ANNUAL REPORT 2008 - Polymer Bank Notes of the World

4 PAYMENT SYSTEMS AND MARKETINFRASTRUCTURE OVERSIGHTPayment and securities clearing and settlementsystems are basic infrastructures which arenecessary for the proper functioning of marketeconomies. They are indispensable for theefficient flow of payments for goods, servicesand financial assets, and their smooth functioningis crucial for the implementation of the centralbank’s monetary policy and for maintaining thestability of and confidence in the currency, thefinancial system and the economy in general.Through its oversight function, the Eurosystemaims to ensure the safety and efficiency ofpayment and securities settlement systems andof central counterparties operating in euro,by applying, among other things, minimumstandards and requirements. In particular, theoversight function aims to maintain systemicstability in the payment system by containingthe exposure to systemic risk. In this context,overseers are generally concerned with bothindividual payment and securities settlementsystems and – given the interdependenciesbetween these systems – the marketinfrastructure as a whole. Payment instrumentsalso fall within the scope of the Eurosystem’soversight, which focuses in particular on theirsafety and efficiency.The Treaty assigns oversight responsibilities tothe Eurosystem. For the purpose of effective andefficient oversight, the ECB and the NCBs ofthe Eurosystem carry out these responsibilitiesin a way that allows the Eurosystem to benefitfrom its decentralised structure, while ensuringcoordination of its oversight activities and equalapplication of its policies. The Eurosystem’soversight policies and requirements reflectinternationally recognised standards, the detailsof which are adjusted to the specific conditionsand needs of the Eurosystem.4.1 LARGE-VALUE PAYMENT SYSTEMS ANDINFRASTRUCTURE SERVICE PROVIDERSThe Eurosystem oversees all large-valuepayment systems which settle euro transactions,including those managed by the Eurosystemitself. The Eurosystem applies the sameoversight standards to both its own systems andthose that are privately operated. These standardsare the Core Principles for SystemicallyImportant Payment Systems, defined by theG10 Committee on Payment and SettlementSystems (CPSS) and adopted by the GoverningCouncil in 2001. They are complemented by theEurosystem’s business continuity oversightexpectations for systemically important paymentsystems which were adopted by the GoverningCouncil in 2006 and are to be implemented byall systemically important payment systems inthe euro area by June 2009.Key payment infrastructures settling eurodenominatedtransactions (TARGET2, EURO1and CLS), infrastructure service providers (suchas SWIFT) and euro securities clearing andsettlement infrastructures coped successfullywith the challenges arising from the marketturmoil that continued in 2008. From anoversight perspective, a number of lessons couldbe learned from these events, not least withregard to the importance of adequate capacitymanagement by system operators and wellestablishedframeworks for crisis communicationbetween overseers, other relevant authoritiesand market infrastructure providers.TARGET2The gradual transition from TARGET toTARGET2, which started in November 2007,was completed smoothly and on schedulewhen the third and last group of nationalbanking communities successfully connectedto TARGET2 on 19 May 2008. All TARGET2oversight activities are led and coordinated bythe ECB, which acts in close cooperation withthe participating NCBs. The latter conduct theoversight of the local features of TARGET2 andcontribute to the oversight of the central featuresof TARGET2 on a voluntary basis.In early 2007, when TARGET2 was still underdevelopment, the TARGET2 overseers startedto conduct a comprehensive assessment of theTARGET2 design against the Core Principlesfor Systemically Important Payment SystemsECBAnnual Report2008163