Opinion of the European Central Bank of 19 March 2020 on the oversight of payment systems and payment system operators (CON/2020/9)
Date: 2020-03-19
Institutions: European Central Bank
Subjects: Cyprus, central bank, financial supervision, national law, payment system

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 March 2020 

on the oversight of payment systems and payment system operators 

(CON/2020/9) 

Introduction and legal basis 

On  10  January  2020,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Governor  of  the 

Central Bank of Cyprus (CBC) for an opinion on a draft directive of the CBC on the operation of payment 

systems  under  its  oversight,  on  the  role  and  governance  of  payment  system  operators  and  on  the 

obligations of payment system participants (hereinafter the ‘draft directive’).  

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/EC1, as the draft directive contains provisions concerning the CBC 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 directive 

1.1  The  main  purpose  of  the  draft  directive  is  to  enact  a  set  of  rules  governing  the  functioning  and 

operating methods of payment and clearing and settlement systems and of the operators of those 
systems that are subject to the provisions of the draft directive pursuant to a decision of the CBC 2. 

According  to  the  explanatory  note,  the  draft  directive  will  set  out  details  regarding  the  CBC’s 

existing role as overseer of retail payment systems. As stated  in the explanatory  note,  in drafting 

the  draft  directive,  the  CBC  had  regard  to  the  provisions  of  the  Eurosystem’s  revised  oversight 
framework for payment systems3. 

1.2  The draft directive governs participation in, and suspension or exclusion from, a payment system. 

More specifically, the draft directive makes participation in a payment system conditional upon the 

satisfaction  of  eligibility  and  continuing  participation  criteria  approved  by  the  CBC  for  every 

payment  system,  and  sets  the  procedure  governing  the  admission  of  participants  to  a  payment 
system, including the procedure to challenge the decision if the candidate participant is rejected 4.  

1  

2  
3   

4  

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). 

See paragraph 3(1) of the draft directive. 
See  Eurosystem  oversight  policy  framework,  Revised  version  (July  2016)  available  on  the  ECB’s  website  at 
https://www.ecb.europa.eu/paym/pol/html/index.en.html. 

See paragraphs 21 and 22 of the draft directive. 

 
 
 
 
 
                                                 
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1.3  The draft directive governs the departure and discipline of payment system participants, including 

the  conditions  for  voluntary  departure,  escalation  and  disciplinary  procedures  in  case  of 

infringement of the draft directive or system documents, the operator’s powers after force majeure 

events,  the  exclusion  of  a  participant  by  the  operator  from  the  system  in  relation  to  exclusion 

events approved by the CBC or in case of infringement of the continuing participation criteria or if 

the  participant  has  materially  or  repeatedly  infringed  any  provision  of  the  draft  directive  or  the 
system documents5. 

1.4  The draft directive requires participants to deposit sums of money with a collateral administrator as 

trustee for the participants so that they can be used in the event that one or more participants are 
unable to honour their obligations within the payment system 6. 

1.5  The  draft  directive  also  addresses  settlement  finality,  providing  that  the  system  operator  ensures 
that the system rules and other documents are in line with Directive 98/26/ΕC7 and the Settlement 

Finality in Payment and Securities Settlement Systems Laws 2003. The draft directive also requires 

the operator to ensure that the system rules define: (a) the time of entry of a transfer order in the 
payment system; and (b) the time after which a transfer order cannot be withdrawn8. 

1.6  The  draft  directive  sets  out  the  powers  and  role  of  the  CBC  over  payment  systems  and  their 

operators.  According  to  the  draft  directive,  the  CBC  may  adopt  a  decision  placing  a  payment 

system under its oversight and designating it as a payment system to which the provisions of the 

draft directive will apply. The CBC may permit gradual compliance with the draft directive based on 
a compliance plan to be implemented within a period of no more than two years9.  

1.7  The  CBC  may  adopt  decisions  to  recognise  operators  of  payment  systems  meeting  specified 

requirements, and may also impose further terms and conditions for the purpose of recognising an 

operator.  The  CBC  may  appoint  one  executive  and  one  non-executive  member  of  the  operator’s 

board of directors and may object to the appointment or request the removal of any board member 

who  does  not  meet  the  requirements  set  out  in  the  draft  directive.  The  CBC  approves  the 

operator’s memorandum and articles of association. The CBC may appoint one person to each of 

the  operator’s  technical,  business,  legal,  risk management,  internal  audit,  disciplinary,  objections, 

business continuity and dispute resolution committees. The operator’s risk management committee 

is  required  to  submit  annual  reports  to  the  CBC,  and  the  internal  audit  committee  is  required  to 

submit quarterly reports to the CBC regarding compliance with the provisions of the draft directive. 

The  CBC  may  make  recommendations,  provide  guidance  and  require  the  operator  to  take  any 

action  to  safeguard  the  attainment  of  the  operator’s  governance  objectives.  The  operator’s 

organisational structure and reporting lines must be approved by the CBC. The CBC also approves 

the  operator’s  transparency,  conflict  of  interest,  internal  audit  and  compliance  monitoring, 

redaction, risk management, physical security, data security, business continuity and recovery and 

5  
6  
7  

8  
9  

See paragraph 23 to 28 of the draft directive. 
See paragraph 34 of the draft directive. 

