Payment systems oversight and market supervision mainly involve the definition of principles and standards of reference and the assessment of their correct application.
Translating the oversight and supervisory objectives into principles and standards helps increase the transparency of the policies adopted by the authorities, encourages operators to approve governance structures and arrangements for managing legal, financial and operational risks that are consistent with these objectives, and guarantees a level playing field among systems in the various geographical areas by promoting policies on best practices at international level. From this perspective the adoption of international standards seeks to enhance the reliability and efficiency of the payment, clearing and settlement systems, thereby bolstering the smooth functioning and stability of the financial system.
The principles and standards are defined in international fora, notably by the Committee on Payment and Market Infrastructures (CPMI), formerly called the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements, and the Payment and Settlement Systems Committee (PSSC) of the European System of Central Banks (ESCB).
Within the CPMI, international cooperation has produced a series of principles and standards which, together with the documents analyzing and monitoring developments in the various areas of interest, have played a vital role in developing payment and settlement systems for FX, cash and securities transactions.
In April 2012, in response to the global financial crisis, the CPMI and the Technical Committee of the International Organization of Securities Commissions (IOSCO) published a set of international standards for the supervision of systemically important payment systems, central depositories, securities settlement systems, central counterparties, and trade repositories known as Principles for Financial Market Infrastructures (PFMI). The new principles replaced the previous Core Principles for Systemically Important Systems (CPSS-IOSCO 2001), the Recommendations for Securities Settlement Systems (CPSS-IOSCO 2001), the Recommendations for Central Counterparties (CPSS-IOSCO 2004) and Recommendations for Securities Settlement Systems and Recommendations for Central Counterparties in the European Union, formulated by the European System of Central Banks (ESCB) and the Committee of European Securities Regulators (CESR) in 2001.
The 24 principles are subdivided into areas that are important for the systems’ secure and efficient functioning, such as: general organization; credit and liquidity risk management; default management; general business and operational risk management; efficiency; transparency; and access of direct and indirect participants. They are followed by a list of five responsibilities falling to monetary authorities, with a view to ensuring the efficient regulation and supervision of the market infrastructures.
The CPMI and IOSCO also published the Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology, clarifying the forms and content of the necessary disclosure of information by FMIs and providing guidance for assessing compliance with the 24 principles by the financial institutions, and with the 5 responsibilities by the monetary authorities.
In the second quarter of 2013 CPMI-IOSCO began to monitor implementation of the Principles in the various countries and found that Italy was at a similar stage to other Eurosystem countries.
Since 2014 the Principles and their Assessment Methodology have been adopted as standards of reference by the Bank of Italy and Consob, complementing European and national legislation on supervised entities.
Within the PSSC, the Eurosystem conducts supervisory activities in the context of the Eurosystem Oversight Policy Framework published in July 2011 and has translated its objectives into specific standards, mainly based on those developed by the CPSS. More recently the European Central Bank exercised, for the first time, its regulatory powers in the field of payment systems supervision, issuing Regulation EU No 795/2014 on Oversight Requirements for Systemically Important Payment Systems, which made the requirements in the PFMI binding for the four systems identified as systemically important based on specific criteria (Target2, EURO1, STEP2 and the French system CORE). The Eurosystem has also published oversight standards for euro retail payment systems that are not systemically important and for the most widely used payment instruments. In this context the work of the European Forum on the Security of Retail Payments (SecurePay Forum) has also proved important, by providing a common platform for regulators, supervisors and overseers to facilitate pooling of knowledge on secure electronic payment systems and instruments within the European Union.