## _cr1435 - EXECUTIVE SUMMARY

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---

### Overview
- ECB oversight framework described as comprehensive with a wide-ranging oversight policy and quantitative and qualitative criteria to identify, monitor, and remedy potential systemic risks related to financial market infrastructures (FMIs).
- ECB developed oversight standards covering a broad range of infrastructures, service providers, and payment schemes within the euro area (EA), and extensive oversight cooperation at European and global levels.
- ECB is 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 cross-border reach.
- Adoption of the PFMIs as legally binding noted as a positive step, but PFMIs not considered sufficiently detailed to ensure uniform and harmonized implementation across the EA because enforcement for post-trade FMIs will be conducted by national competent authorities on a decentralized basis (except for TRs, for which supervisory responsibility lies with ESMA).

### Methodology used for assessment
- Assessment undertaken in the context of the IMF’s Financial Sector Assessment Program (FSAP) of the EU.
- Assessor: Elias Kazarian of the IMF’s Monetary and Capital Markets Department (MCM).
- Report presents only the outcome of an assessment of the Responsibilities of Authorities (RA); assessment of TARGET2 against the principles planned at a later stage.
- Assessment based on: a self-assessment prepared by the ECB, public and non-public documentation, and discussions with ECB Directorate General Payments and Market Infrastructure senior management and staff.
- Scope limited to ECB’s oversight activities; Eurosystem national central banks’ oversight activities out of scope except where necessary.
- Assessment based on information received during the first part of 2013 and does not take into account the evolution of EU regulation.

### CCP landscape and FMI infrastructure — selected factual findings
- Large-value payment systems:
  - Two large-value payment systems: TARGET2 and EURO1.
  - TARGET2: centralized real time gross settlement (RTGS) system owned and operated by the Eurosystem.
  - EURO1: owned and operated by the European Banking Association (EBA) Clearing and settles end-of-day balances in euro in TARGET2.
- Retail systems and cards:
  - STEP1 and STEP2 are two EA-wide retail payment systems set up to complement EURO1.
  - At the end of 2012, there were 20 retail payment systems in the EA (the five largest retail systems hold a market share of some 85 percent in terms of number of transactions processed).
  - 25 national and six international card schemes operate in the EA.
- CCPs and post-trade infrastructures:
  - In 2012, EA securities and derivatives markets were served by nine officially registered CCPs.
  - Euro-denominated instruments also cleared by CCPs located outside the EA, including LCH.Clearnet Ltd (U.K.), ICE Clear Europe (U.K.), and SIX x-clear (Switzerland).
  - 25 securities settlement systems (SSSs) operating in the EA, of which 23 are eligible for delivery of securities to the Eurosystem as collateral in central bank credit operations.
  - All EA central securities depositories (CSDs) offer settlement in central bank money; the two international CSDs (ICSDs) offer settlement in commercial bank money.
- Trade repositories:
  - One trade repository (TR) within the EA, REGIS-TR, operational since December 2010.
  - OTC derivatives contracts in euro or with EA counterparts are, as a rule, reported to DTCC Derivatives Repository Limited (DDRL U.K.).

### ECB oversight policy framework and roles
- Eurosystem oversight covers:
  - (i) large-value payment systems; (ii) retail payment systems; (iii) central securities depositories (CSDs); (iv) securities settlement systems (SSSs); (v) central counterparties (CCPs); (vi) payments instruments/schemes; (vii) correspondent banking; (viii) critical service providers; and (ix) trade repositories (TR).
- ECB lead overseer responsibilities include: TARGET2, EURO 1, STEP2, and CLS euro settlement; select payment card schemes (including VISA Europe, Amex and Diners); and payment instruments, including SEPA Credit Transfer and SEPA Direct Debit.
- ECB does not have a clear oversight responsibility for post-trade infrastructures (CSDs, SSSs, CCPs); responsibility lies with Eurosystem NCBs on the basis of national legislation differing across EA jurisdictions.
- EMIR and the prospective CSD Regulation will harmonize (at the EU level) regulatory requirements and many implementation aspects for FMIs to which they apply, including licensing and cooperation among authorities.
- ECB adopted standards for use of EU SSSs involved in ESCB credit operations and assesses systems for qualification as settlement systems for monetary policy operations.
- ECB is lead overseer for the future critical service provider TARGET2-Securities (T2S), a Eurosystem owned and operated service offering securities settlement services to CSDs.

