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Oversight on Systemically Important Payment Systems

De Nederlandsche Bank. Oversight on Systemically Important Payment Systems Paul Osse Conference Financial Sector of Macedonia on Payments and Securities Settlement Systems Ohrid 24 June 2008. Agenda. Oversight general Oversight and Supervision Oversight in NL (general)

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Oversight on Systemically Important Payment Systems

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  1. De Nederlandsche Bank Oversight on Systemically Important Payment Systems Paul OsseConference Financial Sector of Macedonia on Payments and Securities Settlement Systems Ohrid 24 June 2008

  2. Agenda Oversight general Oversight and Supervision Oversight in NL (general) Oversight standards Trends / developments

  3. Oversight general Oversight is a task of a central bank aiming: • tocontribute to the reduction of systemic risks by performing oversight on clearing and settlement systems • to promote the adequate functioning of the payment system by performing oversight on the payment chain/infrastructure

  4. Systemic risk (general) Systemic risk • Systemic risk is the risk that propagation of a serious failure in a sector of the society will imperil other sectors (a ‘domino’ effect). The infection is propagated via the interfaces between the sectors

  5. Systemic risk In case propagation leads to a effect a systemic risk has occurred

  6. Oversight and Supervision • The objective of Supervision is to assess the (financial) health of an individual financial institution • Oversight has its focus on the chain/infrastructure, with specific attention for the security and continuity of the payment infrastructure (payment systems, payment products etc.) • Oversight assesses against (national or international accepted) oversight standards • Oversight can be legally or not legally (moral suasion) based

  7. Oversight in NL (general) Objects of oversight • Payment clearing and settlement systems • Whole sale (DNB: TOP / TARGET, CLS) • Retail (Equens: CSS) (UPSS: UPSS system) • Securities settlement systems • Clearing and settlement systems of Euroclear and LCH.Clearnet (systems used by Euronext) • Retail Paymentchain • Paymentproducts • Otherroles (excl. clearingandsettlement)

  8. Oversight in NL (general) Organization at DNB • Oversight and operations organisational located within the same division • Multidisciplinary staff (11, including head of department): lawyers, risk management experts, (IT) auditors, economists

  9. Oversight in NL (general) Approach / tools (1) • Determination of objects • Prioritisation / risk analyses • Assessments • Monitoring / continuous oversight • Oversight standards / frameworks

  10. Oversight in NL (general) Approach / tools (2) • Authority to set up minimum standards for the objects of oversight (oversight framework) • Assessment of a system, product or a role • prior approval for system or product to ensure adherence to the Oversight Framework • periodical reports on key elements for regular examination

  11. Oversight in NL (general) Approach / tools (3) • Payments become more and more international. Securities are international consequences: • International co-operation with other NCB's, ECB, BIS, CPSS/IOSCO, ESCB CESR • Oversight on Target arranged within ESCB • For other systems a common oversight approach is still missing so case by case MoU’s are drafted/amended

  12. Oversight standards • By using standards the level of playing field is guaranteed Wholesale • Core principles for systemically important payments systems (SIPS)(BIS, January 2001) • Terms of Reference (ToR) for the assessment of Large Value Payment Systems (LVPS)(ECB) • standards and best practices (ROC of DNB, agreements in context of NVB and ESCB) • technical standards (ISO, ECBS, NVB,...)

  13. Oversight on securities • Trade (Authority Financial Markets (AFM)) • Euronext • Clearing (DNB/AFM) • LCH.Clearnet • Settlement (DNB/AFM) • Euroclear • DNB / TOP (DVP-settlement)

  14. Oversight standards Securities • SSSs CPSS/IOSCO Recommendations • CCPsCPSS/IOSCO Recommendations • Oversight Framework CSE (Dutch)

  15. Trends / developments Consolidation / concentration • European consolidation underway • TARGET2 • Single European Payment Area (SEPA) • EuroNext (mergers) • Euroclear (CSD acquisitions) • EC legal initiatives: • Payment Service Directive • Code of Conduct

  16. Trends / developments Specialisation • multiple operators/owners: card schemes, transaction networks, imaging and clearing • new providers of payment products/ payments services • telecom providers • network providers • public transport • non bank ATM’s • acceptant payment service providers

  17. Trends / developments Implications • Few critical systems (operators) will remain • Retail area with local, fragmented functions • Increasing (need for) cooperation between providers (scaling-up, new markets) • Cross-border oversight will become standard

  18. Trends / developments Consequences • Standardisation increasingly important • Increasing (need for) co-operation between overseers (criteria, standards, approach) • Legal and oversight frameworks need to be harmonised (MoU’s) • Increasing (need for) co-operation with other regulators (e.g. supervisors, securities regulators, etc.)

  19. Trends / developments Overseer needs to find balance • Security – efficiency • National – international • Supplier – consumer • Regulation – market

  20. QUESTIONS?

  21. Time’s up……… Thank you for your attention P.W. Osse RE RA CISA De Nederlandsche Bank N.V. +31 20 - 524 3292 p.w.osse@dnb.nl

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