EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 6 January 2023  
on payment and settlement systems  
(CON/20 23/1) 
 
Introduction and legal basis  
On 10 October 2022 the European Central Bank (ECB) received a request from  the Estonian Ministry of 
Finance  for an opinion on a draft law on payment and settlement systems  (hereinafter the ‘draft law’) . 
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 , fifth and sixth indents of Article 2(1) of Council Decision 
98/415/EC1, as the draft law relates to  Eesti Pank , payment and settlement systems , and rules applicable 
to financ ial institutions insofar as they materially influence the stability of financial institutions and markets . 
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 law 
1.1 As noted in the explanatory memorandum accompanying the draft law2, the main objectives of the 
draft law are: (1) to regulate settlement finality in payment and securities settlement systems, in 
line with Directive 98/26/EC  of the European Parliament and of the Council3 (hereinafter the ‘SFD’) ; 
(2) to provide uniform access criteria for different payment systems so as to avert undue 
discrimination between different market participants; and (3) to provide clear grounds for the 
recogni tion and oversight of payment and settlement systems by Eesti Pank .  
1.2 As clarified in the explanatory memorandum4, the national provisions transposing the SFD have 
thus far been contained in various national legal acts, primarily the Law on credit institutions5 and, 
in relation to securities settlement systems, the L aw on securities markets6. Certain requirements 
have also been established by decrees of Eesti Pank.  This has caused some legal uncertainty in 
terms of the scope of regulation and the content  of the rules . By consolidat ing the regulatory  
provisions into one legal act, the draft law aims to increase legal certainty . The draft law also 
formali ses the oversight by  Eesti Pank o f payment and settlement systems.  To that effect , the draft 
 
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). 
2 See p.  2 of the explanatory memorandum accompanying  the draft law.  
3 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 ). 
4 See pp. 2 and 4 to 15 of the explanatory memorandum accompanying  the draft law.  
5  Krediidiasutuste seadus, RT I 1999, 23, 349 . 
6  Väärtpaberituru seadus, RT I 2001, 89, 532.  
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2 law consolidates the  law into one text with harmonised terminology, establishes  the conditions for 
recognising a payment system as a settlement system, restating the principles of settlement finality 
also in insolvency proceedings , as well as  restat es and elaborat es on the principles of netting 
(relevant both for settlemen t regulation and derivative transactions) and regulating the role of Eesti 
Pank in the exercis e of its oversight authority.  
1.3 The term ‘payment system’  in the draft law means  payment systems as defined in Directive (EU) 
2015/2366 of the European Parliament and of the Council7. Settlement systems that are covered 
by the draft law are securities settlement systems and payment systems that meet the conditions 
specified in the draft law , including  the that they are recognised as settlement systems by  Eesti 
Pank  and of which the European Securities and Markets Authority has been notified.  
 
2. General observation s 
2.1 The ECB welcomes the objectives  of the draft law t o implement the requirements of the SFD more 
clearly  into Estonian law  by adopting a single legal act governing settlement finality  in payment and 
settlement systems , establishing the criteria for the recognition of payment systems as settlement 
systems,  and setting out the principles  applicable to the oversight of payment and settlement 
systems by Eesti Pank .  
2.2 The ECB also welcomes the aim of the draft law to increase legal certainty  by reduc ing the 
likelihood of misinterpretation and clarify ing the scope of application of settlement finality principles .  
 
3. Specific observations  on the draft law’s definitions of relevant terms  
The draft law’s d efinition of system operator  
3.1 The draft law8 defines a system operator as a person who, in accordance with the relevant system’s 
settlement rules and contracts entered into with other participants in that  system, is responsible for 
ensur ing the continuous operation of the system and organis ing the execution of transfer orders 
and netting of claims between the participants in the system. The explanatory memorandum9 
specifies that each settlement system may only have one system operator, as this will av ert 
potential disputes over the rights and obligations  of multiple operators . 
3.2 The definition of system operator provided in the draft law does not specify  whether a settlement 
system may have more than one system operator.  Article 2 , point (p), of the SFD sta tes that a 
system operator is ‘ an entity or entities ’. This means that a system may have multiple operators. It 
cannot be excluded that certain systems may have or need  multiple operators (e.g. specifically in 
relation to possible future settlement systems that operat e based on new technologies  such as 
distributed ledger technology ). Hence, the draft law  could leave open the option of having different 
 