### Summary assessment and prioritized recommendations — major policy findings
- Entrust ECB to coordinate the Eurosystem oversight function:
  - Recommendation: ECB should be entrusted to coordinate the Eurosystem oversight function to ensure international principles for FMIs are consistently enforced throughout the EA.
  - Rationale: regulation and oversight of systemically important FMIs has differed across the EA with potential contagion systemic risk; entrusting the ECB would strengthen financial stability by ensuring EA-wide policy objectives, harmonized regulation, and consistent implementation.
- Increase use of legally binding corrective action:
  - ECB currently relies mainly on “soft” tools (moral suasion, publication of assessments, public statements, cooperation).
  - Recommendation: ECB should rely more on its power to issue legally binding corrective action, including imposing sanctions, penalty, suspending some operations or services, etc., to effectively enforce oversight responsibilities.
  - Where ECB does not have an exclusive mandate over post-trade FMIs, it should coordinate corrective measures with relevant securities regulators and banking supervisors.
  - ECB should be actively involved in any EU legislation addressed to FMIs, as it would affect the effectiveness of its oversight responsibility.
- Recognize role of ECB/Eurosystem as central bank of issue for post-trade FMIs:
  - Recommendation: recognition of the ECB/Eurosystem role as central bank of issue for regulation and oversight of CSDs, SSSs and TRs, in line with its recognized role for CCP regulation and oversight under EMIR and the CPSS-IOSCO Responsibilities.
- Clarify separation between service provider and overseer roles:
  - Operational and oversight functions hosted by separate Divisions within same Directorate General, with separate working groups and separate reporting to different members of the ECB Executive Board.
  - Recommendation: provide further public clarity on separation to avoid potential or perceived conflicts of interest, enhancing transparency and accountability.
- Strengthen ECB oversight capacity:
  - Oversight team defines Eurosystem strategy and policy, develops rules and guidance, coordinates Eurosystem work, contributes to international fora, and will participate in EU CCP colleges.
  - Recommendation: ECB oversight staff should be significantly increased to implement a new risk-based approach credibly and contribute actively to European and international fora.

### Crisis management and cooperation
- ECB plays a leading role in coordinating crisis management and has established a crisis-communication framework to enhance information sharing between overseers in the ESCB.
- Framework intended to go beyond system-specific cooperative oversight frameworks because system-specific frameworks might not be sufficient for certain types of crisis.

### ECB advisory role and relevant authorities
- ECB should be consulted in relation to proposed EU community acts and draft national legislation, and may submit (on its own initiative) opinions to the appropriate EU institutions and national authorities.
- Relevant authorities involved: Council of the EU and the European Parliament; European Commission; Eurosystem (ECB and NCBs of the euro area); National Central Banks (NCBs); ESMA; European Systemic Risk Board (ESRB).
- EMIR and the forthcoming CSDR identified as principal EU legislative initiatives; other initiatives include revisions of the Markets in Financial Instruments Directive and of the Capital Requirements Directive.
- T2S aims to bring all securities and cash accounts together on one technical platform to settle nearly all securities transactions in Europe on that platform; T2S will not constitute a CSD or an SSS in the legal sense.

### Summary assessment of observance of responsibilities
- Assessment finds the ECB observing all the responsibilities of authorities for FMIs. (para. 24)
- Table 3. European Union: Rating Summary — Assessment Category Responsibility: Observed Responsibilities A, B, C, D and E.

### Prioritized recommendations (from Table 4) — responsibilities and timeframes
- Strengthen the ECB’s legal basis for its oversight responsibility for systemically important FMIs for payments. — Responsibility: ECB/Eurosystem. Timeframe: Medium-term.
- Entrust the ECB to coordinate the oversight of systemically important Post trade FMIs with cross-border dimension in the EA. — Responsibility: ECB. Timeframe: Short-term.
- ECB to rely more on legally binding corrective action for FMIs, including CSDs, SSSs and TRs. — Responsibility: ECB/Eurosystem. Timeframe: Short-term.
- Ensure the ECB’s role in legislation on CSDs/SSSs regulation and oversight. — Responsibility: EC, ESMA. Timeframe: Short-term.
- ECB should have access to real-time information on TARGET2 participants’ account balance, liquidity. — Responsibility: Eurosystem. Timeframe: Short-term.
- Timely and material staff increase for the ECB oversight function. — Responsibility: ECB. Timeframe: Short-term.
- Further enhance clarity on the separation between the oversight and the operation functions throughout the ECB and its committees. — Responsibility: ECB/Eurosystem. Timeframe: Medium-term.
- Adopt the PFMIs as Eurosystem oversight standards. — Responsibility: Eurosystem. Timeframe: Short-term.

### Responsibility A: Regulation, supervision, and oversight of FMIs — key findings
- LVPS: ECB considers every LVPS settling euro-denominated transactions systemically important and applies a specific oversight framework based on the CPSS Core Principles for SIPS (CPSIPS), adopted in 2001; complemented by Business Continuity Oversight Expectations (BCOE) adopted in 2006. These standards will soon be replaced by the new PFMIs. ECB envisages issuing regulations to make the PFMIs legally binding for SIPS in the EA.
- Lead overseer roles: TARGET2, EURO 1, STEP 2, and CLS (for settlement of euro-denominated transactions); ECB lead overseer for STEP2 and T2S (when operational).
- Retail payment systems: three-category classification (SIRPS, PIRPS, other). Quantitative indicators for SIRPS classification:
  - market share of more than 75 percent;
  - processing of payments with a total value of more than 10 percent of the national RTGS system, or average daily value of more than €10 billion;
  - concentration ratio of 80 percent or more, netting ratio of 10 percent or less, or net debit position > €1 billion.
- CSD/CCP/SSS: ECB’s oversight competence for post-trade infrastructure not clearly defined in its statute; ECB relies on non-oversight tools to influence SSS and CCP design and operation; individual NCBs conduct oversight of post-trade FMIs under national law.
- TRs and CSPs: ECB participates in cooperative oversight arrangements for TRs with global reach and oversees service providers that provide critical services to several key systems (e.g., participation in SWIFT cooperative oversight; primary overseer for T2S).
- New EU regulation: EMIR (Regulation No. 648/2012 of July 4, 2012) entered into force in August 2012; EMIR RTS submitted late September 2012; proposed CSDR expected to be finalized by mid–2013.

