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Summaries of EU Legislation

Systemically important payment systems (SIPS)

 

SUMMARY OF:

Regulation (EU) No 795/2014 on oversight requirements for systemically important payment systems (ECB/2014/28)

Decision (EU) 2019/1349 on the procedure and conditions for exercise by a competent authority of certain powers in relation to oversight of systemically important payment systems (ECB/2019/25)

Decision (EU) 2017/2098 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 795/2014 (ECB/2017/33)

Decision (EU) 2017/2097 on the methodology for calculating sanctions for infringements of the oversight requirements for systemically important payment systems (ECB/2017/35)

WHAT IS THE AIM OF THE REGULATION AND THE DECISIONS?

  • Regulation (EU) No 795/2014 lays down oversight requirements for systemically important payment systems (SIPS).
  • Decision (EU) 2019/1349 sets out the procedure and conditions for the exercise by competent authorities of certain enforcement powers in relation to the oversight of SIPS.
  • Decision (EU) 2017/2098 lays down the procedure for imposing corrective measures for non-compliance with Regulation (EU) No 795/2014.
  • Decision (EU) 2017/2097 sets out the methodology for calculating sanctions for infringements of the oversight requirements for SIPS.

KEY POINTS

Under Regulation (EU) No 795/2014, the Governing Council of the European Central Bank (ECB) adopts reasoned decisions identifying which payment systems* are SIPS. The process to identify a payment system as a SIPS is clearly set. A review and identification exercise is done by the ECB on an annual basis and the list of SIPS is maintained on the ECB’s website.

A payment system is identified as a SIPS if:

  • it is eligible to be notified as a system pursuant to Directive 98/26/EC on payment and securities settlement systems (see summary);
  • it meets certain quantitative criteria over a calendar year.

Furthermore, in exceptional cases, the ECB Governing Council can identify a SIPS based on a sound and reasoned judgment.

SIPS operators* are required to:

  • ensure that the legal frameworks in which they operate provide a high degree of certainty for their activities;
  • have documented objectives prioritising their system’s safety and efficiency;
  • have effective and documented governance arrangements;
  • ensure clearly defined roles and responsibilities for their administrative or supervisory boards — the composition of the boards and their management shall ensure integrity and an appropriate mix of technical skills, knowledge and experience both of the SIPS and of the financial markets in general.

SIPS operators must:

  • establish and maintain a sound framework to comprehensively identify, measure, monitor and manage risks — including for liquidity risk or credit risk and general business or operational risks — that may arise;
  • accept as collateral only cash or assets with low credit, liquidity and market risks that fulfil certain conditions;
  • apply rules and procedures to:
    • ensure that final settlement takes place in either central bank money or assets with little or no credit and liquidity risk, no later than the due date
    • enable them to continue to meet their obligations if a participant defaults
    • set up procedures for ensuring money settlement;
  • set up procedures for ensuring money settlement;
  • hold their own and participants’ assets with supervised and regulated bodies (known as ‘custodians’) that are competent to fully protect those assets;
  • determine their own investment strategy, secured by high-quality obligors*;
  • set up and publicly disclose non-discriminatory access and participation criteria, which are reviewed annually, to their services;
  • have a process in place to identify and meet the needs of the markets they serve;
  • adopt clear and comprehensive rules and procedures that are fully disclosed to participants.

Where a SIPS operator has not complied with the regulation, the competent authority* may impose corrective measures and/or the ECB may impose sanctions. Decisions (EU) 2017/2098 and (EU) 2017/2097 provide the framework for this.

According to ECB Decision (EU) 2019/1349, competent authorities can:

  • require SIPS operators to:
    • provide all information and documents to ensure compliance with the regulation or smooth operation of the payment system
    • appoint an independent expert to investigate or review the SIPS’ operation;
  • carry out continuous and/or ad hoc oversight to ensure SIPS operators comply with all the requirements;
  • cooperate with other authorities for the purpose of exercising the competences under the decision.

Under Decision (EU) 2017/2098, the competent authority may impose corrective measures on a SIPS operator for non-compliance with Regulation (EU) No 795/2014. The decision sets out the relevant procedural aspects for this. A SIPS operator’s failure to implement the corrective measures may lead to the imposition of a sanction by the ECB.

Decision (EU) 2017/2097 sets out methodology to be followed by the ECB for calculating the amount of the sanctions to be imposed on the SIPS operator for infringements of Regulation (EU) No 795/2014. That decision sets the baseline sum as 50% of the sum of the following amounts:

  • 1% of turnover
  • 0.0001% of the value of payments processed.

The decision also lays down the limits to the amount of sanctions and the duration of the periodic penalty payments to be imposed.

FROM WHEN DO THE REGULATION AND THE DECISIONS APPLY?

  • Regulation (EU) No 795/2014 has applied since 12 August 2014.
  • Decision (EU) 2019/1349 has applied since 5 September 2019.
  • Decisions (EU) 2017/2098 and (EU) 2017/2097 have applied since 6 December 2017.

Since then they have been amended to reflect the developments.

BACKGROUND

  • Payment systems play an important role in the stability and efficiency of the financial sector and the euro-area economy as a whole. Largely invisible, they ensure the safe flow of electronic payments from payer to payee and between financial institutions.
  • Ensuring the smooth operation of payment systems is one of the statutory tasks of the Eurosystem.
  • According to the general principles for financial market infrastructures, SIPS should be subject to effective oversight because of their potential to trigger systemic risks* if insufficiently protected against the risks to which they are exposed. In addition, competent authorities need sufficient powers and resources to fulfil their respective tasks, including taking corrective action.
  • The ECB considers a payment system as systemically important if disruption within it could trigger disruption among participants or in the wider financial system. In addition to a handful of systemically important payment systems, there are 38 non-systemically important ones in the euro area.
  • For more information, see:

KEY TERMS

Payment system: a formal arrangement between three or more participants with common rules and standardised arrangements for the execution of transfer orders between the participants.
SIPS operator: the legal entity legally responsible for operating a SIPS.
Obligor: someone who owes or undertakes a contractual obligation to another.
Competent authority: the European Central Bank or a Eurosystem national central bank with primary oversight responsibility.
Systemic risk: the risk of a participant or the SIPS operator not meeting their respective obligations in a SIPS will cause other participants and/or the SIPS operator to be unable to meet their obligations when they become due, potentially with spillover effects threatening the stability of or confidence in the financial system.

MAIN DOCUMENTS

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) (OJ L 217, 23.7.2014, pp. 16-30)

Successive amendments to Regulation (EU) No 795/2014 have been incorporated into the original text. This consolidated version is of documentary value only.

Decision (EU) 2019/1349 of the European Central Bank of 26 July 2019 on the procedure and conditions for exercise by a competent authority of certain powers in relation to oversight of systemically important payment systems (ECB/2019/25) (OJ L 214, 16.8.2019, pp. 16-24)

See consolidated version.

Decision (EU) 2017/2098 of the European Central Bank of 3 November 2017 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 795/2014 (ECB/2017/33) (OJ L 299, 16.11.2017, pp. 34-37)

See consolidated version.

Decision (EU) 2017/2097 of the European Central Bank of 3 November 2017 on the methodology for calculating sanctions for infringements of the oversight requirements for systemically important payment systems (ECB/2017/35) (OJ L 299, 16.11.2017, pp. 31-33)

RELATED DOCUMENTS

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 (OJ L 166, 11.6.1998, pp. 45-50)

See consolidated version.

last update 30.08.2021

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