EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 7 August 2003
at the request of the Banca d’Italia
on a draft regulation on payment systems, pa yment infrastructures and payment instruments
(CON/2003/14)
1. On 10 June 2003 the European Central Bank (ECB) received a request from the Banca d’Italia for
an opinion on a draft regulation to be issued by it on payment systems, payment infrastructures andpayment instruments (the ‘draft regulation’). 
2. The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing
the European Community and on the third and fifth indents of Article 2(1) of Council Decision98/415/EC of 29 June 1998 on the consultation of the European Central Bank by nationalauthorities regarding draft legislative provisions
1 since the draft regulation relates to a national
central bank (NCB) and to clearing and payment systems. In accordance with the first sentence ofArticle 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council of theECB has adopted this opinion.
3. The ECB very much welcomes the opportunity to give its opinion on the draft regulation, as it
addresses matters which directly pertain to the core fields of competence of the Eurosystem.According to the explanatory note provided by the Banca d’Italia, the draft regulation has threemain purposes: first, to provide the necessary regulatory framework to allow the Banca d’Italia tocarry out its oversight function, i.e. ‘ to ensure the efficiency and reliability of clearing and payment
systems’
2 in accordance with the Eurosystem policy stance on payment systems oversight;
secondly, to give guidelines and principles to be followed by all payment system operators(including non-financial ones), summarising the experience gained by the Banca d’Italia in the fieldof payment systems oversight over the last years; and, thirdly, to increase the transparency of theoversight policy followed by the Banca d’Italia.
4. Oversight is one of the core competencies attributed to the Eurosystem by the Treaty. Indeed, the
oversight of payment systems had always been recognised as one of the main functions of theNCBs, although this was not always based on a sp ecific and clearly formulated legal basis. The
                                                     
1 OJ L 189, 3.7.1998, p. 42.
2 Article 146 of Legislative Decree 385 of 1 September 1993, Supplemento ordinario Gazzetta Ufficiale , No 230,
30.9.1993.
2framework for this function, although informal, was effective and successful, since it was based on
the technical experience and on the moral suasion of the NCBs. Moreover, the internationalconsistency and effectiveness of this function were ensured through co-ordinated action amongcentral banks on the basis of principles established either at the G-10 or European Union level. 
5. Article 105(2) of the Treaty and Article 3.1 of the Statute of the European System of Central Banks
and of the European Central Bank provide the legal basis for the oversight function of theEurosystem, together with Article 22 of the Statute, which reads: ‘The ECB and national centralbanks may provide facilities, and the ECB may make regulations, to ensure efficient and soundclearing and payment systems within the Community and with other countries’. In general, withinthe Eurosystem oversight activities are performed by the NCBs, in line with the common oversightpolicy stance defined by the Governing Council of th e ECB. The aims of the oversight of clearing
and payment systems are the maintenance of systemic stability, the promotion of efficiency and thesafeguarding of the transmission channel for monetary policy. The above excludes the interferencein the field of the Eurosystem’s oversight competence by any Community or national body otherthan a central bank acting within the framework of the European System of Central Banks(ESCB)/Eurosystem. 
6. Article 146 of Legislative Decree 385 of 1 September 1993 (the ‘Banking Law’), which entitles the
Banca d’Italia to promote the regular operation of payment systems, reflects at national level theframework that has been created at the European level, as described above. The ECB notes that theBanca d’Italia sees a benefit in formalising its oversight role in accordance with Article 146 of theBanking Law, which entitles it to issue regulations to promote the regular operation of paymentsystems. The majority of NCBs carry out this function on the basis of their statutes/organic lawswithout any explicit and detailed legal provisions. In this respect, the ECB would like to recall that
it has not so far issued a regulation on the conduct of oversight under Article 22 of the Statute.Such a regulation would be directly applicable and binding on the addressees, therefore effectivelyrepealing all corresponding NCB rules.
7. The draft regulation proposes to entrust the Banca d’Italia with the carrying out of specific
oversight activities. In this respect, as described in the abovementioned explanatory note, itaddresses in particular issues related to (i) the operation of a payment system or of individualphases thereof; (ii) the operation of infrastructure services; (iii) payment instruments; and(iv) disclosure requirements. As explained in Recital 3 the draft regulation ‘ [takes] into account the
positions expressed within the Eurosystem and those emerging in the fora of international
cooperation’ . In this respect, the explanatory note specifies that the draft regulation implements in
Italy the ‘Core Principles for systemically important payment systems’
3, which the Governing
Council adopted on 25 January 2001 (the ‘Core Principles’), included in the set of minimumstandards used by the Eurosystem for its common oversight policy on payment systems, as well asthe Eurosystem’s ‘Oversight standards for euro retail payment systems’ (the ‘Retail Standards’)
                                                     