7   The term ‘payment system’ is defined as having the same meaning  as under paragraph  3(4) of the law on payment 
institutions and e- money institutions which adopts the definition of payment systems provided in Article,  4 point ( 7), 
of Directive (EU) 2015/236 6 of the European Parliament and of the Council of 25 November 2015 on payment 
services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation 
(EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12 .2015, p. 35).  
8 See paragraph  4(1) of the draft law.  
9 See p. 24 of the explanatory memorandum accompanying  the draft law.  
ECB -PUBLIC  
3 system operators for a single system  while ensuring that their roles are well defined through 
contractual agreements or system rules.  The ECB understands that even though the explanatory 
memorandum seems to limit the number of operators that one system may have, the draft law’s 
wording does not , and in case of discrepancies  between the wording of the draft law and its 
explanatory memorandum,  the wording of the draft law wi ll prevail.   
The draft law’s d efinition of insolvency proceedings  
3.3 Under the draft law10, insolvency proceedings include bankruptcy, reorganisation, and crisis 
resolution proceedings as well as moratoria and proceedings opened on the basis of foreign law in 
order to reorganise or wind up the activities of a system participant or a person who has provided 
collateral security to a settlement system or to a system participant , or implementation of any 
measures involving the suspension  of, or imposi tion of limitations on, the discharge of transfer 
obligations.  
3.4 The draft law’s  definition of insolvency proceedings includes crisis resolution proceedings11. Crisis 
resolution proceedings conducted in line with the Law on financial crisis prevention and resolution12 
are aimed at ensuring the continuing operability and functioning of  an entity in circumstances where 
that entity’s liquidation or bankruptcy could threaten financial stability and/or the wider financial 
system and the real economy13. The Law on financial crisis prevention and resolution implements 
into Estonian law Directive 2014/59/EU  of the European Parliament and of the Council14 
(hereinafter the ‘BRRD’).  Given the nature and purpose of such  crisis resolution proceedings , in 
particular their  aim of maintaining the continuity of the relevant entity from the operational and 
functional perspectives, the Estonian legislator may wish to reconsider  the inclusion of crisis 
resolution proceedings in the draft law’s  definition of insolvency proceedings  and to ensure that 
sufficient regulation is in place to ensure  that once crisis resolution proceedings have been initiated, 
the affected entity ’s substantive obligations under the relevant settlement  contract s will continue to 
be performed.  Should the entity in relation to wh ich crisis resolution proceedings have been initiated 
become unable to submit  executable transfer orders , as foreseen under the draft law15, this could 
have a serious negative effect on the continued operation of th e entity  and, as a result,  generally 
undermin e the achievement of the aims of crisis resolution proceedings.  This is highlighted in  the 
recitals of the BRRD , which clarify that the  possibility of suspend ing certain contractual obligations 
in order to give time to the resolution authority  to use resolution tools, should not, however, apply 
to obligations in relation to systems set out in the SFD.  A crisis prevention measure or a crisis 
management measure should not, as such , be deemed to be insolvency proceedings within the 
meaning of the SFD if the substantive obligations set out in the contract continue to be performed16. 
 
10 See paragraph  7 (1) of the draft law.  
11  See paragraph  7 (1) 3) of the draft law.  
12  Finantskriisi ennetamise ja lahendamise seadus, RT I, 19.03.2015, 3.  
13  See paragraph  1 of the L aw on financial crisis prevention and resolution.  
14  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for 
the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, 
and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 
2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) N o 648/2012, of the European Parliament and of the 
Council  (OJ L 173, 12.6.2014, p. 190 ). 
15  See paragraph  19 (1) of the draft law.  
16  See recital 93 of the BRRD.  
ECB -PUBLIC  
4 Furthermore,  by including crisis resolution proceedings in the definition of insolvency proceedings, 
the draft law arguably goes beyond the definition provided in the SFD17, according to which 
‘insolvency proceeding’  mean s any collective measure provided for in the law of a M ember State, 
or a third country, either to wind up the participant or to reorganise it, where such measure i nvolves 
the suspension of, or impos ition of  limitations on, transfers or payments . During crisis resolution 
proceedings , transfers and payments might not be suspended or limited.  
 
