System oversight

The importance of payment and securities settlement systems for financial system stability, capability to perform central bank functions and promotion of confidence in currency obligated central banks to pay due attention to the management of risks faced by the systems and ensure efficient operation of the systems.

Systems oversight, as a public function, is necessary due to potential market failures arising from the systems operation. Due to investment in operational reliability and automation, fixed costs of the systems are relatively high. In order to cover them, it is necessary to process a large volume of payment or securities transfer orders, which often comprise the majority of domestic settlements. A country usually has only one or two such infrastructures, which thus acquire characteristics of a natural monopoly. It is also important to ensure that, when making decisions on investment in system security and reliability, system operators assess not only the direct impact of such decisions on their activity, but also on the general public (for example, the possibility that certain entities would be unable to comply with their liabilities due to a system failure).

In the last 20 years, starting from the so-called Lamfalussy report (1990), the international community coordinated their actions in the area of systems oversight. This encouraged the appearance of international recommendations, principles and/or standards. Such standards are, for example, the Core Principles for Systemically Important Payment Systems (2000) established by the Bank for International Settlements (BIS), the Recommendations for Securities Settlement Systems (2001) and the Recommendations for Central Counterparties (2004) prepared by the BIS together with the International Organization of Securities Commissions (IOSCO) and the Recommendations for Securities Clearing and Settlement in the European Union (2009) established by the European System of Central Banks (ESCB) and the Committee of European Securities Regulators (CESR).

The Bank of Lithuania conducts the oversight of three payment systems (LITAS-RLS, LITAS-MMS and KUBAS) and the securities settlement system. The Bank of Lithuania together with the Eurosystema participates in the oversight of the payment system TARGET2. The oversight is based on the Payment and Securities Settlement Systems Oversight Policy approved by the Board of the Bank of Lithuania and the documents approved by the Eurosystem.

The following systems oversight measures are applied in Lithuania: system registration, system monitoring and system assessment. If deficiencies are ascertained by using these measures, system changes are initiated.