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 of 11.06.1998, p. 45). 
See paragraph 35 of the draft directive. 

See paragraph 4 of the draft directive. 

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incident management policies10. 

1.8  Under  the  draft  directive  the  CBC  has  a  prominent  role  in  relation  to  the  operator’s  delegation  of 

functions  to  third  parties.  The  third  party  service  provider  must  cooperate  with  the  CBC  in 

connection with the services provided by it. The operator is obliged to make available to the CBC, 

upon the CBC’s request, all relevant data that may be required so as to enable the CBC to verify 

whether the service operator performs its functions in accordance with the draft directive. The CBC 

must be notified in advance of any delegation of function. The CBC’s prior consent is required for 
the delegation of critical or important functions to a third party11. 

1.9  Under the draft directive the operator must cooperate closely with the CBC in performing its duties 

and notify the CBC of any information pertaining to a participant of which it has reason to believe 

might adversely affect the operation of the payment system. The CBC must develop and apply an 

audit  programme  to  monitor  the  operation  of  the  payment  system,  the  performance  of  the 

operator’s  duties  and  system  participant’s  compliance  with  their  obligations.  The  CBC  has  the 

power  to  replace  the  operator  unilaterally  in  the  event  of  serious  or  repeated  inability  or  failure; 

imminent  serious  inability  on  the  part  of  the  operator  to  perform  its  functions  or  comply  with  the 

draft directive; if necessary to safeguard the stability of the payment system or the wider financial 
system; or to ensure the continuity and proper operation of the payment system 12. 

1.10  The  draft  directive  provides  that  the  method  of  calculation  of  operator  fees  is  specified  in 

procedural  rules  adopted  by  the  operator  and  approved  by  the  CBC.  Each  participant  must  also 

pay  the  CBC  an  annual  regulatory  fee  set  by  the  CBC  on  a  cost  basis.  The  CBC  may  also  set 

additional fees for specific payment systems. All fees are required to be published on the websites 
of the operator and the CBC13. 

1.11  The draft directive provides that, as a participant in a payment itself, the CBC must ensure that it 

complies with all of a participant’s obligations, and must pay fees and extraordinary charges on the 
same terms as other participants 14. 

1.12  Finally,  the  draft  directive  provides  that  the  CBC  may  require  a  payment  system’s  rules  to  be 

amended for the purpose of ensuring the stability, security and reliability of the system15. 

2. 

General observations 

2.1  The ECB welcomes the draft directive, which will provide a more robust legal basis for the CBC’s 

existing tasks relating to the oversight of payment systems. The draft directive should thereby help 

to  promote  the  sound  governance,  security  and  stability  of  retail  payment  systems  and  their 

operators.  

2.2  Pursuant  to  the  fourth  indent  of  Article  127(2)  of  the  Treaty,  as  mirrored  in  the  fourth  indent  of 

10  
11  
12  
13  
14  
15  

See paragraphs 5 to 12 of the draft directive. 
See paragraph 14 of the draft directive. 

See paragraphs 15, 16 and 20 of the draft directive. 
See paragraphs 37 and 39 to 41 of the draft directive. 
See paragraph 42 of the draft directive. 

See paragraph 43 of the draft directive. 

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Article  3.1  of  the  Statute  of  the  European  System  of Central  Banks  and  of  the  European  Central 

Bank (hereinafter the ‘Statute of the ESCB’), the Eurosystem has the task of promoting the smooth 

operation  of  payment  systems.  Article  22  of  the  Statute  of  the  ESCB  furthers  the  performance  of 

this task. Based on the foregoing the ECB and the  national central banks should use the powers 

available  to  them  to  promote  the  smooth  operation  of  clearing  and  payment  systems.  Oversight 
responsibilities are inter alia key to this general task16.  

2.3  The  Eurosystem  oversight  policy  framework  states  that  for  the  purpose  of  overseeing  individual  

financial  market  infrastructures,  the  Eurosystem  assigns  primary  oversight  responsibility  to  the 

central bank that is best placed to fulfil this function, either by virtue of its proximity to the overseen 

entity (e.g. where the system is legally incorporated in its jurisdiction) or by virtue of national laws 

that  attribute  specific  oversight  responsibilities  to  the  central  bank  concerned,  subject  to  any 

Treaty-based requirements. This is typically the case for systems with a clear national anchor, i.e. 
being legally incorporated in a jurisdiction or serving that particular national market17, such as the 

retail payment systems intended to be covered by the draft directive. 

2.4  The explanatory note accompanying the draft directive does not make reference to the Eurosystem 

revised  oversight  framework  for  retail  payment  systems,  which  establishes  variable  oversight 

requirements depending on whether a retail system is classified as a ‘prominently important retail 
payment system’ (PIRPS)  or an ‘other retail payment system’ (ORPS)18. In this respect, the ECB 

understands  that  the  scope  of  the  draft  directive  is  to  cover  solely  PIRPS  and  ORPS  within  the 

meaning  of  the  Eurosystem  Revised  Oversight  Framework  for  Retail  Payment  Systems 

(paragraph 3.1 below). 

