The operational reliability of financial market infrastructures may depend on other infrastructures and service providers to whom they have contracted out critical parts of their operations. This means that the Eurosystem has a keen interest in these other infrastructures and service providers functioning smoothly.
A key principle for the Eurosystem is that the individual systems retain full responsibility for any activity that is crucial to their operation. This includes responsibility for ensuring that other infrastructures and service providers comply with the applicable oversight standards.
TARGET2-Securities (T2S) is a Eurosystem infrastructure that provides the European post-trading industry with a single, borderless, pan-European platform for securities settlement in central bank money.
The Eurosystem has legal competence to oversee T2S. The ECB has primary oversight responsibility for T2S and leads and coordinates all oversight activities.
Furthermore, the Eurosystem has set up the T2S Cooperative Arrangement in line with “Responsibility E: Cooperation with other authorities” of the CPSS-IOSCO Principles for financial market infrastructures (PFMIs) to ensure that all authorities with a legitimate interest in the smooth functioning of T2S are adequately involved.
The T2S Cooperative Arrangement includes the ECB, overseers and supervisors of CSDs using T2S services, central banks of issue for currencies settled in T2S, and the European Securities and Markets Authority (ESMA) in its role as coordinator of the competent authorities for the supervision of CSDs.
T2S oversight includes assessing the general organisation of T2S as a critical infrastructure (i.e. technical platform, legal basis, governance structure and comprehensive risk management framework), as well as the services it provides. The oversight assessments are conducted against an applicable subset of the PFMIs.
In order to operate, financial market infrastructures may depend on the continuous and adequate functioning of service providers to whom they have contracted out critical parts of their operations, such as IT and messaging services. Annex F of the CPSS-IOSCO Principles for financial market infrastructures (PFMIs) sets out specific oversight expectations for these providers.
S.W.I.F.T. SCRL, the Society for Worldwide Interbank Financial Telecommunication, is the messaging service provider for most of the systemically important payment and securities clearing systems.
The G10 central banks, including the ECB, perform cooperative oversight of S.W.I.F.T. As S.W.I.F.T. is incorporated in Belgium, the Nationale Bank van België/Banque Nationale de Belgique acts as lead overseer.
Oversight of S.W.I.F.T. focuses on the security, operational reliability, business continuity and resilience of its infrastructure.
Cooperation between the central banks aims to ensure that S.W.I.F.T. has appropriate governance arrangements, risk management procedures and controls in place. Effective structures and processes are necessary to manage the risks for financial stability and the soundness of financial infrastructures.
Correspondent banks (which provide payment and other services to other banks) and custodian banks (which hold securities for their customers and provide related services) are key components of an economy’s payment and settlement arrangements.
The Eurosystem monitors the financial and operational risks these systems may give rise to, and their potential implications for interdependent financial market infrastructures.
Since 1999 the Eurosystem has conducted surveys on correspondent banking to monitor the size and development of this business.