsibilities, including imposing
sanctions, penalty, suspending some operations or services, etc. As it does not have an exclusive
mandate over post-trade FMIs, the ECB should coordinate its corrective measures with the relevant
securities regulators and banking supervisors. Furthermore, the ECB should be actively involved in
any EU legislation addressed to FMIs, as it would affect the effectiveness of its oversight
responsibility.
