Market and Payment System Oversight

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The financial system is divided into three parts: institutions, markets, and market infrastructures for handling payments and for the clearing and settlement of financial instruments. Thus, markets, payment systems and instruments, clearing systems (including central counterparties) and settlement systems for payment and securities transactions play a key role in ensuring the stability and efficiency of the financial system and in the economy as a whole. Monetary policy, too, relies on the existence of reliable and efficient payment systems.

A payment system is defined as the set of instruments, procedures, settlement channels, rules and intermediaries that enable money to be transferred from one economic agent to another.

The Bank of Italy participates in European and national payment systems by providing large-value and retail payment services. In this way it contributes to the smooth running of the economy, to financial stability, and to the efficiency and integration of the markets.

By law, the Bank of Italy is also in charge of supervising, regulating and drawing up guidelines relating to payment systems, the settlement of securities transactions, payment instruments, and markets relevant for monetary policy and financial stability. In this way it helps to promote an efficient and reliable financial system and to preserve public confidence in money and other means of payment. The Bank devotes particular attention to the needs of end-users, especially in the field of retail payment services.

As well as overseeing the payment system, the Bank also acts as a catalyst, encouraging private operators to take steps to improve the efficiency of payment infrastructures and services.

Reliable statistics on the payment system and market infrastructures are important to ensure the central bank's accountability when performing its institutional functions, as well as to promote research and innovation in the relevant fields.

The CODISE (committee for business continuity in Italy's financial marketplace) operates under the aegis of the Bank of Italy to coordinate action in the event of operating failures affecting the Italian financial market. It is the contact point for the European System of Central Banks (ESCB) in the event of pan-European failures.

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Oversight of markets relevant for monetary policy and financial stability and of post-trading facilities

Banks manage liquidity by trading funds on the money markets, including to make unexpected payments, and adjust their portfolios by buying and selling financial instruments on securities markets, mostly wholesale. Turbulence on these markets, which affects the transmission of monetary policy, or a malfunction of post-trading facilities (for settling and guaranteeing transactions) can spread suddenly, with potentially devastating effects on the stability of individual banks or of the whole financial system.

For the oversight of wholesale markets in government securities, multilateral trading facilities for euro-denominated deposits and post-trading facilities (centralised management, securities settlement, central counterparties) the Bank of Italy is empowered by law to issue regulations, authorise to engage in business, approve rules of operation, conduct inspections and issue sanctions in the event of serious irregularities. Accordingly, the Bank:

  • verifies the sound and prudent management of the companies providing post-trading facilities,
  • verifies that trading and settlement are conducted securely and efficiently by supervising flows on a daily basis and analysing the activity of operators,
  • monitors continuously the measures in place to limit systemic risk.

The Bank assists the Ministry for Economy and Finance to evaluate the performance of specialists in government securities operating on the secondary wholesale market.

With the entry into force of the European regulations on short selling (Regulation (EU) No 236/2012 of the European Parliament and of the Council, Short Selling Regulation - SSR) and on central counterparties (Regulation (EU) No 648/2012 of the European Parliament and of the Council, European Market Infrastructure Regulation - EMIR) the Bank's responsibilities in the fields of financial markets and post-trading systems have increased. Following the relevant amendments to Italian legislation, the Bank, as competent authority alongside the Ministry for Economy and Finance and Consob, has been given new powers to monitor government securities markets to ensure compliance with the provisions of the SSR. The law implementing the EMIR also empowers to the Bank to set up and manage supervisory boards for central counterparties based in Italy.

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Supervision of payment systems

Payment systems, payment instruments and technologies are the areas on which supervision focuses. Policies and action affecting them are decided according to the relative importance of the aims pursued.

Payment systems dealing with large-value payments, including the settlement of transactions in financial instruments, are key to the smooth operation of the markets, and any malfunction could prevent banking and financial intermediaries from honouring their payments, with repercussions for the conduct of monetary policy and for financial stability. Retail payment systems offer interbank settlement of end-user operations; they are important for the smooth conduct of commercial transactions and so help to maintain the public's confidence in money and in non-cash electronic means of payment.

Efficient and secure retail payment instruments (credit transfers, standing orders, cheques, payment cards and innovative means of payment) bring immediate benefits to end-users (consumers, firms, government departments and agencies) in terms of costs and solutions for different payment needs.

Technology plays a major role in ensuring the smooth operation of payment systems and business continuity.

Major changes have been made to retail payment systems and payment instruments to accommodate the Single Euro Payments Area. SEPA is an important step in European integration and it opens up new opportunities for standardised and innovative payments, both private and public, that are particularly important for Italy.

The tasks of the supervisory function include analysis and monitoring of relevant phenomena based on information collected; assessment of compliance with oversight standards and recommendations; and, where assessment has brought to light a departure from established reliability and efficiency targets, intervention in one of the forms available, ranging from moral suasion and the role of catalyst in discussions with stakeholders, to official statements and the issue of sanctions.

Within the Eurosystem, the Bank shares with the other central banks the task of overseeing the systemically important large-value payment systems TARGET2 and Euro1, the first run by the Eurosystem itself and the second by EBA Clearing, as well as the retail payment system STEP2, a pan-European euro-denominated clearing system run by EBA Clearing.

At national level, the Bank of Italy supervises the domestic component of TARGET2 (TARGET2-Banca d'Italia). Among other tasks, this involves monitoring levels of activity, financial and operational risks, efficiency, and satisfaction of end-user needs.

As "competent national authority" the Bank can also exercise the option offered by several European and national laws regarding the provision of payment services.

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International standards and cooperation agreements

Supervision and oversight have a significant international dimension that stems from the increasing interconnectedness of national systems and the strong presence of central banks and market supervisors at international cooperation fora, where they endeavour to draw up shared international principles and standards with a view to:

  • guaranteeing the reliability of markets and payment securities settlement systems and ensuring their smooth operation even in the event of financial or technical and operational shocks,
  • promoting the efficient provision of payment and settlement services in order to cut costs for operators and end-users and encourage process and product innovation.

The Bank of Italy is a member of the Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI) and Committee on the Global Financial System (CGFS), which is mandated to promote the stability and efficiency of the financial markets.

The Bank also participates in the international Financial Action Task Force (FATF), set up to establish guidelines for combatting money laundering and terrorism financing, phenomena linked particularly to the rapid growth and increasing worldwide use of new means and methods of payment.

Ad hoc cooperation agreements with authorities at home and abroad are an important tool for ensuring effective and efficient supervision and oversight.

Holding public consultations is now a well-established practice in deciding the action to be take in various areas of market and payment system supervision. It is specifically envisaged by the regulations in the case of provisions issued by the Bank of Italy.

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