European Union: Detailed Assessment of Implementation of the European Central Bank Observance of the CPSS-IOSCO Responsibilities of Authorities for Financial Market Infrastructure

EXECUTIVE SUMMARYThe oversight framework of the European Central Bank (ECB) is comprehensive. The ECB hasdeveloped a wide-ranging oversight policy, including quantitative and qualitative criteria to identify,monitor, and remedy any potential systemic risks related to financial market infrastructures. It hasalso developed oversight standards covering a broad range of infrastructures, service providers, andpayment schemes within the euro area (EA). Furthermore, it has extensive oversight cooperationwith a wide range of authorities both at the European level and globally. Within the European Union(EU), the ECB has been a driving force to promoting stability and integrating financial infrastructures.Globally, the ECB is deeply involved in shaping the regulatory framework for financial marketinfrastructures (FMIs) by assuming the leadership in developing new principles. It is also involved inseveral global cooperative oversight arrangements covering globally critical payment systems, posttradingFMIs, and the service provider SWIFT.The ECB should be entrusted to coordinate the Eurosystem oversight function to ensure thatinternational principles for FMIs are consistently enforced throughout the EA. The regulationand oversight of systemically important FMIs has differed across the EA with potential contagionsystemic risk affecting the stability of the EA financial system. The adoption of the PFMIs as legallybinding is a step in the right direction. However, these principles are not sufficiently detailed toensure a uniformed and harmonized implementation across the EA, since their enforcement for posttrade FMIs will be conducted by national competent authorities on a decentralized basis (except fortrade repositories, for which the supervisory responsibility lies with ESMA). Currently, the ECB is thelead overseer for payment systems, including TARGET2, EURO 1, STEP 2 and CLS (as concerns thesettlement of euro transactions), but not for systemically important post-trade FMIs with crossborderreach. Therefore, there is merit in entrusting the ECB with responsibility to ensure that theseprinciples are consistently enforced throughout the EA. Assuming such a role would strengthenfinancial stability across the EA by ensuring EA-wide policy objectives, harmonized regulation, andconsistent implementation.The ECB should rely more on its power to issue legally binding corrective action to effectivelyenforce its oversight responsibilities. To implement its oversight responsibilities, the ECB currentlyrelies mainly on 'soft' tools and measures such as moral suasion, publication of oversightassessments, public statements, and cooperation with other authorities. These tools have worked sofar, but with more demanding oversight standards this may not be effective in all circumstances inforcing the system's operators to promptly address potential deficiencies. The ECB should rely moreon legally binding corrective action to effectively enforce its responsibilities, including imposingsanctions, penalty, suspending some operations or services, etc. As it does not have an exclusivemandate over post-trade FMIs, the ECB should coordinate its corrective measures with the relevantsecurities regulators and banking supervisors. Furthermore, the ECB should be actively involved inany EU legislation addressed to FMIs, as it would affect the effectiveness of its oversightresponsibility.