Opinion of the European Central Bank of 6 January 2023 on payment and settlement systems (CON/2023/1)
Date: 2023-01-06
Institutions: European Central Bank
Subjects: financial stability

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 6 January 2023  

on payment and settlement systems 

(CON/2023/1) 

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 financial 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. 

1.1 

Purpose of the draft law 

As noted in the explanatory memorandum accompanying the draft law 2, 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 Council 3 (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 

recognition and oversight of payment and settlement systems by Eesti Pank.  

1.2 

As clarified in the explanatory memorandum 4, 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 Law on securities markets 6. 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  consolidating  the  regulatory 

provisions  into  one  legal  act,  the  draft  law  aims  to  increase  legal  certainty.  The  draft  law  also 

formalises the oversight by Eesti Pank of payment and settlement systems. To that effect, the draft 

1  

2 
3 

4 
5  
6  

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 p. 2 of the explanatory memorandum accompanying the draft law. 
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). 
See pp. 2 and 4 to 15 of the explanatory memorandum accompanying the draft law. 
Krediidiasutuste seadus, RT I 1999, 23, 349. 

Väärtpaberituru seadus, RT I 2001, 89, 532. 

 
 
 
 
 
ECB-PUBLIC 

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  restates  and  elaborates  on  the  principles  of  netting 

(relevant both for settlement regulation and derivative transactions) and regulating the role of Eesti 

Pank in the exercise 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 observations 

2.1 

The ECB welcomes the objectives of the draft law to 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  reducing  the 

likelihood of misinterpretation and clarifying the scope of application of settlement finality principles.  

3. 

Specific observations on the draft law’s definitions of relevant terms 

The draft law’s definition of system operator 

3.1 

The draft law 8 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 

ensuring the continuous operation of the system and organising the execution of transfer orders 

and  netting  of  claims  between  the  participants  in  the  system.  The  explanatory  memorandum 9 

specifies  that  each  settlement  system  may  only  have  one  system  operator,  as  this  will  avert 

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  states  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  operate  based  on  new  technologies  such  as 

distributed ledger technology). Hence, the draft law could leave open the option of having different 

7   

8 
9 

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)  2015/2366  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). 
See paragraph 4(1) of the draft law. 

See p. 24 of the explanatory memorandum accompanying the draft law. 

2 

 
 
 
ECB-PUBLIC 

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 will prevail.   

The draft law’s definition 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  imposition  of  limitations  on,  the  discharge  of  transfer 

obligations.  

3.4 

The draft law’s definition of insolvency proceedings includes crisis resolution proceedings 11. Crisis 

resolution proceedings conducted in line with the Law on financial crisis prevention and resolution 12 

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 contracts will continue to 

be performed. Should the entity in relation to which 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 the entity and, as a result, generally 

undermine the achievement of the aims of crisis resolution proceedings. This is highlighted in the 

recitals of the BRRD, which clarify that the possibility of suspending 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 performed 16. 

10 
11  
12  
13  
14  

15  
16  

See paragraph 7 (1) of the draft law.  

See paragraph 7 (1) 3) of the draft law.  
Finantskriisi ennetamise ja lahendamise seadus, RT I, 19.03.2015, 3. 

See paragraph 1 of the Law on financial crisis prevention and resolution.  
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) No 648/2012, of the European Parliament and of the 
Council (OJ L 173, 12.6.2014, p. 190). 
See paragraph 19 (1) of the draft law.  

See recital 93 of the BRRD. 

3 

 
ECB-PUBLIC 

Furthermore, by including crisis resolution proceedings in the definition of insolvency proceedings, 

the  draft  law  arguably  goes  beyond  the  definition  provided  in  the  SFD 17,  according  to  which 

‘insolvency proceeding’ means any collective measure provided for in the law of a Member State, 

or a third country, either to wind up the participant or to reorganise it, where such measure involves 

the suspension of, or imposition 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 provisions 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 system 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. Under 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  
18  
19  
20  
21  
22  

See Article 2, point (j), of the SFD.  
See paragraph 19 (2) of the draft law. 