3 Bank for International Settlements, January 2001.
3adopted by the Governing Council on 26 June 2003.  Furthermore, reference is made to the ECB
policy statement issued on 21 June 2000 on the ‘Role of the Eurosystem in the field of paymentsystems oversight’
4. Although the proposal is in line with the payment systems oversight
competence of the Eurosystem, the ECB takes the view that it would be useful if the draftregulation itself reflected the role of the Eurosystem more clearly and clarified that the Bancad’Italia would continue to conduct oversight with in the framework of the Eurosystem. This could
be achieved, for example, by making an explicit reference in a recital of the draft regulation to theaforementioned ECB policy statement, the adoption by the Governing Council of the CorePrinciples and the Retail Standards, and to the adoption by the Governing Council on 23 May 2003of the ECB’s report on ‘Electronic money system security objectives’.
8. As a general point, the ECB notes that on a number of occasions the draft regulation regulates
oversight activities and policies that have not been agreed upon at Eurosystem level. This is not aproblem per se. In line with the provisions of the Treaty and the Statute, the Governing Councilformulates the common policy stance. In areas not specifically covered by a common Eurosystemoversight policy framework, policies defined at the NCB level apply within the framework of theobjectives and principles defined at the Eurosystem level. Furthermore, it is noted that a nationalextension of oversight policies and activities beyond the agreed Eurosystem policies will have to becarefully considered from a level playing field perspective. Against this background, the ECBunderlines that, if the Eurosystem’s oversight policy changes owing to developments in the
payment and settlement field, the Banca d’Italia will have to align its oversight policies andactivities accordingly. In order to provide for flexibility in the Banca d’Italia’s regulatory oversightframework to accommodate possible further developments at the Eurosystem level, it would beuseful for the draft regulation to include a reference to this matter in a recital. Such a recital could
be worded as follows: ‘Whereas, the Eurosystem’s oversight policies and activities may be subjectto changes owing to developments in the field of payment and settlement systems’.
9. Oversight is included among the activities of financial agencies that are covered by the ‘IMF Code
of good practices on transparency in monetary and financial policies’. Against this background andin view of the general transparency practices of the Eurosystem the ECB considers it to beimportant that the Banca d’Italia conduct public consultations on oversight legislation. The Bancad’Italia may also inform or alert the market with  respect to future developments in the Eurosystem
oversight policies. 
10. More specifically, as regards the content of the draft regulation the ECB has a number of comments
on the individual articles. First of all, the ECB understands that the recitals are intended tosummarise the main principles guiding the methodology used by the Banca d’Italia in conductingits oversight function. The recitals rightly recognise the contribution of an efficient and reliablepayment system to financial stability and the preservation of public confidence in the currency,
                                                     
4 These documents are published on the websites of the ECB (www.ecb.int) or the Bank for International Settlements
(www.bis.org).
4underline the relevance of clear and transparent rules, procedures and practices in order to foster
market discipline and development, and list the most relevant aspects to be taken into considerationby the Banca d'Italia in carrying out its oversight function. It might, however, be useful to introducean additional recital or even a separate article to explain the concept and the objectives of oversightas such. It could be mentioned that oversight is a task of central banks, principally intended topromote the smooth functioning of clearing and payment systems to protect the financial systemfrom possible ‘domino effects’ which may occur when one or more participants in the payment orclearing system incur credit or liquidity problems and to foster the efficiency and soundness ofclearing and payment systems. 
11. Article 1 sets forth a number of definitions of terms and concepts that are used throughout the draft
regulation. In general, the ECB finds it very useful to include definitions of those concepts that aremost relevant and widely used in the draft regulation in order to ensure a common understanding.Nevertheless, it would recommend that the terminology and definitions used be brought in linewith those agreed upon at the ESCB/Eurosystem leve l (cf. definitions of payment systems concepts
in the report on ‘Payment and securities settlement systems in the European Union’ (Blue Book))
5.
More specifically, definition (a) on reliability refers to ‘the limitation of systemic risks and otherrisks that may jeopardize or negatively affect the proper and continuous operation of the paymentsystem and public confidence in payment instrument s’. In this context, it might be worthwhile to
state the ‘other risks’ explicitly, such as, in particular, credit, liquidity, operational and legal risks.Finally, the ECB notes that definition (l) defines ‘payment system’ and ‘system’. Taking intoaccount that the Banca d'Italia is also entrusted with the oversight of securities settlement systems,the use of a definition close to that in Article 2(a) of the Settlement Finality Directive
6 should be
considered in order to obtain a Community-consistent definition. 