### Responsibility B: Powers, information, and resources — key findings and figures
- Legal basis: Treaty (Article 127(2)), Protocol on the Statute of the ESCB (Article 3.1), Article 22 of the Statute of the ESCB (ECB may make regulations to ensure efficient and sound clearing and payment systems).
- Enforcement tools: ECB may issue regulations and decisions (binding), but historically has refrained from oversight over post-trade infrastructures; EMIR broadens ESCB oversight mandate in relation to CCPs and envisages central bank overseers in CCP colleges.
- Information powers:
  - Regular reporting, ad hoc information requests, system documentation, bilateral contacts, and published statistics (ECB Statistical Data Warehouse).
  - TARGET2/EURO 1 reporting framework: 53 indicators (with a further 17 sub-indicators). Data reporting: monthly basis.
  - No real-time access to TARGET2 participant intraday positions at ECB level; real-time participant information available to individual NCBs.
  - TARGET2 Simulator: real transaction level data available since May 2008 with a time-lag of one day.
- Ability to induce change: for post-trade FMIs ECB lacks legal power to issue legally binding corrective actions and relies on soft tools (moral suasion, name and shame); envisaged ECB Regulation would include sanctions for SIPS non-compliance.
- Oversight Division staffing and resources:
  - Oversight Division currently has 21 staff, of which 14 are permanent staff, while seven persons have temporary and time-limited contracts.
  - ECB Governing Council allocated one additional (permanent) FTE to the Oversight Division as from 2013; two FTEs will be moved to the Oversight Division from other divisions.
  - Resource pressures: additional tasks in 2013, including global cooperative oversight arrangements for CCPs and a TR, will require significant additional resources; all CCPs authorized in the EU will have to (re-)apply for authorization within six months of RTS entering into force (noted as 2013 workload pressure).
- Legal protections: ECB staff in Oversight Division enjoy immunity from legal proceedings (Article 12a Protocol of April 8, 1965; Article 40 ESCB/ECB Statute), limited liability for damages except in gross negligence or wilful misconduct, and subject to Court of Justice of the EU jurisdiction for personal liability (Article 268, 340 TFEU, 35.5 ESCB/ECB Statute). Executive Board members enjoy full diplomatic immunity.

### Responsibility C: Disclosure of policies — key findings
- Eurosystem oversight policy framework published July 5, 2011; Eurosystem oversight reports published regularly (e.g., Eurosystem Oversight Report 2011, April 19, 2012).
- Oversight documentation and guidance publicly disclosed via ECB website, publications, seminars, conferences, Annual Reports, Monthly Bulletins, Financial Stability Reviews, and public speeches.
- Relevant published oversight documents include:
  - Role of the Eurosystem in the field of payment systems oversight, June 21, 2000.
  - Oversight standards for euro retail payment systems, June 26, 2003.
  - Business continuity oversight expectations for SIPS, June 9, 2006.
  - Recommendations for securities settlement systems and central counterparties in the EU – ECB and CESR, June 23, 2009.
  - Eurosystem oversight policy framework, July 5, 2011.
  - Eurosystem Oversight Report 2011, April 19, 2012.

### Responsibility D: Application of CPSS-IOSCO PFMIs — key findings
- ECB preparing a legal act (using Article 22 powers) to make the PFMIs legally binding for systemically important payment systems; envisaged to enter into force in Spring 2013.
- EMIR (entered into force August 2012) and related RTS intended to make the PFMIs legally binding for CCPs and TRs in the EU (RTS timing uncertain at time of writing).
- Proposed CSDR and related RTS expected to make the PFMIs legally binding for CSDs and SSSs in the EU (timing not fully clear; CSDR expected mid–2013).
- Application consistency:
  - Legal Acts will be published in the Official Journal; interim ECB/Eurosystem oversight policy would be published on ECB website if adopted.
  - Operational and oversight functions are separated within ECB: separate divisions, formalized relations, restricted access to oversight-collected data by operations, and different Executive Board members responsible for operations and oversight.
  - Governing Council decisions to prevent conflicts in T2S program governance: T2S oversight staff not on Program Board; Program Board members not involved in oversight of CSDs outsourcing to T2S.
- Enforcement for non-observance: ECB lacks power to force post-trade FMIs to comply except when acting as lead overseer; Eurosystem NCBs have a range of tools from soft to legally binding; envisaged ECB Regulation for SIPS to include sanctioning power.

### Responsibility E: Cooperation with other authorities — key findings
- ECB/Eurosystem have comprehensive cooperation with EU and international authorities: European Commission, European Council, EBA, ESMA, CESR, ESRB, Federal Reserve, Bank of England, Bank of Japan, People’s Bank of China, CPSS membership, and contribution to CPSS-IOSCO PFMIs.
- Cooperative oversight arrangements in place for global and European FMIs: CLS, SWIFT, DDRL, IceClear, LCH.Clearnet, Euroclear Bank, EuroCHATS, and lead oversight for future TARGET2-Securities.
- Colleges: EMIR colleges for CCPs will include central bank overseers and central bank of issue; cooperative arrangements for CSDs/SSSs under CSDR are foreseen; substructure under the PSSC envisaged to exchange information and coordinate Eurosystem representatives in Colleges.
- Crisis communication: procedures and crisis communication framework exist; lead overseer may initiate conference calls; ECB plays leading/coordinating role in crisis communication and management.
- Notification and coordination: lead overseer notifies other relevant overseers when material changes or regulatory amendments are planned; oversight committees and written agreements guide colleges and cooperative arrangements.
- Assessment and sharing: lead overseer or regulator periodically assesses FMIs and shares assessment outcomes with participating authorities; participating authorities may prepare independent analyses and share with the Oversight Committee.

