Payment Systems Oversight in Austria

Electronic transfers of funds comprise the most diverse kinds of transactions, ranging from cashless payments at vending machines to large payments between banks or transactions in connection with securities trades. The smooth functioning of payment systems is a fundamental prerequisite for financial stability. Therefore, the OeNB has the statutory mandate to conduct payment systems oversight in Austria. An overview of the different types of payment systems and the arguments in favor of oversight by the central bank as well as the OeNB’s oversight activities are provided below.

Payment systems provide the infrastructure for the daily payment cycle of modern economic systems. They support the electronic transfer of funds between companies, banks, traders, the government and consumers. Most transactions are processed in one of the following payment systems, depending on the type and the size of the transaction:

• Large-value payment systems: These payment systems are used especially for transactions between banks. TARGET2 is the Eurosystem’s large value payment system.
• Securities settlement systems (SSSs): These systems are used to process securities sales and purchases of banks and their customers.
• Retail payment systems: All electronic payments made by consumers are processed in retail payment systems, including, for instance, credit card payments, ATM withdrawals, or POS payments.
• E-money systems: One common type of e-money is the electronic purse, where users store money on a smart card to use for small payments, e.g. at vending machines.

Payment systems are legally defined as any commercial framework for the electronic transfer of funds among at least three participants. (see Article 44a Federal Act on the Oesterreichische Nationalbank).

Payment systems fulfill an important role in maintaining the stability of the financial system. Disruptions in the money cycle could have considerable repercussions, ranging from problems for individual stakeholders to the destabilization of the entire financial system, and, consequently, the loss of confidence in the currency.  Risks typically associated with payment systems are credit risk (a party to a transaction does not meet its obligations), liquidity risk (a party to a transaction does not meet its obligations in time), legal risk (contracts prove to be unenforceable), technical and operational risk (human error, IT problems, terrorist attacks, etc. cause a system breakdown), and systemic risk (problems with a stakeholder or a payment system set off a chain reaction, causing disruptions in other payment systems or in the entire financial system). The security of payment systems is of fundamental macroeconomic importance; therefore, payment systems oversight is one of the key tasks of a central bank.

The OeNB carries out its oversight function under the framework provided by the oversight policies pursued by the Governing Council of the ECB, which are based on Article 127 (2) of the Treaty on the Functioning of the European Union as well as Articles 3 and 22 of the Statute of the ESCB and of the ECB.The main oversight objective is to prevent system failure and to safeguard the efficiency and security of market infrastructures. For further details on the legal framework for payment systems oversight at EU level, see the website of the ECB (http://www.ecb.int/paym/pol/html/index.en.html).

Article 44a of the Federal Act on the Oesterreichische Nationalbank (Nationalbank Act) assigns the task of payment systems oversight to the OeNB. In its capacity as the public authority responsible for payment systems oversight, the OeNB, under constitutional law, is not bound by any instructions. The OeNB fulfills its statutory task in particular by conducting in-depth assessments of the measures implemented to ensure the security of payment systems (system assessments). Furthermore, it compiles statistical data and is empowered to take sanctions if deemed necessary. All these rights and responsibilities are laid down in the Nationalbank Act.

Operators of payment systems are the main subjects of oversight, as they assume the primary responsibility for the design of the system, its structure and processes as well as its operational soundness and technical security. If other stakeholders provide systemically relevant services, e.g. the provision of infrastructure (ATMs, POS terminals, etc.), they are also subjected to oversight by the OeNB.

The OeNB carries out system assessments both on a regular and on an ad hoc basis. These assessments focus on system security from

• the legal perspective: the legal basis on which a system operates must be clearly defined and enforceable among all stakeholders;
• the financial perspective: all system stakeholders must be aware of and be able to keep in check the financial risks involved in operating, contributing to or using a system.
• the organizational and technical perspective: a system must provide for a high (i.e. state-of-the-art) level of confidentiality, integrity and availability.

If a system assessment identifies potential problems or shortcomings, the OeNB and the system operator agree on remedial measures, whose implementation is being reviewed in follow-up assessments. The evaluation of the organizational and technical security of a payment system is usually carried out in cooperation with external experts .

The OeNB monitors the ongoing operational activities of payment system providers and stakeholders, who regularly report quantitative and qualitative information to the OeNB. If the OeNB identifies significant deviations or problems, it may launch an ad hoc system assessment. Findings derived from the analysis of payment system statistics that are of macroeconomic relevance are published semiannually in the OeNB’s Financial Stability Report.

Transactions processed through payment systems recognized under the Austrian law on settlement finality in payment and securities settlement systems (Finality Act) are legally binding, i.e. final, also for third parties. This act provides for legal certainty and reduces the legal risks in particular for recipients of payments. The OeNB is responsible for recognizing payment and securities settlement systems under the Finality Act.

(as at September 2012)