See Article 3(1) of the SFD.  
See paragraph 19 (2) of the draft law.  
See paragraph 20 (2) of the draft law.  

See Article 3(1) of the SFD.  

4 

 
 
ECB-PUBLIC 

order and its execution, it is important to ensure the clarity and coherence of the terminology used 23. 

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 system 24; (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  this  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 operational 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. For 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  into  the  system’  instead  of  ‘accepted  by  the 

system’ or ‘issued to it’.  

Differences in the treatment of insolvency of system participants and system operators 

4.6 

The draft law 25 regulates system participant and system operator insolvencies 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, the 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 principles 26. Eesti Pank also cooperates with the 

Estonian Financial Supervisory Authority (FSA) and may pass on to the EFSA documents and data 

23  

24  
25  
26  

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. 
Within the meaning of Article 3(1) of the SFD.  
See paragraphs 19-20 of the draft law.  

See paragraph 23 of the draft law.  

5 

 
 
ECB-PUBLIC 

collected by it. Eesti Pank and the 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 systems 27. 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 draft law, as well as to provide data to competent authorities of other Member 

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  conducts  this  oversight  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 

promoting the smooth operation of payment systems 29.  

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 obligations 31. A netting arrangement would 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 to be added to the Law of Obligations 

foresees that netting arrangements may only be concluded if so provided in the law, meaning that 

27  
28  
29  
30  
31  
32  

See paragraph 24 of the draft law. 
See paragraph 25 of the draft law.  

See Article 127(2), fourth indent, of the Treaty.  
See paragraph 25 (1) of the draft law. 
Võlaõigusseadus, RT I 2001, 81, 487. 
See paragraph 33 1) of the draft law adding paragraph 2051 to the Law on obligations. 

6 

 
 
ECB-PUBLIC 

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 obligations 34 that 

regulates 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 

bankruptcy 35,  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 enforceability of 

netting  agreements  and  close-out  netting  plays  a  vital  role  for  the  organisation  of  settlement 

systems and OTC derivatives markets.38 However, the wording of the draft law’s provisions relating 

to netting arrangements 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  arrangements  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 Law 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 Law on obligations. Instead, it refers to the draft 

law, which does not regulate netting arrangements. This may increase legal uncertainty regarding 

netting arrangements in the context of credit institution crisis resolution proceedings. The relevant 

provisions  could  be  amended  to  clarify  that,  under  the  Law  on  financial  crisis  prevention  and 

33  
34  
35  
36  
37  
38  
39  
40  

See paragraph 8 1) of the draft law. 
paragraph 2051 of the Law on obligations. 
Pankrotiseadus, RT I 2003, 17, 95. 
See paragraphs 48 and 99 (5) of the Law on bankruptcy. 

See p. 57 of the explanatory memorandum accompanying the draft law.  
See paragraph 2.1 of Opinion CON/2021/1 and paragraph 4.1 of Opinion CON/2011/14. 
See paragraph 17 (10) of the Law on financial crisis resolution and prevention. 

See paragraph 28 1) of the draft law. 

7 

 
 
 
ECB-PUBLIC 

resolution,  ‘netting  arrangements’  means  netting  arrangements  as  defined  in  the  relevant 

provisions of the Law on obligations 41. 

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  participants 42.  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 obligations 43 and not to a provision enabling the conclusion of 

netting arrangements under the Law 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 arrangements.   

This opinion will be published on EUR-Lex.  

Done at Frankfurt am Main, 6 January 2023. 

The President of the ECB 

Christine LAGARDE 

41  
42  
43  
44  

In particular see paragraph 2051 of the Law on obligations. 
Paragraph 8 (1) of the draft law. 
In particular see paragraph 197 of the Law on obligations. 
In particular see paragraph 2051 of the Law on obligations. 

8