### Key conclusions and actionable recommendations
- Enhance legal and enforcement framework:
  - Strengthen the ECB’s legal basis for oversight responsibility for systemically important FMIs within the EA.
  - Empower the ECB to issue and impose legally binding oversight measures to enforce oversight on all types of FMIs.
  - Entrust the ECB to coordinate oversight of systemically important FMIs with substantial cross-border activities.
- Improve information access and monitoring:
  - Provide the ECB with real-time information about TARGET2 participants’ positions, including centralization of monitoring of participants’ liquidity and, when possible, collateral positions at ECB level.
- Strengthen oversight capacity and tools:
  - Develop further analytical oversight tools to allow a risk-based and forward-looking oversight approach.
  - Increase significantly the number of Oversight Division staff to ensure credible fulfillment of responsibilities (current staffing: 21 staff: 14 permanent, 7 temporary; one additional permanent FTE allocated as from 2013; two FTEs to be moved to Oversight Division).
- Clarify governance and transparency:
  - Further enhance clarity on the separation between oversight and operation functions throughout the ECB and its committees to reduce potential conflicts of interest and improve external transparency and accountability.
- Adopt and apply standards:
  - Adopt the PFMIs as Eurosystem oversight standards and implement relevant legal acts (EMIR, CSDR, related RTS) to make PFMIs legally binding across FMIs.

*Source: EXECUTIVE SUMMARY, _cr1435 - INTERNATIONAL MONETARY FUND*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### _cr1435 - EXECUTIVE SUMMARY

### Overview
- The ECB’s oversight framework is described as comprehensive, with a wide-ranging oversight policy and quantitative and qualitative criteria to identify, monitor, and remedy potential systemic risks related to financial market infrastructures (FMIs).
- The ECB has developed oversight standards covering a broad range of infrastructures, service providers, and payment schemes within the euro area (EA), and extensive oversight cooperation at European and global levels.
- The ECB is 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 cross-border reach.
- Adoption of the PFMIs as legally binding is noted as a positive step, but the PFMIs are not considered sufficiently detailed to ensure uniform and harmonized implementation across the EA because enforcement for post-trade FMIs will be conducted by national competent authorities on a decentralized basis (except for TRs, for which the supervisory responsibility lies with ESMA).

### Methodology used for assessment
- The assessment of the ECB’s observance of the Principles for Financial Market Infrastructures (PFMI) was undertaken in the context of the IMF’s Financial Sector Assessment Program (FSAP) of the EU.
- The assessor was Elias Kazarian of the IMF’s Monetary and Capital Markets Department (MCM).
- The report presents only the outcome of an assessment of the Responsibilities of Authorities (RA); assessment of TARGET2 against the principles is planned at a later stage.
- The assessment was based on a self-assessment prepared by the ECB, a wide range of public and non-public documentation, and discussions with the ECB Directorate General Payments and Market Infrastructure senior management and staff.
- The assessment is limited to ECB’s oversight activities; Eurosystem national central banks’ oversight activities are out of scope except where necessary.
- The assessment was based on information received during the first part of 2013 and does not take into account the evolution of EU regulation.

### CCP landscape and FMI infrastructure (selected factual findings)
- Large-value payment systems in the EA:
  - There are two large-value payment systems: TARGET2 and EURO1.
  - TARGET2 is a centralized real time gross settlement (RTGS) system owned and operated by the Eurosystem.
  - EURO1 is owned and operated by the European Banking Association (EBA) Clearing and settles end-of-day balances in euro in TARGET2.
- Retail systems and cards:
  - STEP1 and STEP2 are two EA-wide retail payment systems set up to complement EURO1.
  - At the end of 2012, there were 20 retail payment systems in the EA (the five largest retail systems hold a market share of some 85 percent in terms of number of transactions processed).
  - 25 national and six international card schemes operate in the EA.
- CCPs and post-trade infrastructures:
  - In 2012, the EA securities and derivatives markets were served by nine officially registered CCPs.
  - Euro-denominated instruments are also cleared by CCPs located outside the EA, including LCH.Clearnet Ltd (U.K.), ICE Clear Europe (U.K.), and SIX x-clear (Switzerland).
  - There are 25 securities settlement systems (SSSs) operating in the EA, of which 23 are eligible for the delivery of securities to the Eurosystem as collateral in central bank credit operations.
  - All EA central securities depositories (CSDs) offer settlement in central bank money; the two international CSDs (ICSDs) offer settlement in commercial bank money.
- Trade repositories:
  - There is one trade repository (TR) within the EA, REGIS-TR, operational since December 2010.
  - OTC derivatives contracts in euro or with EA counterparts are, as a rule, reported to DTCC Derivatives Repository Limited (DDRL U.K.).

