Cooperative oversight principles and implementation for Euroclear ...

of the MoU and will therefore not be discussed as suchwithin the cooperative oversight framework betweencentral banks that is being described here.Cooperative oversight principle 5 :Unsound systemsIn the specific arrangement under review here, eachnational central bank remains responsible for the oversightand the supervision of its domestic (I)CSD and theassociated SSSs which it manages. As regards ESA, theservices it provides and its management fall within thescope of the above-mentioned MoU, and the cooperativeoversight arrangements described above are applicable.As for Belgium, the NBB can, if necessary, discourage theuse of the Belgian systems or – within the frameworkdescribed above – discourage the provision of ESA servicesto a system.2. SWIFT2.1 International cooperative oversightarrangement for SWIFTCentral banks generally have the explicit objective offostering financial stability and promoting the soundnessof payment and settlement systems. While SWIFT is nota payment or settlement system itself and, as such, isnot regulated by central banks or banking supervisors, alarge and growing number of systemically important systemshave become dependent on SWIFT, which has thusacquired a systemic character. If SWIFT were insufficientlyprotected against risk, disruption in financial messagingcould trigger or transmit further disruption amongst itsusers.Because of this, the central banks of the G10 conductoversight of SWIFT, with the NBB as lead overseer, asSWIFT is incorporated in Belgium. Other central banksmay also have a legitimate interest in or responsibilityfor oversight of SWIFT, given its role in their domesticsystems.The major instrument for the oversight of SWIFT is moralsuasion. During the dialogues with the SWIFT board andmanagement, overseers formulate their recommendationsto SWIFT. No G10 central bank currently has directstatutory instruments (such as sanctions, fines or formalprior approval of changes) to formally enforce decisionsupon SWIFT. Overseers exert influence via a series ofother mechanisms to ensure that SWIFT takes account oftheir recommendations, including informing SWIFT usersand their supervisors about oversight concerns related toSWIFT.The common understanding of overseers and SWIFTabout the oversight objectives, and the activities that willbe undertaken to achieve those objectives, is laid downin a protocol. The protocol arrangement was signedbetween the NBB, as the lead overseer, and SWIFT. It canbe revised periodically to reflect the evolving oversightarrangements. The NBB has also concluded bilateral MoUswith each of the other central banks involved in the oversightof SWIFT.The NBB monitors SWIFT developments on an ongoingbasis. It identifies relevant issues through the analysis ofdocuments provided by SWIFT and through discussionswith the management. It maintains a continuous relationshipwith SWIFT, with ad hoc meetings on a regular basis,and serves as the G10 central banks’ entry point for thecooperative oversight of SWIFT.The various SWIFT oversight groups are structured asfollows :− the SWIFT Cooperative Oversight Group (OG), composedof all G10 central banks, the ECB and the chairmanof the G10 CPSS, is the forum through whichcentral banks conduct cooperative oversight of SWIFT,and in particular discuss oversight strategy and policiesrelated to SWIFT ;− within the OG, the Executive Group (EG) discusses withSWIFT’s board and management the central banks’oversight policy, issues of concern, SWIFT’s strategyregarding oversight objectives and conclusions. The EGsupports the NBB in preparing for discussions withinthe broader OG and represents the OG in discussionswith SWIFT. The EG can present recommendations toSWIFT on behalf of the OG ;− at the technical level, the Technical Oversight Group(TG) meets with SWIFT management, internal audit andstaff to carry out the groundwork of the oversight process.Specialised knowledge is needed to understandSWIFT’s use of computer technology and the associatedrisks. The TG draws its expertise from the pool of staffavailable at the cooperating central banks. It reports itsfindings and recommendations back to the OG.2.2 Assessment of SWIFT oversight against theCooperative Oversight PrinciplesThe Principles for International Cooperative Oversighthave been developed with cross-border and multicurrencypayment and settlement systems in mind. As SWIFT isneither of these systems, but essentially a major services92

