Financial Market Infrastructures (FMIs)
As already highlighted, FMIs are important within the financial sector as such infrastructures deliver services which are critical to the smooth functioning of such markets. FMIs include various types of infrastructures, namely Central Securities Depositories (CSDs), Settlement Securities Systems (SSSs), Central Counterparties (CCPs), Trade Repository (TRs) and Payment Systems.
At a national level, there are three FMIs in operation which require oversight assessments, these being the Malta Stock Exchange (including MaltaClear), the Malta Clearing House (MCH) and MTEUROPAY.
Malta Stock Exchange (MSE)
The MSE, which is the national CSD, is a fully-fledged regulated market which fulfils its role as an effective venue to raise capital finance. Besides admission and trading, the MSE also offers a comprehensive range of back-office services including maintenance of share and bond registers, custody services as well as clearing and settlement. The latter is processed through MaltaClear which is the SSS operated within the MSE. Currently, the MSE is the sole market provider in Malta in terms of CSD and SSS.
As an FMI, the MSE (including MaltaClear) is subject to a regime of continuous assessments through the introduction of the Central Securities Depository Regulation (CSDR). Assessments seek to address various issues including legal, governance and operations. Details in default procedures, liquidity, collateral and general business and operational risks are also assessed.
- Central Securities Depository Regulation (CSDR)
Prior to the introduction of the CSDR, the CBM regularly assessed the operations of the MSE against the User Assessment Framework (UAF) which assessment ensured the safety of its operations. However, the implementation of the CSDR provided the opportunity to phase-out the UAF since most of the directly applicable rules of the CSDR requirements are identical to those set out in PFMIs, which to a high extent overlap with the former Eurosystem user requirements.
The designated National Competent Authority (NCA) of the CSDR is the MFSA while the CBM is designated as the Relevant Authority. To this effect, the MSE was initially authorised under the CSDR in October 2018 and assessments aiming to safeguard the stability of the financial market is currently carried out on an annual basis. Both the MFSA and the CBM are in close cooperation on this regard through regular meetings.
Other Eurosystem Requirements which are not part of the CSDR requirements but were included in the UAF, are listed as an Annex to the General Documentation. To this effect, the CBM has transposed the set-out requirements in CBM Directive No. 8 as Annex 6A. This Annex lays down the "Eligibility criteria for the use of the Security Settlement Systems (SSSs) and links between SSSs in Eurosystem credit operations". In this regard, the CBM and the MSE signed a Memorandum of Understanding (MoU) which mandates the MSE to be compliant with such Eurosystem Requirements.
Payment Systems
The Eurosystem distinguishes amongst various types of payment systems, some of which are systematically more important than others based on size and nature of the payment system. To this effect, a distinction between systemically important payment systems (SIPS) and non-systemically important payment systems (non-SIPS) is made based on the differences related to size, market share, cross-border activity, and the provision of settlement services to other FMIs.
Whether operated by the Eurosystem NCBs or private entities, both large-value and retail payment systems of systemic importance are covered by the ECB Regulation on oversight requirements for systemically important payment systems (SIPS Regulation). This Regulation provides classification criteria to categorise payment systems into the respective categories of:
- systemically important payment systems (SIPS);
- prominently important payment systems (PIRPS);
- other retail payment systems (ORPS).
The ECB carries out an annual exercise to classify existing and new payment systems as the issued classification effects the detail of oversight assessments carried out on payment systems.
For those systems which are not classified as SIPS, the Revised oversight framework for retail payment systems (RPS) and the subsequent assessment methodology are followed to conduct oversight assessments.
The Eurosystem large-value payment system, TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System), was launched in November 2007 and is operated by three Eurosystem central banks, namely, the Banca d'Italia, the Banque de France and the Deutsche Bundesbank, on behalf of the Eurosystem. Locally, TARGET2 services are provided by the component system TARGET2-Malta.
As part of the oversight functions, the European Central Bank (ECB) carries out oversight assessment on TARGET2 against the PFMIs or other international standards. CBM participates in the oversight assessment of such system through its participation in the relevant European working group and the provision of certain data to the ECB in relation to the component system TARGET2-Malta when necessary.
T2S is a Eurosystem infrastructure that provides the European post-trading industry with a single, borderless, pan-European platform for securities settlement in central bank money. It provides critical settlement services to many euro area and non-euro area CSDs and central banks.
Regarding oversight, the Eurosystem has legal competence to oversee T2S which is assessed against the PFMIs. T2S oversight includes assessing the general organisation of T2S as a critical infrastructure, as well as the services it provides. It is important to note that the ECB has primary oversight responsibility for T2S and leads and coordinates all oversight activities.
The MCH is a cheque clearing payment system and is managed by a committee of participating members. While the CBM chairs such committee, the latter is responsible for the Rules and Regulations of the MCH which may be amended as necessary.
According to the statistics provided to the ECB for the annual classification exercise of payment systems, the MCH has been classified as ORPS and as such the applicable subset of the PFMIs was applied during this assessment. Given that such system operates on a national level, it is the responsibility of the CBM to conduct oversight on such system to ensure compliance and safeguard the financial market.
MTEUROPAY is a payment system which offers euro settlement to its participants (mainly credit and financial institutions licensed in Malta) through the European Banking Authority (EBA) STEP2 platform. This payment system has started its operations in 2020 and eventually has been classified as ORPS based on the annual ECB classification exercise.