4. Specific observations on the draft law’s provisions regarding settlement finality and 
insolvency proceedings  
The draft law ’s provis ions regarding the finality of the execution of settlement upon insolvency  
4.1 The draft law provides that transfer orders shall be executed and netting shall be performed, and 
such execution of transfer orders and netting shall also be legally binding on third parties, even if 
insolvency proceedings have been opened against a system  participant, provided that the transfer 
orders have been received before the opening of the insolvency proceedings , as required by the 
settlement system rules . This also applies, upon the opening of insolvency proceedings, to a 
participant in a linked sys tem and to a linked system operator who is not a participant in a system18.  
4.2 According to the SFD19 transfer orders and netting are legally enforceable and binding on third 
parties even in the event of insolvency proceedings against a participant, provided that transfer 
orders were entered into the system before the moment of opening of such insolvency proceedings.  
The draft law seems  to go further than the SFD, which  only provides for the finality of transfer orders 
and netting, meaning that a transfer order as such is to be deemed legally binding and executable 
according to system rules . The SFD does not require that transfer orders shall be executed and 
that settlement in fact occurs. U nder the SFD, the execution of transfer orders  and settlement , also 
where insolvency proceedings have been initiated,  depend on the system operator and system 
rules. However,  the draft law provides that transfer orders shall be executed,  which suggests  that, 
in addition to transfer order finality , the draft law  also foresees  the finality of  settlement and 
execution of transfer orders . The ECB understands that the purpose of the draft law is to  establish 
more far -reaching protection of settlement than the SFD.   
The draft law’s provisions regarding the moment in time when transfer orders become irrevocable  
4.3 The draft law provides that transfer orders shall be executed, provided that they have been 
‘accepted by the system according to the rules ’20 or ‘issued to it’21.  
4.4 The phrase ‘entered into the system’ is used in the  SFD22. Given that different points in time, each 
of which bear a different legal meaning, can be discerned between the submission of  a transfer 
 
17  See Article 2 , point (j), of the SFD.  
18  See paragraph  19 (2) of the draft law.  
19  See Article 3 (1) of the SFD.  
20  See paragraph  19 (2) of the draft law.  
21  See paragraph  20 (2) of the draft law.  
22  See Article 3 (1) of the SFD.  
ECB -PUBLIC  
5 order and its execution , it is important to ensure the clarity and coherence of the terminology used23. 
The processing of a transfer order essentially consists in at least six different points in time, which 
correspond to different operational and legal moments. From an operational perspective, one must 
distinguish between:  (1) the moment when the transfer order is technically submitted to the system; 
(2) the moment when the transfer order is validated by the system as corresponding to the 
requirements of the system rules and as being suitable for fulfilment; and (3) the moment when the 
execution of the transfer order is initiated. From a legal perspective, one must distinguish between : 
(1) the moment when the transfer order is entered into the system24; (2) the moment at which a  
transfer order may not be revoked by a participant in a system  or third party; and (3) the moment 
when the transfer order is executed,  and the settlement is finalised. Under the SFD , it is this first 
legal moment , which is the moment of the entry into the system that bears the consequences of 
transfer order finality . If insolvency occurs after th is second legal  moment , the transfer order is 
deemed legally enforceable and binding on third parties.   
4.5 Under the draft law , the moment when the transfer order has been accepted by the system would 
seem to correspond to either the second operation al moment or the second legal moment , while 
the moment when the order has been issued to the system would seem to correspond to either the 
first operational moment or the first legal moment , i.e. the technical submission or ‘entry of a 
transfer order  into the system’ under the SFD. F or reasons of legal certainty, the ECB invites the 
Estonian legislator to review  the terminology used in the draft law  and align  this terminology with 
that used in the SFD by using the phrase ‘entered in to the system’ instead of ‘ accepted by the 
system’ or ‘issued to it’ .  
Differences  in the treatment of insolvency of system participant s and system operator s 
4.6 The draft law25 regulates system participant and system operator insolvenc ies differently . In the 
case of a system participant , the draft law  refers to insolvency proceedings as defined in the draft 
law. However, in relation to system operators, reference is only made to bankruptcy proceedings . 
In order to ensure compliance with the SDF, t he ECB invites the Estonian  legislator to consider 
which proceedings should be included.  
 
