Opinion of the European Central Bank of 17 March 2021 on the operating and technical requirements and the general terms and conditions for payment system operators (CON/2021/11)
OPINION OF THE EUROPEAN CENTRAL BANK of 17 March 2021 on the operating and technical requirements and the general terms and conditions for payment system operators (CON/2021/11) Introduction and legal basis
On 14 January 2021, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank (MNB) for an opinion on a draft decree on the detailed requirements for operating a payment system and a draft decree on the requirements relating to the general terms and conditions and specific regulations for organisations operating a payment system (hereinafter the ‘draft decrees’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and fifth indents of Article 2(1) of Council Decision 98/415/EC , as the draft decrees relate to the MNB and payment and settlement systems. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.
1. Purpose of the draft decrees
1.1 According to the Law CXXXIX of 2013 on the Magyar Nemzeti Bank (hereinafter the ‘Law on the MNB’), one of the basic tasks of the MNB is to develop and regulate payment and settlement systems, and to oversee and monitor these systems . Under the Law on credit institutions and financial enterprises , operating a payment system qualifies as an auxiliary financial service and is subject to the granting of a licence by the MNB. The Law on the MNB further stipulates that the entry into force of the general terms and conditions of the organisation operating the payment system, and any amendment thereof, is subject to the licence granted by the MNB. When granting the licence the MNB examines whether the general terms and conditions comply with the corresponding regulations . The Law on the MNB mandates the MNB with regulating the detailed rules for operating payment systems and the requirements regarding the general terms and conditions for payment system operators, by issuing decrees . In line with this mandate, the MNB Decree No. 35 of 2009 (XII. 28.) lays down the rules on the material, technical and security requirements for operating payment systems and for business continuity, and the MNB Decree No. 34 of 2009 (XII. 28.) lays
1 Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). down the requirements regarding the general terms and conditions for payment system operators (hereinafter jointly referred to as the ‘existing decrees’). 1.2 The MNB intends to repeal the existing decrees and replace them with the draft decrees. According to the MNB, the reasons for these amendments are twofold. First, the MNB intends to harmonise the existing decrees with the new principles and requirements set out in the Principles for Financial Market Infrastructures issued by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organizations of Securities Commissions (hereinafter the ‘PFMIs’) and – although it does not apply in Hungary – in Regulation (EU) No 795/2014 of the European Central Bank (ECB/2014/28) (hereinafter, the ‘ECB SIPS Regulation’) . Second, on the basis of an assessment carried out in recent years on the application of the existing decrees, the MNB intends to strengthen its oversight power. 1.3 The draft decrees do not affect the current scope of the existing decrees. In particular, the draft decrees would cover both the large-value payment system (i.e. VIBER, the Hungarian real-time gross settlement system operated by the MNB) and the retail payment system (ICS operated by GIRO Ltd.). 1.4 The draft decrees contain a set of technical requirements regarding the operation of payment systems. Apart from these rules of a rather technical nature, the draft decrees propose to introduce general conditions for operating payment systems. Among these general conditions, the draft decrees require payment system operators to have effective and documented governance arrangements and to make these available to the MNB. The draft decrees also state that these governance arrangements must clearly specify the roles and responsibilities of the members of the governance body and of the system’s management. The draft decrees also stipulate that payment system operators must establish comprehensive risk management frameworks to identify, measure, monitor and manage credit risk, liquidity risk, general business risk, custody and investment risk, operational and cyber security risk. While certain provisions of the draft decrees apply to the MNB as a payment system operator, the MNB is exempted from certain requirements , e.g. requirements in relation to effective governance arrangements, the responsibilities and roles of the governance body, the management and control system for the identification, monitoring and managing of business risk, the conditions applicable to the custodian with whom the system operator must hold its assets, and requirements regarding investment policies. 1.5 The draft decrees define the mandatory content of the general terms and conditions for payment system operators. The draft decrees also provide rules on the content and format of the policies of
6 Available on the website of the Bank for International Settlements at www.bis.org.
7 Regulation of the European Central Bank (EU) No 795/2014 of 3 July 2014 on oversight requirements for systemically important payment systems (ECB/2014/28) (OJ L 217, 23.7.2014, p.16).
