Opinion of the European Central Bank of 15 March 2007 at the request of the Dutch Ministry of Finance on a draft law concerning systemic oversight of settlement institutions (CON/2007/7)
Date: 2007-03-15
Institutions: European Central Bank
Subjects: Netherlands, financial stability, financial supervision, national law, payment system, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 March 2007  

at the request of the Dutch Ministry of Finance 

on a draft law concerning systemic oversight of settlement institutions   

(CON/2007/7) 

Introduction and legal basis 

On  5  February  2007  the  European  Central  Bank  (ECB)  received  a  request  from  the  Dutch  Ministry  of 

Finance  for  an  opinion  on  a  draft  law  concerning  systemic  oversight  of  clearing  and  settlement 

institutions (hereinafter the ‘draft law’). 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European  Community  and  the  third  and  fifth  indents  of  Article 2(1)  of  Council  Decision  98/415/EC  of 

29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft 
legislative  provisions1,  as  the  draft  law  relates  to  De  Nederlandsche  Bank  (DNB)  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 law 

The draft law will amend the Law on financial sector supervision (hereinafter the ‘LFSS’)2 by adding a 
Part 6 concerning systemic oversight of clearing and settlement institutions3. This is aimed at achieving 

an efficient system to supervise the safety and reliability of payments clearing and settlement services and 

securities  clearing  and  settlement  services,  in  order  to  safeguard  financial  infrastructure  stability. 

Adequate  supervision  of  clearing  and  settlement  institutions’  compliance  with  the  relevant  rules  will 

increase confidence in the financial sector by managing risks associated with the provision of clearing and 

settlement  services  and  by  establishing  clear  rules  for  market  participants.  To  this  end,  the  draft  law 

provides the financial market supervisors, DNB and the Autoriteit Financiële Markten (AFM, Authority 

for  the  Financial  Markets),  with  the  legal  instruments  necessary  for  enforcing supervisory measures.  In 

particular, the supervisors can require participants to comply with a certain line of conduct, appoint one or 

more  persons  as  liquidator,  impose  incremental  penalty  payments  and  impose  administrative  penalties. 

1  
2  

3  

OJ L 189, 3.7.1998, p. 42.  
Published  in  the  Staatsblad  (the  Dutch  Official  Journal)  No  475  of  31  October  2006.  The  date  of  entry  into  force  of 
1 January 2007 is laid down in Decision of 11 December 2006 published in the Staatsblad No 664 of 20 December 2006. 
See also ECB Opinion CON/2006/20 of 25 April 2006 on the Dutch draft law concerning financial sector supervision. 
Currently  the  Law  contains  5  parts:  the  General  Part,  Market  Access  Financial  Undertakings,  Prudential  Supervision 
Financial Undertakings, Market Conduct Supervision Financial Undertakings, and Market Conduct Supervision Financial 
Markets. 

 
 
 
 
                                                 
Furthermore,  the  supervisors  may  modify,  withdraw  fully  or  in  part,  or  attach  conditions  to,  an 

authorisation. The draft law adopts a functional approach by referring to clearing and settlement services 

instead of clearing and settlement systems. 

2. 

General observations  

2.1  As a rule, systemic supervision aims at preventing financial problems encountered by one financial 

institution  from  spreading  to  other  financial  institutions  and  to  the  financial  markets.  The  ECB 

understands  that  systemic  oversight  under  the  draft  law  is  limited  to  clearing  and  settlement 

institutions  and  is  aimed  at  ensuring  the  timely  completion  of  clearing  and  settlement  services, 

efficiency  and  the  mitigation  of  legal,  settlement,  operational  and  financial  risks.  Moreover,  the 

draft law is also intended to prevent one participant’s default from causing another participant to 

default,  which  may  disrupt  the  financial  infrastructure  or,  in  the  worst-case  scenario  trigger  a 

systemic crisis. To this end, the draft law implements the Committee on Payment and Settlement 

Systems  and 

the  International  Organization  of  Securities  Commissions’  (CPSS-IOSCO) 

recommendations for securities settlement systems and the CPSS Core Principles for Systemically 
Important Payment Systems4. The ECB takes the view that the draft law should clarify that DNB 
continues to conduct oversight within the common Eurosystem oversight policy framework5.  