5. Specific observations on  the draft law’s provisions regarding Eesti Pank’s oversight  of 
payment and settlement systems  
5.1 The draft law formalises the role of Eesti Pank in overseeing  payment and settlement systems. 
Eesti Pank must collect information on payment service providers’ participation in payment and 
settlement systems, analyse the structure, functioning and risks of such systems . Eesti Pank may 
provide guidance and recommendations for improving the structure and functioning of the systems, 
and provide assessments on system rules and principles26. Eesti Pank also cooperates  with the 
Estonian Financial Supervisory Authority (FSA ) and may pass on to the EFSA documents and data 
 
23  The ECB has previously stressed the importance of terminological clarity in this context. See paragraph 3.2.1 of 
Opinion CON/2008/78.  All ECB opinions are published on EUR -Lex. 
24  Within the meaning of Article 3 (1) of the SFD.  
25  See paragraphs  19-20 of the draft law.  
26  See paragraph  23 of the draft law.  
ECB -PUBLIC  
6 collected by it. Eesti Pank and t he FSA may also conclude a cooperation agreement to better fulfil 
the oversight obligation. Eesti Pank may , under  certain circumstances , also make a proposal to the 
FSA to mitigate the risks related to participation in systems27. Under the draft law , Eesti Pank  may 
request  information from system operators, system participants, government authorities, 
supervisory authorities and national and municipal databases for the purposes of fulfilling its 
obligations under the dr aft law , as well as to provide data to competent authorities of other M ember 
States  of the European Economic Area (EEA)  and other persons , if required by law.28 
5.2 The ECB welcomes the formalisation,  clarification and consolidation of Eesti Pank’s  role, duties  
and obligations as the body that conduct s this overs ight since it increases  legal certainty by 
clarifying the  legal basis  on the basis of which Eesti Pank fulfils  its oversight  role. This should also 
help Eesti  Pank in the performance of the basic  task of the European System of Central Banks of  
promot ing the smooth operation of payment systems29.  
5.3 The ECB understands that Eesti Pank ’s right under the draft law to transmit information, documents 
and other data collected to discharge  an obligation or other duty of Eesti Pank under the draft law , 
other legislation or legislation issued on the basis thereof to a competent authority of another EEA 
Member State,  as well as to another person or institution if this arises from legislation ,30 provides 
a legal basis for Eesti Pank to transmit information gathered in the performance of its duties under 
any legal act  to all central banks in the European System of Central Banks  acting as oversight 
authorities with respect to payment and settlement systems , including the ECB .  
 
6. Specific observations on the draft law’s provisions regarding close- out netting  
6.1 The draft law  would introduce a new type of set -off, which would allow parties to conclude netting 
arrangements in certain circumstances, in Estonian law . Netting arrangements would be regulated 
on a general level in the Law on obligations31. A netting arrangement woul d be defined as a bilateral 
or multilateral agreement for netting claims  that have arisen in the case provided for  separately  in 
legislation , from a standard contract entered into in  the course of  a continuing business relationship 
or from another similar contract . Pursuant to such arrangement the mutual claims of the parties 
terminate  to the extent that they overlap at the time prescribed in the arrangement or on the 
occurrence of an enforcement event and they are substituted by the net claim or net obligation 
resulting from netting.  A netting arrangement may prescribe a close- out netting arrangement under 
which, on the occurrence of an enforcement event defined in legislation or in the arrangement , the 
obligations of the parties are accelerated so as to become immediately due or are terminated by 
netting in the manner mentioned  in the previous sentence32. 
6.2 The ECB understands that this general regulation that is t o be added to the Law of Obligations 
foresees that netting arrangements  may only be concluded if so provided in the law, meaning that 
 