### ECB oversight policy framework and roles
- The Eurosystem’s oversight covers:
  - (i) large-value payment systems; (ii) retail payment systems; (iii) central securities depositories (CSDs); (iv) securities settlement systems (SSSs); (v) central counterparties (CCPs); (vi) payments instruments/schemes; (vii) correspondent banking; (viii) critical service providers; and (ix) trade repositories (TR).
- The ECB has responsibility as lead overseer for select payment systems, including: TARGET2, EURO 1, STEP2, and CLS euro settlement; select payment card schemes (including VISA Europe, Amex and Diners); and payment instruments, including SEPA Credit Transfer and SEPA Direct Debit.
- The ECB does not have a clear oversight responsibility for post-trade infrastructures (CSDs, SSSs, CCPs); responsibility lies with Eurosystem NCBs on the basis of national legislation differing across EA jurisdictions.
- The new EMIR and the prospective CSD Regulation will harmonize (at the EU level) regulatory requirements and many implementation aspects for FMIs to which they apply, including licensing and cooperation among authorities.
- The ECB adopted standards for use of EU SSSs involved in ESCB credit operations and assesses systems for qualification as settlement systems for monetary policy operations.
- The ECB is lead overseer for the future critical service provider TARGET2-Securities (T2S), a Eurosystem owned and operated service offering securities settlement services to CSDs.

### Summary assessment and prioritized recommendations (major policy findings)
- Entrust the ECB to coordinate the Eurosystem oversight function:
  - The report recommends the ECB should be entrusted to coordinate the Eurosystem oversight function to ensure international principles for FMIs are consistently enforced throughout the EA.
  - Rationale: regulation and oversight of systemically important FMIs has differed across the EA with potential contagion systemic risk; entrusting the ECB would strengthen financial stability by ensuring EA-wide policy objectives, harmonized regulation, and consistent implementation.
- Increase use of legally binding corrective action:
  - The ECB currently relies mainly on “soft” tools (moral suasion, publication of assessments, public statements, cooperation).
  - Recommendation: the ECB should rely more on its power to issue legally binding corrective action, including imposing sanctions, penalty, suspending some operations or services, etc., to effectively enforce oversight responsibilities.
  - Where the ECB does not have an exclusive mandate over post-trade FMIs, it should coordinate corrective measures with relevant securities regulators and banking supervisors.
  - The ECB should be actively involved in any EU legislation addressed to FMIs, as it would affect the effectiveness of its oversight responsibility.
- Recognize the role of the ECB/Eurosystem as central bank of issue for post-trade FMIs:
  - The report recommends recognition of the ECB/Eurosystem role as central bank of issue for regulation and oversight of CSDs, SSSs and TRs, in line with its recognized role for CCP regulation and oversight under EMIR and the CPSS-IOSCO Responsibilities.
- Clarify separation between service provider and overseer roles:
  - The ECB’s operation and oversight functions are hosted by separate Divisions within the same Directorate General, with separate working groups and separate reporting to different members of the ECB Executive Board.
  - Recommendation: provide further public clarity on separation to avoid potential or perceived conflicts of interest, enhancing transparency and accountability.
- Strengthen ECB oversight capacity:
  - The ECB oversight team defines Eurosystem strategy and policy, develops rules and guidance, coordinates Eurosystem work, contributes to international fora, and will participate in EU CCP colleges.
  - Recommendation: ECB oversight staff should be significantly increased to implement a new risk-based approach credibly and contribute actively to European and international fora.

### Crisis management and cooperation
- The ECB plays a leading role in coordinating crisis management and has established a crisis-communication framework to enhance information sharing between overseers in the ESCB.
- The framework is intended to go beyond system-specific cooperative oversight frameworks because system-specific frameworks might not be sufficient for certain types of crisis.

*Source: EXECUTIVE SUMMARY, _cr1435 - INTERNATIONAL MONETARY FUND*

### 14.      The ECB plays an important advisory role within the EU. Based on its statute, the ECB

### _cr1435 - 14.      The ECB plays an important advisory role within the EU. Based on its statute, the ECB

### ECB advisory role
- The ECB should be consulted in relation to proposed EU community acts and draft national legislation, and may submit (on its own initiative) opinions to the appropriate EU institutions and national authorities.
- ECB opinions and other less formal communications constitute important tools in influencing legal and regulatory developments. (para. 14)

