Oversight Policy of NBS - Oversight of payment systems and payment instruments

As regards the functionalities available in payment systems, we differentiate between large-value payment systems (LVPSs) and retail payment systems (RPSs). LVPSs are primarily designed for processing large value payments, and are usually characterised by real-time final settlement of payments. Examples of LVPSs include the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) and EURO1.

One of the key tasks of NBS (under Act No 566/1992 Coll.) is to promote the safe and smooth functioning of payment instruments and market infrastructures. A function of NBS, called oversight, contributes significantly to the performance of that task.

Oversight is one of the core activities of the Eurosystem/ESCB and, at the same time, an integral part of European institutional law, governed by Article 3.1 of the ESCB Statute as well as by Article 127(2) of the Treaty on the Functioning of the European Union. Put very simply, oversight can be described as monitoring market infrastructures on an ongoing basis, assessing them against approved standards and, where necessary, inducing change.

Oversight in Slovakia is governed by Act No 492/2009 Coll. on payment services(1) and on amendments to certain laws.

The current oversight policy of NBS was approved by the NBS Bank Board at its meeting of 13 January 2015.

In general, oversight has two key objectives: 

  • The first is to contribute to the stable and safe functioning of payment systems and securities clearing and settlement systems. Oversight pursues that objective for both financial market infrastructures now in place, and those under development. This key objective is fulfilled mainly by assessing the infrastructures against defined standards. 

As regards the functionalities available in payment systems, we differentiate between large-value payment systems (LVPSs) and retail payment systems (RPSs). LVPSs are primarily designed for processing large value payments, and are usually characterised by real-time final settlement of payments. Examples of LVPSs include the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) and EURO1.

  • The second key objective of oversight is to prevent a possible rise in systemic risk by taking precautions. Systemic risk to the financial system arises if important payment systems and securities processing systems fail. Systemic risk may also arise if the participants in these systems fail to meet all of their mutual obligations, with this leading to a chain reaction, causing problems to the other participants and resulting in a domino effect.

The term ‘oversight' must be distinguished from ‘financial market supervision'. The difference between ‘oversight' and ‘supervision' functions is fundamental. In general, it can be stated that oversight focuses on the operators of financial market infrastructures (payment systems, securities processing systems and other FMIs) and on assessing them against approved standards while supervision supervises the participants in market infrastructures. For payment services these include payment service providers such as banks, payment institutions and electronic money institutions.

Oversight Policy of NBS - Oversight of payment systems and payment instruments [.pdf, 63.6 kB]