Most typically, public intervention would seek to address the vulnerability stemming from single points of failure by the imposition of minimum standards of resilience on monopoly (or near-monopoly) systems, either to reduce the probability of operational failure; or to mitigate the impact of such failure by improving contingency arrangements – for instance, via increased investment in back-up facilities. Steps might also be taken to improve general risk management practices and mitigate the risk of exit of a key infrastructure; financial resilience and business risk is an important consideration here. A regulator or overseer might also (or alternatively) seek to narrow the gap between the choices of a monopoly provider and the social optimum by encouraging more effective and inclusive governance arrangements. User- as opposed to external-ownership might be promoted, though, as previously noted, this might not be enough. Other measures might include steps to clarify the scope of the system’s activities, admissions criteria, voting rights, transparency, and the role of external stakeholders. For instance, in the UK, overall governance of payment systems is carried out via the newly-formed Payments Council. This body is headed by a governing board comprising a (non-voting) independent Chair, four independent directors, and eleven directors from the payments sector. The board is expected to consult with key stakeholders before determining strategy, and before making important  4  BIS Review 77/2007  decisions. Transparency is also enhanced via the publication of an annual report, with a separate contribution by the independent directors, and the publication of board minutes.

6  BIS Review 77/2007  The Basel Committee for Payment and Settlement Systems has again been looking closely at issues arising from international integration of banks and infrastructures. In recent years, the Committee has published a report exploring mechanisms for the cross-border use of collateral, and in the context of a broader report on central bank oversight of payment and settlement systems, has established a set of principles for international cooperative oversight. Work is also continuing to map more formally the nature of international interdependencies between systems, and thus of cross-border risks. Legal certainty No matter how safe and resilient the market infrastructure, a sound legal basis for transactions is essential if the financial markets are to fulfil their role in effectively allocating scarce capital. Financial markets operate within legal systems that not only regulate the behaviour of participants for the good of the markets as a whole, but also safeguard the property and contractual rights of those participants. Prospective market participants will have greater confidence to invest or to seek finance if they feel confident, first, that the regulatory obligations and sanctions imposed upon them are predictable and, second, that the contractual rights/obligations which they acquire/undertake can be identified with certainty. Furthermore, market discipline is likely to be enhanced if participants’ legal/contractual rights and obligations are precisely defined; the introduction of an ambiguity into the law can unsettle financial markets or exacerbate existing instabilities. Legal/contractual uncertainty is therefore a potential source of systemic risk.