27  See paragraph  24 of the draft law.  
28  See paragraph  25 of the draft law.  
29  See Article 127(2), fourth indent, of the Treaty.  
30  See paragraph  25 (1) of the draft law.  
31  Võlaõigusseadus, RT I 2001, 81, 487.  
32  See paragraph  33 1) of the draft law adding paragraph  2051 to the Law on obligations.  
ECB -PUBLIC  
7 other legal acts would have to make reference to a netting arrangement and further clarify the 
circumstances in which parties are allowed to conclude a netting arrangement. The ECB 
understands the draft law33 satisfies  this requirement. The Estonian legislator might , however, wish 
to consider including a more specific reference to the provision of the Law on obligations34 that 
regulat es netting arrangements.   
6.3 In relation to derivatives  and financial collateral transactions , the ECB understands that netting in 
case of bankruptcy is currently authorised under  specific provisions of the Estonian Law on 
bankruptcy35, which  make reference to derivative and financial collateral transactions, and that 
these provisions would not be amended by the draft law and would remain in force after its 
adoption36.  As such, even though the explanatory memorandum to the draft law highlights the 
importance of netting arrangements in relation to master agreements , such as that sponsored by 
the International Swaps and Derivatives Association (ISDA)37, the new netting arrangement 
solution would technically not apply to derivative transactions , and the enforceability of close- out 
netting for derivative transactions would continue to function under the existing system.  
6.4 Legal certainty regarding close- out netting is important for ensuring settlement and netting finality 
under the SFD, but also for reducing counterparty credit risk and to ensure the efficient use of  
collateral exchanged on over -the-counter (OTC) derivative markets. As such, the enforceabili ty of 
netting agreements and close- out netting plays a vital role for the organisation of settlement 
systems and OTC derivatives markets.38 However, t he wording of the draft law’s provisions relating 
to netting arrangement s may lead to some legal uncertainty.  
 For example,  the wording extends to netting arrangements  concluded only in a continuing business 
relationship as part of a standard or similar contract . However,  in the derivatives markets , netting 
and close- out netting  arrangement s could also be relevant in occasional or ad hoc business 
relationships , or in one-off or ad hoc transactions  that are not subject to a standard contract .  
 Regarding netting in the context of credit institution crisis resolution proceedings under the Law on 
financial crisis resolution and prevention, the existing provisions of the L aw on crisis resolution and 
prevention contain a definition of  netting arrangement39. While  the draft law40 amends  these 
provisions , the new wording does  not refer to the L aw on obligations . Instead, it  refers to the draft 
law, which does not regulate netting arrangements . This  may increas e legal uncertainty regarding 
netting arrangements in the context of credit institution crisis res olution proceedings. The relevant 
provisions c ould be amended to clarify that , under the L aw on financial crisis prevention and 
 
33  See paragraph  8 1) of the draft law.  
34  paragraph  2051 of the L aw on obligations.  
35  Pankrotiseadus, RT I 2003, 17, 95 . 
36  See paragraphs  48 and 99  (5) of the  Law on  bankruptcy.  
37  See p. 57 of the explanatory memorandum accompanying  the draft law.  
38  See paragraph 2.1 of Opinion CON/2021/1 and paragraph 4.1 of  Opinion CON/2011/14.  
39  See paragraph  17 (10) of the L aw on financial crisis resolution and prevention.  
40  See paragraph  28 1) of the draft law.  
ECB -PUBLIC  
8 resolution , ‘netting arrangements’  means  netting arrangements as defined in the relevant 
provisions of the L aw on obligations41. 
The draft law provides that in a settlement system, bilateral or multilateral netting of claims may be 
used in accordance with the system rules and in the cases determined by the system rules in order 
to satisfy financial claims between the system participants42. The reference to bilateral and 
multilateral netting of claims could, however, in Estonian also be understood to be a reference to 
set-off of claims under the Law on obligations43 and not  to a provision enabling the conclusion of 
netting arrangements under the L aw on obligations .44 If the aim of the draft law is to allow netting 
arrangements to be concluded under settlement system rules, then,  for the sake of legal certainty, 
the Estonian legislator may wish to consider further amendments to the draft law to achieve this 
result . 
To sum up , the draft law could benefit from increased clarity in relation to the provisions relating to 
netting ar rangements.   
 
This opinion will b e published on EUR -Lex.  
 
 
Done at Frankfurt am Main, 6 January 202 3. 
 
 
 The President of the ECB  
Christine  LAGARDE  
 
41  In particular  see paragraph 2051 of the Law on obligations.  
42  Paragraph  8 (1) of the draft law.  
43  In particular  see paragraph 197 of the L aw on obligations.  
44  In particular  see paragraph 2051 of the Law on obligations.