### Relevant authorities involved
- Council of the EU and the European Parliament
  - Empowered by the Treaty of EU to adopt legal acts, which may include rules relating to credit and other financial institutions, the provision of financial services, payments, financial instruments, and market infrastructures. (para. 15)
- European Commission
  - Acts as the guardian of the EU’s treaties with the power to propose legislation to parliament and to the council; works in the interests of the EU as a whole and seeks to create a single market with a level playing field and equal opportunities throughout the EU. (para. 16)
- Eurosystem (ECB and NCBs of the euro area)
  - Assigned oversight responsibilities by the treaty.
  - The Governing Council of the ECB defines the Eurosystem oversight policies, standards, and rules for euro payment systems, payment instruments and post-trade FMIs.
  - The Eurosystem jurisdiction is the EA. (para. 17)
- ECB enforcement and evolving responsibilities
  - Has enforcement responsibility in relation to payment systems and instruments, and will obtain responsibilities in relation to EU CCP Colleges.
  - The nature of ECB involvement in TRs will be shaped by the Regulatory Technical Standards (RTS) prepared by European Securities and Markets (ESMA).
  - The Central Securities Depositories Regulation (CSDR) and related RTS will determine the nature of possible ECB involvement in CSD/SSS regulation and oversight. (para. 18)
- National Central Banks (NCBs)
  - Responsible for enforcement of Eurosystem oversight policies and standards in relation to payment systems and instruments, and will obtain responsibilities in relation to EU CCP Colleges.
  - Central bank oversight of clearing and settlement systems in the euro area is conducted by NCBs under national law competencies (i.e., not under Eurosystem competence), alongside regulation by securities regulators and banking supervisors. (para. 19)
- ESMA
  - Contributes to supervision of financial services firms with a pan-European reach through direct supervision or active coordination of national supervisory activity.
  - Entrusted with the definition of secondary legislation (regulatory technical standards, implementation standards, and regulatory guidelines) concerning post-trade FMIs, as well as enforcement of such rules in relation to post-trade FMIs. (para. 20)
- European Systemic Risk Board (ESRB)
  - Independent body responsible for macro-prudential oversight of the EU financial system.
  - Contributes to prevention or mitigation of systemic risks to financial stability arising from developments within the financial system (e.g., in relation to CCP activities), to avoid periods of widespread financial distress. (para. 21)

### Major changes and reforms
- Principal EU legislative initiatives
  - EMIR and the forthcoming CSDR are the two most important initiatives.
  - Other initiatives include revisions of the Markets in Financial Instruments Directive and of the Capital Requirements Directive. (para. 22)
- T2S (Target2-Securities) development
  - T2S aims to bring all securities and cash accounts together on one technical platform to settle nearly all securities transactions in Europe on that platform.
  - T2S will not constitute a CSD or an SSS in the legal sense (e.g., as defined in the Settlement Finality Directive); it is purely an IT platform to be used by CSDs to settle their securities transactions with immediate legal validity in T2S.
  - CSDs will maintain their legal relationships with their customers and continue to perform their custody and notary functions. (para. 23)

### Summary assessment of observance of responsibilities
- The assessment finds the ECB observing all the responsibilities of authorities for FMIs. (para. 24)
- Table 3. European Union: Rating Summary
  - Assessment Category Responsibility
    - Observed Responsibilities A, B, C, D and E
    - Broadly observed -
    - Partly observed -
    - Not observed -
    - Not applicable - (para. 24 / Table 3)

### Recommendations for the authorities
- Adoption of Principles for FMIs
  - The Governing Council should adopt the CPSS-IOSCO Principles for FMIs as Eurosystem oversight standards.
  - It is not entirely clear when and whether the Principles for FMIs would be adopted by EA national authorities.
  - Early adoption by the Eurosystem will allow for harmonized provisions and rules throughout the EA and timely strengthening of its oversight standards. (para. 25)
- Use of legally binding corrective action
  - The ECB should rely more on its power to issue legally binding corrective action to effectively enforce its oversight responsibilities.
  - Current tools have worked so far, but with more demanding oversight standards they may not be effective in all circumstances to address potential deficiencies or induce prompt crucial changes to enhance a system’s soundness.
  - Legally binding corrective action could include imposing sanctions, penalty, suspending some operations or services, etc.
  - As the ECB does not have an exclusive mandate over post-trade FMIs, it should coordinate corrective measures with relevant securities regulators and banking supervisors.
  - The ECB should be actively involved in any EU legislation addressed to FMIs, as it would affect its oversight responsibility. (para. 26)
- Resource needs and forward-looking oversight
  - The ECB is moving toward a risk-based and forward-looking oversight approach by developing new and more quantitative and dynamic analytical oversight tools.
  - The ECB is increasingly involved in cooperative oversight arrangements and will obtain new legal responsibilities (e.g., as central bank of issue in EMIR colleges).
  - To ensure consistent, proactive, and credible fulfillment of its responsibilities, a timely and significant resource increase should be granted to the oversight function in the DG-P. (para. 27)
- Recognition of central bank role in CSD/SSS oversight
  - The smooth functioning of CCPs and CSDs/SSSs is of vital importance to the central bank because of its responsibilities in monetary policy, payment systems, and financial stability.
  - EU legislation recognizes the role of central banks in relation to CCP regulation and oversight.
  - It is recommended that the oversight role and interest of the ECB, as a central bank of issue, be also recognized in upcoming EU legislation on CSDs and SSSs oversight and regulation.
  - Consistency should be ensured between the Eurosystem/ESCB role in CSD/SSS oversight standard setting at EU and global level.
  - The ECB should be entrusted the role of oversight coordinator to ensure consistent implementation of regulation and rules throughout the EA. (para. 28)

*Source: IMF staff assessment as presented in the provided content.*

### 29.      The ECB’s oversight role is effectively structured and organized, but further clarity on

### 29.      The ECB’s oversight role is effectively structured and organized, but further clarity on

### Summary assessment
- The ECB has developed a comprehensive oversight policy framework, including quantitative and qualitative criteria to identify systemically important market infrastructures.
- The ECB’s oversight framework, including policies, objectives, and instruments, are publicly disclosed.
- The ECB has powers and authority to fulfill oversight responsibilities for payment systems, but lacks full legal powers for post-trade FMIs (CSDs, CCPs, SSSs, TRs); EMIR and the draft CSDR strengthen the ECB’s legal footing for post-trade oversight to some extent.
- Operational and oversight functions are separated within the ECB, but further clarity and external transparency on separation is warranted.
- Assessment summary: Observed (for multiple assessed responsibilities), with recommendations to strengthen legal basis, enforcement powers, information access, analytical tools, and resources.