2.2  The  clearing  and  settlement  institutions  that  currently  operate  on  the  market  are:  (i)  Equens6,  for 

payments  clearing;  (ii)  LCH.Clearnet,  as  central  counterparty  for  transactions  in  financial 

instruments; and (iii) Euroclear Netherlands/Necigef, for financial instruments settlement. The draft 

law does not apply to the Dutch real-time gross settlement payment system, TOP, since DNB is not 

a clearing and settlement institution, clearing institution or credit institution within the meaning of 

the draft law. 

2.3   The ECB also notes that the draft law is a response by the Dutch authorities to the IMF Country 

Report assessment of the Netherlands which states that ‘[i]f the new Act makes it clear that e.g., an 

institution  that  operates  as  a  central  counterparty or  a  securities  settlement  system,  are  subject  to 

direct supervision, and that the roles of DNB and AFM are clear,  Recommendation 18 would be 
observed’7.  

2.4   The  ECB  understands  that  payment  products  are  not  covered  by  the  draft  law  and  that  DNB 

continues  to  conduct  oversight  of  payment  products,  based  on  its  task  of  promoting  the  smooth 

operation  of  the  payment  system  laid  down  in  Article  105(2)  of  the  Treaty  and  Article  3.1  and 

Article  22  of  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central 

4  
5  

6  

7  

Available on the Bank for International Settlement’s website at www.bis.org. 
See ECB Opinion CON/2003/14 of 7 August 2003 at the request of the Banca d’Italia on a draft regulation on payment 
systems, payment infrastructures and payment instruments, p. 3.  
On  30  November  2006  Equens  was  formed  following  the  merger  of  Interpay  and  Transaktionsinstitut  für 
Zahlungsverkehrsdienstleistungen AG.  
IMF Country Report, No 04/310 of September 2004, p. 166, available on the IMF’s website at www.imf.org. 

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Bank,  as  well  as  the  Eurosystem’s  common  oversight  policy  framework  and  Article  3(1)(e)  and 
Article 4(2) of the Law on DNB8.  

2.5  The  ECB  also  notes  that  under  Section  6.21,  the  Nederlandse  Mededingingsautoriteit  (the  Dutch 

Competition  Authority)  can  impose  measures,  with  regard  to  prices  charged  for  clearing  and 

settlement services, after receiving authorisation from the Minister for Finance, who must consult 

DNB and the AFM prior to granting such authorisation. These provisions are aimed at establishing 

objective, transparent and non-discriminatory prices. 

2.6   The  ECB  welcomes  the  introduction  of  direct  systemic  supervision  as  it  greatly  improves 

transparency and accountability and provides the financial market supervisors with a clear basis for 

enforcing measures with regard to systemic, prudential and market conduct supervision.  

3. 

DNB’s oversight of payment systems 

3.1  

In Opinion CON/2006/20, the ECB noted that certain parts of the LFSS did not distinguish between 

DNB’s Eurosystem- and non Eurosystem-related tasks. Under the LFSS, the AFM supervises the 

market  conduct  of  financial  institutions,  including  clearing  and  settlement  institutions.  The  draft 

law provides that the AFM will supervise the market conduct of clearing and settlement systems, 

including  payment  systems  not  operated  by  DNB.  Market  conduct  supervision  is  defined  in 

Section 1.25 of the LFSS (previously Section 1.8 in the draft available at the time of the adoption 

of  Opinion  CON/2006/20)  as  ‘promoting  orderly  and  transparent  financial  market  processes’. 

Given  the  similarity  between  the  concepts  of  market  conduct  supervision  and  the  Eurosystem’s 

statutory  task  of  ‘promoting  the  smooth  operation  of  payment  systems’,  which  is  performed 

through its oversight function, and also considering Article 25 of the Statute on the ECB’s financial 

stability  role  and  the  fact  that  payment  systems  are  interlinked  with  securities  clearing  and 

settlement systems (SCSSs), this may give rise to a conflict between DNB’s responsibilities as an 

integral part of the Eurosystem, and AFM’s responsibilities as provided for in the draft law.  

3.2   Since  payment  systems  are  interlinked  with  SCSSs,  there  is  a  strong  argument  in  favour  of  the 

model followed by some Member States to have the national central bank perform the oversight of 

both  payment  systems  and  SCSSs.  The  draft  law  combines  the  integrated  oversight  model  with 

respect  to  payment  systems  and  SCSSs  and  divides  the  responsibilities  and  powers  between  the 

prudential and systemic supervisor, DNB and the supervisor for market conduct, the AFM. In that 

sense,  the  draft  law  formalises  DNB’s  role  in  the  oversight  of  SCSSs  as  part  of  systemic  and 

prudential supervision. 