2.5  The  oversight  of  payment  systems  has  been  recognised  as  one  of  the  CBCs’  main  tasks  under 
existing provisions of Cypriot law19. The draft directive does not confer new tasks on the CBC, but 

rather  specifies  the  CBC’s  existing  tasks  by  establishing  a  set  of  detailed  rules  governing  the 

CBC’s  oversight  of  payment  systems  and  payment  system  operators.  Therefore,  the  issue  of 

assessing  whether  the  conferral  of  new  tasks  on  a  national  central  bank  complies  with  the 

prohibition of monetary financing does not arise in the case at hand. 

3. 

Specific observations 

3.1  The  ECB  suggests  amending  the  definition  of  ‘payment  system’  in  paragraph  2(1)  of  the  draft 

directive, so as to clarify that the scope of application of the draft directive, as set out in paragraph 

4 thereof, only covers PIRPS and ORPS within the meaning of the Eurosystem revised oversight 

framework  for  retail  payment  systems.  This  clarification  would  remove  any  residual  uncertainty 

regarding  the  scope  of  application  of  the  draft  directive,  and  its  interplay  with  Regulation  (EU) 

16  

17  
18  

19  

See Section 3.1 of the Eurosystem oversight policy framework, Revised version (July 2016), available on the ECB’s 
website at www.ecb.europa.eu. 

See Section 5.2 of the Eurosystem oversight policy framework, Revised version (July 2016). 
See 
www.ecb.europa.eu. 

for  retail  payment  systems,  available  on 

the  revised  oversight 

framework 

the  ECB’s  website  at 

See Article 6(2)(g) of the Central Bank of Cyprus Law of 2002. 

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No 795/2014  of  the  European  Central  Bank  (ECB/2014/28) 20,  which  applies  to  payment  systems 

defined as ‘systemically important payment systems’ (SIPS) on the basis of certain quantitative and 
qualitative  criteria21.  Regulation  (EU)  No  795/2014  covers  all  SIPS,  be  they  large-value  or  retail 

payment  systems.  Accordingly,  such  clarification  would  ensure  that  the  draft  directive  is  not  in 

conflict  with  the  Regulation.  Furthermore,  such  clarification  would  be  more  in  line  with  the  CBC’s 

intention as set out in the explanatory note which states that the draft directive will only apply with 

regard to retail payment systems. 

3.2  Under  the  Eurosystem  revised  oversight  framework  for  retail  payment  systems,  the  participation 

requirements  of  PIRPS  and  the  relevant  rules  and  key  procedures  of  both  PIRPS  and  ORPS 

should be publicly disclosed. PIRPS and ORPS should disclose clear descriptions of the system’s 

design  and  operations,  as  well  as  the  system’s  and  participants’  rights  and  obligations,  so  that 
participants can assess the risks they would incur by participating in the system 22. The consulting 

authority may wish to consider whether these elements should be reflected in the draft directive. 

3.3  The Central Bank of Cyprus Law of 2002 is silent on the issue of the CBC’s liability with regard to 

the oversight of payment systems. The Central Bank of Cyprus Law of 2002 does not contain any 

provision excluding or limiting the liability of the CBC as the authority responsible for the oversight 

of  payment  systems.  In  line  with  previous  ECB  opinions,  the  Cypriot  authorities  should  consider 

aligning the CBC’s liability in relation to its oversight of payment systems with its liability concerning 

its supervision of credit institutions, given  that potential  liability  issues could represent substantial 
financial risks for the CBC23. 

3.4  For  the  sake  of  legal  certainty,  the  ECB  suggests  that  the  scope  of  the  operator’s  legal 

responsibility  under  paragraph  5(2)  of  the  draft  directive  could  be  further  clarified.  As  currently 

phrased,  it  is  unclear  whether  this  provision  creates  a  new  statutory  duty  for  the  operator,  or 

whether  liability  arises  only  if  the  operator  is  in  breach  of  the  provisions  of  the  arrangement 

establishing the payment system.  

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

Done at Frankfurt am Main, 19 March 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

20  

21  
22  
23  

Regulation  (EU)  No  795/2014  of  the  European  Central  Bank  of  3  July  2014  on  oversight  requirements  for 
systemically important payment systems (ECB/2014/28) (OJ L 217, 23.7.2014, p. 16). 

See Article 1(3) of Regulation (EU) No 795/2014 (ECB/2014/28). 
See Principles 18(2) and 23(1) and(2) of the Eurosystem revised oversight framework for retail payment systems. 
See,  for  example,  paragraph  3.1  of  Opinion  CON/2017/44,  paragraphs  2.3.6  and  2.3.8  of  Opinion  CON/2017/3, 
paragraph 3.1.7 of Opinion CON/2015/45 and paragraph 3.1.7 of Opinion CON/2015/37. 

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