### Prioritized recommendations (from Table 4)
- Strengthen the ECB’s legal basis for its oversight responsibility for systemically important FMIs for payments. — Responsibility: ECB/Eurosystem. Timeframe: Medium-term.
- Entrust the ECB to coordinate the oversight of systemically important Post trade FMIs with cross-border dimension in the EA. — Responsibility: ECB. Timeframe: Short-term.
- ECB to rely more on legally binding corrective action for FMIs, including CSDs, SSSs and TRs. — Responsibility: ECB/Eurosystem. Timeframe: Short-term.
- Ensure the ECB’s role in legislation on CSDs/SSSs regulation and oversight. — Responsibility: EC, ESMA. Timeframe: Short-term.
- ECB should have access to real-time information on TARGET2 participants’ account balance, liquidity. — Responsibility: Eurosystem. Timeframe: Short-term.
- Timely and material staff increase for the ECB oversight function. — Responsibility: ECB. Timeframe: Short-term.
- Further enhance clarity on the separation between the oversight and the operation functions throughout the ECB and its committees. — Responsibility: ECB/Eurosystem. Timeframe: Medium-term.
- Adopt the PFMIs as Eurosystem oversight standards. — Responsibility: Eurosystem. Timeframe: Short-term.

### Responsibility A: Regulation, supervision, and oversight of FMIs — key findings
- LVPS: ECB considers every LVPS settling euro-denominated transactions systemically important and applies a specific oversight framework based on the CPSS Core Principles for SIPS (CPSIPS), adopted by the ECB Governing Council in 2001; complemented by Business Continuity Oversight Expectations (BCOE) adopted in 2006. These standards will soon be replaced by the new PFMIs. It is envisaged that the ECB will issue regulations to make the PFMIs legally binding for SIPS in the EA.
- Lead overseer roles: TARGET2, EURO 1, STEP 2, and CLS (for settlement of euro-denominated transactions); ECB lead overseer for STEP2 and T2S (when operational).
- Retail payment systems: three-category classification (SIRPS, PIRPS, other). Quantitative indicators for SIRPS classification:
  - market share of more than 75 percent;
  - processing of payments with a total value of more than 10 percent of the national RTGS system, or average daily value of more than €10 billion;
  - concentration ratio of 80 percent or more, netting ratio of 10 percent or less, or net debit position > €1 billion.
- CSD/CCP/SSS: ECB’s oversight competence for post-trade infrastructure is not clearly defined in its statute; ECB relies on non-oversight tools to influence SSS and CCP design and operation; individual NCBs conduct oversight of post-trade FMIs under national law.
- TRs and CSPs: ECB participates in cooperative oversight arrangements for TRs with global reach and oversees service providers that provide critical services to several key systems (e.g., participation in SWIFT cooperative oversight; primary overseer for T2S).
- New EU regulation: EMIR (Regulation No. 648/2012 of July 4, 2012) entered into force in August 2012; EMIR RTS submitted late September 2012; proposed CSDR expected to be finalized by mid–2013.

### Responsibility B: Powers, information, and resources — key findings and figures
- Legal basis: Treaty (Article 127(2)), Protocol on the Statute of the ESCB (Article 3.1), Article 22 of the Statute of the ESCB (ECB may make regulations to ensure efficient and sound clearing and payment systems).
- Enforcement tools: ECB may issue regulations and decisions (binding), but historically has refrained from oversight over post-trade infrastructures; EMIR broadens ESCB oversight mandate in relation to CCPs and envisages central bank overseers in CCP colleges.
- Information powers:
  - ECB uses regular reporting, ad hoc information requests, system documentation, bilateral contacts, and published statistics (ECB Statistical Data Warehouse).
  - TARGET2/EURO 1 reporting framework: 53 indicators (with a further 17 sub-indicators). Data reporting: monthly basis.
  - No real-time access to TARGET2 participant intraday positions at ECB level; real-time participant information available to individual NCBs.
  - TARGET2 Simulator: real transaction level data available since May 2008 with a time-lag of one day.
- Ability to induce change: for post-trade FMIs ECB lacks legal power to issue legally binding corrective actions and relies on soft tools (moral suasion, name and shame); envisaged ECB Regulation would include sanctions for SIPS non-compliance.
- Oversight Division staffing and resources:
  - Oversight Division currently has 21 staff, of which 14 are permanent staff, while seven persons have temporary and time-limited contracts.
  - ECB Governing Council allocated one additional (permanent) FTE to the Oversight Division as from 2013; two FTEs will be moved to the Oversight Division from other divisions.
  - Resource pressures: additional tasks in 2013, including global cooperative oversight arrangements for CCPs and a TR, will require significant additional resources; all CCPs authorized in the EU will have to (re-)apply for authorization within six months of RTS entering into force (noted as 2013 workload pressure).
- Legal protections: ECB staff in Oversight Division enjoy immunity from legal proceedings (Article 12a Protocol of April 8, 1965; Article 40 ESCB/ECB Statute), limited liability for damages except in gross negligence or wilful misconduct, and subject to Court of Justice of the EU jurisdiction for personal liability (Article 268, 340 TFEU, 35.5 ESCB/ECB Statute). Executive Board members enjoy full diplomatic immunity.

