1. Payment Systems
  2. Oversight

Oversight


Oversight of payment systems and financial market infrastructures is a new core function of a modern central bank. The oversight function stands to promote the safety and efficiency objectives for either existing or planned systems. Additionally, the oversight function implies an evaluation of these systems according to the objectives set, but it also induces change when necessary. The risks which can arise within the framework of the overseen systems are:

  • Credit risk: the risk of recording a financial loss caused by the inability of a counterparty, including a participant, to fulfill its financial obligations either when due, or at any time in the future.
    Credit risk encloses replacement cost risk and principal risk.
  • Concentration risk: the risk that the failure of a critical participant will induce systemic risk. A common threshold, for net settlement payment systems, is that the top 5 participants have a combined share of transactions larger than 80 percent.
  • Replacement cost risk: is the risk that a counterparty to an outstanding transaction for completion at a future date will fail to perform on the settlement date. The resulting exposure is the cost of replacing the original transaction at current market prices and is also known as replacement cost risk. This failure may leave the solvent party with an unhedged or an open market position or unrealized gains on the position.
  • Custody risk: is the risk of loss on assets held in custody in the event of a custodian’s (or sub-custodian’s insolvency) insolvency, negligence, fraud, poor administration, or inadequate recordkeeping.
  • Settlement risk (financial risk): A general term used to designate the risk that settlement in a transfer system will not take place as expected. This risk may comprise operational risk, credit risk and liquidity risks.
  • Legal risk: is the risk of recording a loss due to the unexpected application of a law or regulation. Additionally, legal risk can also arise if the application of relevant law and regulations is uncertain.
  • General business risk: this risk refers to any potential impairment of the financial condition of a financial market infrastructure due to declines in its revenues or growth in its expenses, resulting in expenses exceeding revenues and a loss that must be charged against capital.
  • Investment risk: is the risk of loss faced by a financial market infrastructure when it invests its own or its participant’s resources, such as collateral.
  • Liquidity risk: is the risk of recording a financial loss caused by the inability of a counterparty, including a participant, to fulfill its financial obligations when due, although it may be able to do so in the future.
  • Operational risk: is the risk that deficiencies in information systems or internal processes, human errors, management failures, or disruptions from external events will result in the reduction, deterioration, or breakdown of services provided by a financial market infrastructure.
  • Principal risk: is the risk that a party will lose the full value of a financial asset (i.e. financial instruments or currency) involved in a transaction (credit risk). In the settlement process, this term is typically associated with transactions of assets where there is a lag between the final settlement of the various legs of a transaction (i.e. the absence of delivery versus payment). The principal risk which arises from the settlement of foreign exchange transactions (foreign exchange settlement risk) is sometimes called cross-currency settlement risk or Herstatt risk.
  • Systemic risk: is the risk that the failure of one participant in a transfer system, or in financial markets generally, to meet its required obligations will cause other participants or financial institutions to be unable to meet their obligations (including settlement obligations in a transfer system) when due. Such a failure may cause significant liquidity or credit problems and, as a result, might threaten the stability of financial markets.

The National Bank of Romania's oversight authority is explicitly set out by law.
(Law No. 312/28.06.2004, Government Emergency Ordinance No. 99/6.12.2006, Law No. 253/16.06.2004, Law No.297/28.06.2004)

The National Bank's key objectives of oversight include:

  1. Maintenance of financial stability
    Central banks are interested in sound and efficient functioning and operation of the payment systems, which affect the stability of the financial sector. Participants trust the efficient functioning and operation of the systems and, when entering into transactions, anticipate inflows of funds. Any disruptions to the flow of funds caused by the inefficiency of domestic payment systems may cause and increase adverse consequences for the system(s) participants.
  2. Ensuring of an adequate transmission channel for monetary policy
    Central banks strive to prevent occurrences of any technical malfunctions of the used infrastructures and/or organizational disruptions within system operator(s) and/or participants and they ask for effective and transparent governance arrangements of the systems.
  3. Ensuring the efficiency of payment systems
    Central banks strive to prevent occurrences of any technical malfunctions of the used infrastructures and/or organizational disruptions within system operator(s) and/or participants and they ask for effective and transparent governance arrangements of the systems.
  4. Achieving full compliance of payment systems with legal framework(s)
    A sound legal basis under all relevant jurisdictions is another important side of the systems operation.
  5. Maintaining public confidence in payment systems, payment instruments and domestic currency .
    Payment systems allow customers of payment system participants to perform transfer funds or payments. Increasing of safety and efficient performance of these payments contributes to growing of general public confidence in the performed payments, used payment instruments and payment systems, and in the domestic currency, RON.

The Scope of Oversight Covers:

  • Payment systems and securities settlement systems;
  • Payment instruments;
  • System operators and participants;
  • Payment infrastructure service providers.

The National Bank of Romania oversees payment systems running in Romania, regardless of whether or not it operates those systems itself.

The National Bank of Romania oversees SaFIR securities settlement system operated by the central bank and in cooperation with National Securities Commission  it oversees securities settlement system which are not operated by the central bank.

In order to avoid any conflicts of interest the National Bank of Romania (is both overseer and system operator for ReGIS and SaFIR) has decided to keep oversight and operational activities strictly separated.

Main oversight tools used:

  1. collecting data regarding system operators and their systems and their payment infrastructure service providers;
  2. performing on-site inspections;
  3. cooperation/collaboration with national regulation and/or supervision authorities;
  4. cooperation/collaboration with other overseers;
  5. assessing received complains from system end-users;
  6. performing assessments against relevant national/european/international standards;
  7. inducing changes (e.g. recommendations, imposing remedy measures to be implemented up to deadlines set up by NBR);
  8. imposing sanctions from a large range starting with disclosing the oversight report (results) and ending withdrawal of the authorization granted by NBR to the system operator.

European and International Standards Aplicable to Payment Systems

International standards applicable to securities settlement systems

European standards applicable to payment instruments

Central Banks' Role in Oversight

  • Central bank should clearly define and disclose their roles and regulatory and oversight policies with respect to financial market infrastructures;
  • Central bank regulates and oversees financial market infrastructures;
  • Central bank should adopt the CPSS-IOSCO Principles for financial market infrastructures and apply them;
  • Central bank should cooperate with other central banks and domestic and foreign authorities, as appropriate, in promoting the safety and efficiency of financial market infrastructures;
  • Central bank should have the powers and resources to carry out effectively its responsibilities in regulating and overseeing financial market infrastructures.

Within oversight activity the National Bank of Romania cooperates with the following institutions:

Following systems are designated by Order of the Governor of the National Bank of Romania no.34/17.01.2008, completed by OrOrder of the Governor of the National Bank of Romania no.637/15.06.2011, as a system under the Law no.253/16.06.2004 on settlement finality in payment and securities settlement systems implementing the Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payments and securities settlement systems, as subsequently amended: :

  • ReGIS operated by the National Bank of Romania
  • TARGET2-România provided and technically operated by Banca d’Italia, Banque de France şi Deutsche Bundesbank on behalf of Eurosystem;
  • SENT operated by Transfond S.A. 
  • SaFIR operated by the National Bank of Romania
  • RoClear operated by Depozitarul Central S.A. 

The National Bank of Romania is the appropriate chosen authority to be notified by and to notify other chosen authorities on opening of insolvency proceedings against a participant to designated payment systems and securities settlement systems according to Settlement Finality Directive.

Memorandums of Understanding

Contact us:   +40 311 32 37 00.

T: +4031 132 2321
E: press@bnro.ro