3.3   At  Community  level,  the  general  legal  basis  for  the  oversight  of  payment  systems  is  in 

Article 105(2)  of  the  Treaty  and  Article  3.1  and  Article  22  of  the  Statute,  with  more  detailed 

policies  introduced  by  the  Eurosystem’s  common  oversight  policy  as  defined  by  the  Governing 

Council.  In  the  interest  of  clearly  defining  responsibilities,  the  ECB  recommended  in 

Opinion CON/2006/20 that the oversight of payment systems, including market conduct, should be 

8  

Bankwet 1998 (Bank Act 1998 ), Staatsblad 26 March 1998, p. 200. 

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explicitly  assigned  to  DNB,  which  would  be  consistent  with  DNB’s  participation  in  the 

Eurosystem.  As  this  has  not  been  taken  into  account  in  the  draft  law,  the  ECB  reiterates  this 

recommendation and strongly advises amending the draft law to make it clear that DNB enjoys full 

oversight over payment systems.  

4. 

Division of powers 

4.1   Under Section 2.3(c) of the draft law, if an authorised clearing and settlement institution no longer 

complies with the provisions laid down in Part 4.3.4(A), the AFM may advise DNB to withdraw 

the authorisation or to exercise its authority to appoint one or more persons as liquidator. The ECB 

notes that the draft law divides responsibilities between DNB and the AFM. 

As DNB will be the lead overseer, meaning that DNB is the entity authorising the overseen entities 

to  provide  clearing  and  settlement  services,  the  draft  law  should  also  provide  for  an  advisory 

function for DNB in relation to the AFM, to exercise its own powers in the event that the clearing 

and settlement institution no longer complies with Part 4.3.4(A).  

4.2   Furthermore,  Section  4.76a(2)  provides  that  a  participant  may  only  be  refused  access  by  the 

clearing and settlement institution if such access would negatively affect the proper functioning of 

the  settlement  services  offered  by  the  clearing  and  settlement  institution.  This  provision  is  laid 

down in Part 4, which covers the AFM’s responsibility over market conduct supervision. The ECB 

notes that DNB, as the prudential and systemic supervisor, should play a role in assessing whether 

the rules of the clearing and settlement institution contain criteria limiting access on grounds other 

than risk.  

5. 

Supervisory powers in the Securities Giro Law 

The ECB notes that Article 2 of the Securities Giro Law9 provides for the appointment of the supervisor 

of  the  Central  Institution,  i.e.  the  Central  Securities  Depository,  and  specifies  the  supervisor’s  powers. 
Given  the  definition  of  settlement  services  in  Section  1.1  of  the  draft  law10,  the  ECB  would  suggest 

adding these supervisory provisions to the draft law and removing them from the Securities Giro Law. 

6. 

Influence on financial sector stability 

Section  2.3a(2)  provides  that  ‘the  first  subsection  is  not  applicable  to  the  provision  of  categories  of 

clearing  and  settlement  services  to  be  established  by  order  in  council  that  do  not  or  cannot  have  any 

significant  influence  on  the  stability  of  the  financial  sector’.  The  ECB  notes  that  the  criterion  of 

insignificant influence is quite open-ended. Therefore, the ECB would encourage establishing objective 

and transparent criteria, after consulting DNB, and making them publicly available.  

9  
10  

Staatsblad 1977, No 333, as last amended by the Law of 25 June 1998, Staatsblad No 446. 
Section 1.1(c) defines settlement services as the performance of ‘activities for the purpose of managing, safeguarding and 
administrating  financial  instruments  and  facilitating  the  processing  of  transactions  in  financial  instruments  by  funds 
transfer’. 

4 

 
 
 
                                                 
7. 

Conflicts of interest 

Section 6.3(1)(a) states that a clearing and settlement institution should avoid conflicts of interest, but the 

draft law does not further define the term. The explanatory memorandum defines ‘conflicts of interest’ as 

‘evident  violations  of  the  relevant  social  standard  seriously  damaging  confidence  in  the  clearing  and 

settlement  institution  or  financial  markets’,  which  is  narrow  in  scope.  The  ECB  considers  that  this 

definition  is  not  sufficiently  clear  and  recommends  defining  it  more  precisely.  In  particular,  the  term 

should  refer  to  situations where  there  is  an  incompatibility between  differing aims,  such  as  between  an 

agent and its principal. It also includes situations where the aims of different groups of persons within a 

clearing  and  settlement  institution,  such  as  the  users,  owners  and  public  authorities,  are  not  completely 

aligned. 

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 15 March 2007. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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