### Responsibility C: Disclosure of policies — key findings
- Eurosystem oversight policy framework published July 5, 2011; Eurosystem oversight reports published regularly (e.g., Eurosystem Oversight Report 2011, April 19, 2012).
- Oversight documentation and guidance publicly disclosed via ECB website, publications, seminars, conferences, Annual Reports, Monthly Bulletins, Financial Stability Reviews, and public speeches.
- Relevant published oversight documents listed, including:
  - Role of the Eurosystem in the field of payment systems oversight, June 21, 2000.
  - Oversight standards for euro retail payment systems, June 26, 2003.
  - Business continuity oversight expectations for SIPS, June 9, 2006.
  - Recommendations for securities settlement systems and central counterparties in the EU – ECB and CESR, June 23, 2009.
  - Eurosystem oversight policy framework, July 5, 2011.
  - Eurosystem Oversight Report 2011, April 19, 2012.

### Responsibility D: Application of CPSS-IOSCO PFMIs — key findings
- ECB preparing a legal act (using Article 22 powers) to make the PFMIs legally binding for systemically important payment systems; envisaged to enter into force in Spring 2013.
- EMIR (entered into force August 2012) and related RTS are intended to make the PFMIs legally binding for CCPs and TRs in the EU (RTS timing uncertain at time of writing).
- Proposed CSDR and related RTS expected to make the PFMIs legally binding for CSDs and SSSs in the EU (timing not fully clear; CSDR expected mid–2013).
- Application consistency:
  - Legal Acts will be published in the Official Journal; interim ECB/Eurosystem oversight policy would be published on ECB website if adopted.
  - Operational and oversight functions are separated within ECB: separate divisions, formalized relations, restricted access to oversight-collected data by operations, and different Executive Board members responsible for operations and oversight.
  - Governing Council decisions to prevent conflicts in T2S program governance: T2S oversight staff not on Program Board; Program Board members not involved in oversight of CSDs outsourcing to T2S.
- Enforcement for non-observance: ECB lacks power to force post-trade FMIs to comply except when acting as lead overseer; Eurosystem NCBs have a range of tools from soft to legally binding; envisaged ECB Regulation for SIPS to include sanctioning power.

### Responsibility E: Cooperation with other authorities — key findings
- ECB/Eurosystem have comprehensive cooperation with EU and international authorities: European Commission, European Council, EBA, ESMA, CESR, ESRB, Federal Reserve, Bank of England, Bank of Japan, People’s Bank of China, CPSS membership, and contribution to CPSS-IOSCO PFMIs.
- Cooperative oversight arrangements in place for global and European FMIs: CLS, SWIFT, DDRL, IceClear, LCH.Clearnet, Euroclear Bank, EuroCHATS, and lead oversight for future TARGET2-Securities.
- Colleges: EMIR colleges for CCPs will include central bank overseers and central bank of issue; cooperative arrangements for CSDs/SSSs under CSDR are foreseen; a substructure under the PSSC envisaged to exchange information and coordinate Eurosystem representatives in Colleges.
- Crisis communication: procedures and crisis communication framework exist; lead overseer may initiate conference calls; ECB plays leading/coordinating role in crisis communication and management.
- Notification and coordination: lead overseer notifies other relevant overseers when material changes or regulatory amendments are planned; oversight committees and written agreements guide colleges and cooperative arrangements.
- Assessment and sharing: lead overseer or regulator periodically assesses FMIs and shares assessment outcomes with participating authorities; participating authorities may prepare independent analyses and share with the Oversight Committee.

### Key conclusions and actionable recommendations (extracted)
- Enhance legal and enforcement framework:
  - Strengthen the ECB’s legal basis for oversight responsibility for systemically important FMIs within the EA.
  - Empower the ECB to issue and impose legally binding oversight measures to enforce oversight on all types of FMIs.
  - Entrust the ECB to coordinate oversight of systemically important FMIs with substantial cross-border activities.
- Improve information access and monitoring:
  - Provide the ECB with real-time information about TARGET2 participants’ positions, including centralization of monitoring of participants’ liquidity and, when possible, collateral positions at ECB level.
- Strengthen oversight capacity and tools:
  - Develop further analytical oversight tools to allow a risk-based and forward-looking oversight approach.
  - Increase significantly the number of Oversight Division staff to ensure credible fulfillment of responsibilities (current staffing: 21 staff: 14 permanent, 7 temporary; one additional permanent FTE allocated as from 2013; two FTEs to be moved to Oversight Division).
- Clarify governance and transparency:
  - Further enhance clarity on the separation between oversight and operation functions throughout the ECB and its committees to reduce potential conflicts of interest and improve external transparency and accountability.
- Adopt and apply standards:
  - Adopt the PFMIs as Eurosystem oversight standards and implement relevant legal acts (EMIR, CSDR, related RTS) to make PFMIs legally binding across FMIs.

*European Union: IMF Staff Assessment excerpt (content unit 29).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr1435.pdf_