8 See, in particular, the draft decree on the detailed requirements for operating a payment system.
9 See, in particular, Article 3 of the draft decree on the detailed requirements for operating a payment system.
10 See, in particular, Article 3 of the draft decree on the detailed requirements for operating a payment system.
11 See, in particular, Article 4 of the draft decree on the detailed requirements for operating a payment system.
13 See, in particular, Articles 3 to 16 of the draft decree on the requirements relating to the general terms and conditions and specific regulations for organisations operating a payment system. the payment system operator in relation to managing contingency situations and to managing fees, charges and commissions applied by the system operator.
2. General observations
2.1 Article 139(2)(c) of the Treaty stipulates, inter alia, that the basic objectives and tasks of the European System of Central Banks (ESCB) as listed in Article 127(2) of the Treaty, including promoting the smooth operation of payment systems, will not apply to Member States with a derogation, such as Hungary. The ECB would like to emphasise that, although Member States with a derogation, including Hungary, do not yet participate in the third stage of economic and monetary union, their legislative reforms, in particular when they refer to the national central bank, as the present reform does, should aim to gradually achieve consistency and legal convergence with ESCB standards, in accordance with the convergence process obligations enshrined in the Treaty . 2.2 The draft decrees establish requirements for the operation of payment systems in Hungary in order to ensure their efficient, smooth and sound operation in line with international standards, in particular the PFMIs. The ECB welcomes the MNB’s intention of harmonising the rules on payment system operators with the principles established under the PFMIs, and also – even though it does not apply in Hungary – the ECB SIPS Regulation. The ECB also welcomes the MNB’s intention of strengthening its oversight powers by establishing requirements on governance arrangements, a clear definition of the responsibilities and roles of both the system’s governance body and management, and on risk management.
3. Specific observations
3.1 Definitions There are some inconsistencies between the definitions used in the draft decrees, e.g. the definitions of ‘direct participant’, ‘settlement’ or ‘settlement agent’. Since the scope of each of the draft decrees is identical, it would be useful to align these definitions. The concept of ‘legal, credit, liquidity and operational risks’ are not defined in the draft decrees , leaving room for individual assessments of these risks by system operators. 3.2 Comprehensive risk management control The draft decrees set out a comprehensive and detailed framework with the aim of ensuring the efficiency of risk management controls. 3.3 Requirements related to liquidity risk It is important that payment system operators and the participants of the payment system have a comprehensive liquidity risk management framework in which settlement and funding flow are identified, measured and monitored. Where payment systems are subject to the draft decrees, it is
14 See paragraph 3.4 of Opinion CON/2008/34 and paragraphs 2.1 and 2.6 of Opinion CON/2020/13. All ECB opinions are published on EUR-Lex.
15 See Article 7 of the draft decree on the requirements relating to the general terms and conditions and specific not the payment system operator but the participants of the payment system who provide liquidity. Taking this into account, the ECB understands that it is not necessary that the draft decrees contain requirements vis-á-vis the payment system operator in respect of liquidity risk management. Nevertheless, the payment system operator should ensure that participants hold sufficient liquid resources at all times, from the moment financial obligations are established, in all currencies in which it operates, to ensure same-day settlement of financial obligations in a wide range of potential stress scenarios. The draft decrees contain requirements regarding comprehensive risk management . The draft decrees also require that the payment system operator shall specify the tools provided to cooperating parties in order to ensure same-day, and where possible intraday, liquidity for settlement. In this respect, it should be ensured that participants are required to hold sufficient liquid resources in all potential stress scenarios. 3.4 Requirements relating to participant default The draft decrees do not contain a definition of situations which constitute cases of participant default. However, the ECB understands that the draft decrees sufficiently set out the scenarios as a result of which a participant default may arise. This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 17 March 2021. [signed] The President of the ECB Christine LAGARDE