12. Article 2 of the draft regulation aims to define its scope. It specifies that the provisions apply to
(a) payment systems operated by the Banca d’Italia; (b) systems that settle in central bank money;(c) other systems considered important by the Banca d’Italia because of specific parameters; and(d) systems that effect the transfer and withdrawal of money with the use of payment instruments.The ECB welcomes the scope of the draft regulation and the conduct of oversight with respect toboth systems run by the Banca d’Italia and the private sector, as this is fully in line with the agreedEurosystem oversight policy. It will also contribute to enhancing the credibility of central bankscarrying out oversight over both systems run by central banks and privately run systems. However,
regarding the scope of the draft regulation, it is not entirely clear to the ECB whether the draftregulation intends to comprise also the operators and the oversight of securities clearing andsettlement systems. In this respect, the ECB notes that, in particular, Recitals 1, 2 and 3 refer toboth clearing and payment systems and clearing and settlement systems and Article 2 does not
explicitly exclude securities clearing and settlement systems from the scope of this draft regulation.
                                                     
5 ECB, June 2001.
6 Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and
securities settlement systems, OJ L 166 11.6.1998, p. 45.
5However, the ECB understands that the draft regulation would apply to payment systems only. In
addition, according to Article 2 the provisions of the draft regulation apply to ‘systems’ only.However, as Article 5 of the draft regulation refers also to the issuers and managers of paymentinstruments, the ECB proposes to clarify in Article 2 that they would also fall within its scope, as
well as infrastructure operators mentioned in Article 4. The ECB also considers it important thatthe draft regulation be applied to other payment arrangements, e.g. quasi-systems, and that areference or clarification is therefore included. The specific aim of Article 3 of the draft regulationis the implementation of the ten Core Principles. The ECB notes that the draft regulation does notseem to be limited to systemically important payment systems; however, it would seem to be usefulthat, in particular, the wording follows more closel y the requirements set out in the Core Principles.
13. Article 4 aims to make the draft regulation applicable to infrastructure service operators which
permit data management for the transfer of funds or  the netting, in whole or in part, of reciprocal
debit obligations. The draft regulation gives specific importance to ‘significant infrastructureservices’ i.e. service operators handling a high number of data or data with specific characteristicsor performing specific activities when gathering and sorting the data for transmission to the
payment system. According to Article 4(2) significant infrastructure services operators will have tocomply with more stringent requirements. By making the draft regulation applicable toinfrastructure service operators the Banca d’Italia widens the scope of the Core Principles to suchentities. It justifies the broad scope of application of the draft regulation by explaining that theconcern about the smooth functioning of payment systems implies the specific control ofinfrastructure services. The ECB notes the widening of the scope of the Core Principles toinfrastructure service operators. Indeed, the latter play a pivotal role in the operation of clearingand payment systems as disruptions in the regular operation of network infrastructures couldseriously and adversely affect the smooth functioni ng of systems. Furthermore, Article 4(1)(b) of
the draft regulation requires, inter alia, that the infr astructure service provider ‘shall ensure security
measures and controls’ that ‘can ensure […] traceability and an appropriate level of confidentialityof information’. The ECB would like to point in this context to the fact that certain types ofelectronic money schemes may not allow for the traceability of information. If this requirement isupheld it might interfere with the development and operation of certain types of such schemes. Thesame comment applies as regards the requiremen t of traceability of any payment transaction
(cf. Article 5(b)). In particular, regarding the usually rather small values transferred via electronicmoney schemes, a general traceability requirement would not be necessary from a moneylaundering perspective either. Finally, the ECB notes that according to Article 4(2)(c) significantinfrastructure services operators ‘shall […] favour interconnection with other infrastructures’. Theobligation contained in this rule needs to be further clarified as its exact content and application arenot fully clear. 
14. Article 6 of the draft regulation is of particular importance as it provides the Banca d’Italia with the
power to collect all data and information that support the effective conduct of oversight function
6from the entities falling within its scope. In a ddition, the Banca d’Italia may also take adequate
measures to ensure the general availability of information held to be significant. The ECBwelcomes the fact that the draft regulation will give the Banca d’Italia the power to gain access toall information and data relevant for the performance of its oversight task. The draft regulationshould clearly state the powers conferred on the Banca d'Italia and, to the extent possible, theconsequences of not complying with its requests for the operators.  
15. Finally, the ECB notes that Article 7 confers on the Banca d’Italia the power to issue general and
specific rules implementing the draft regulation. If such rules of general application should concern
aspects of relevance for the Eurosystem, the ECB’s opinion should be requested.
16. The ECB confirms that it has no objection to the competent national authorities making this
opinion publicly available at their discretion. This  opinion will be published on the ECB’s website
six months after the date of its adoption.
Done at Frankfurt am Main on 7 August 2003.
Member of the Executive Board of the ECB Member of the Executive Board of the ECB
[signed] [signed]
Tommaso PADOA-SCHIOPPA Gertrude TUMPEL-GUGERELL