Cooperative oversight principles and implementation forEuroclear SA and SWIFTprovider to the global financial infrastructure of relevanceto the oversight activities of many central banks, thePrinciples, if applicable to SWIFT, need to be reinterpretedto suit the specificities of a services provider in which themajor sources of risk are almost exclusively of an operationalnature, and in which typical risks of (multicurrency)payment and settlement systems are absent. A reinterpretationof each Principle suitable to SWIFT is given below.Cooperative oversight principle 1 : NotificationInterpretation for SWIFT : TransparencySWIFT is a messaging services provider that has financialinstitutions in more than 200 countries as clients. Thecross-border dimension is inherent to the majority ofthese services, and SWIFT is well-known to central banksthroughout the world. This is, amongst other reasons,because many central banks are SWIFT users themselves,for instance, for the messaging services in their country’slarge value payment system, which is most often eitheroperated by or set up under the authority of the centralbank. When central banks become SWIFT members, theyget involved in the SWIFT governance process and arethus informed of changes at SWIFT or are consulted onintended changes through the SWIFT consultation processes.Furthermore, they can obtain information on theexternal security auditor’s yearly assessment of the SWIFTcontrol framework (control objectives, criteria and supportingcontrols) in SWIFT’s SAS 70 report. Transparencyto central banks is thus provided by SWIFT itself in thesame way as SWIFT provides information to its otherusers.Besides the disclosure of information by SWIFT, overseersalso communicate on the international cooperativeoversight arrangements for SWIFT. In its role as leadoverseer of SWIFT, the NBB has been describing publiclyvarious aspects of the arrangements in several issues ofits Financial Stability Review and annual report. Similarreferences are made by the other G10 central banksinvolved in the cooperative oversight of SWIFT. On an adhoc basis, the NBB also keeps in contact with non-G10central banks, to explain the SWIFT oversight arrangementsto them.Cooperative oversight principle 2 :Primary responsibilityInterpretation for SWIFT : Responsibility according toSWIFT’s role in domestic systemsIn the international cooperative oversight arrangementfor SWIFT, the NBB, as lead overseer, is the primary pointof contact between SWIFT and the overseers. Oversightassessments are a joint undertaking by the G10 centralbanks. In the various SWIFT oversight groups, representativesfrom the G10 central banks aim at buildingconsensus views in order to communicate their commonassessment and recommendations to SWIFT. It wouldbe inefficient, and could lead to inconsistent actions, ifcentral banks acted in an uncoordinated way. The G10central banks act in close cooperation so as to give centralbanks more influence over SWIFT than they would haveif acting on a solo basis. However, the joint undertakingof the G10 oversight activities vis-à-vis SWIFT does notbring about any changes in the regular division of responsibilitiesbetween central banks, since each of these bankscontinues to assume responsibility according to the extentto which SWIFT is being used in its domestic payment andsettlement systems.It is true that the smooth operation of SWIFT is alsorelevant to central banks beyond the confines of theG10 central banks that are conducting the internationalcooperative oversight of SWIFT, as these non-G10 centralbanks are responsible for monitoring the smooth operationof their own domestic systems. As there is a limit tothe number of people that can directly interact effectivelywith SWIFT, the overseers of SWIFT are open to dialoguewith other central banks, on the one hand, to assist themin identifying relevant information that is readily availablefrom SWIFT, and, on the other hand, to inform them ofthe set-up of the SWIFT oversight arrangements.Cooperative oversight principle 3 : Assessment ofthe system as a wholeThis principle can be deemed applicable to SWIFTunamendedOverseers developed the High Level Expectations for theOversight of SWIFT as a tool in assessing the SWIFT systemas a whole. The High Level Expectations are presented ina separate article of this Financial Stability Review. Thetopics identified for an oversight review at SWIFT are beingselected on the basis of a risk-based oversight assessmentwithin the framework of the High Level Expectations. Asa starting point, the whole SWIFT organisation and allits various activities are being considered, but only those93