EU court quashes ECB counterparty location policy

Source: European Commission

The Eurosystem comprises the European Central Bank (ECB) and the national central banks o fthe Member States that have adopted the euro as a common currency.

On 5 July 2011, the ECB published on its website the Eurosystem Oversight Policy Framework, which describes the Eurosystem’s role in the oversight of ‘payment, clearing and settlement systems’. According to the ECB, the oversight of those systems and that infrastructure as a whole stems from the task assigned to it by the FEU Treaty of promoting the smooth operation of payment systems and from Article 22 of the Statute of the European System of Central Banks and of the ECB, which provides that ‘the ECB may make regulations, to ensure efficient and sound clearing and payment systems within the Union and with other countries’.

In the Policy Framework, the ECB explained that securities settlement systems and central counterparty clearing houses (central counterparties; ‘CCPs’) are key components of the financial system. A financial, legal or operational problem affecting them can be a source of systemic disturbance for the financial system. That is particularly true of CCPs in that they are a focal point for credit and liquidity risk. It was further stated in the Policy Framework that malfunctioning on the part of infrastructures located outside the euro area could have adverse effects on payment systems located in the euro area, whilst the Eurosystem has no direct influence on such infrastructures. The ECB drew the conclusion that infrastructures that settle euro-denominated transactions should be legally incorporated in the euro area with full managerial and operationalcontrol and responsibility, over all core functions, exercised from within that area.

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