211/99
10 December 1999
BETTER PROTECTION FOR UK PAYMENT AND SECURITIES SETTLEMENT SYSTEMS
Common EU standards to protect payment and securities settlement systems are good news for the City of London, Economic Secretary Melanie Johnson said today.
New regulations coming into force on 11 December 1999 implement the EU Settlement Finality Directive and set common standards for all member states. These will prevent destabilisation of payment or securities settlement systems if a participant bank or financial firm becomes insolvent. Some UK securities settlement systems already have this kind of protection under the Companies Act 1989 and related legislation. The Directive extends it to payment systems and brings other EU member states' arrangements up to UK standards.
Welcoming this development, Miss Johnson said:
"This is good news for the City, and for everybody whose business depends on reliable and efficient payment and securities systems.
"Having common standards throughout the EU to protect these systems is a very important step forward. With these regulations in place, we can be confident that the City of London can continue to offer to banks and financial firms from all over the world access to the best possible settlement services."
The regulations provide for the Bank of England, for payment systems, and the Financial Services Authority, for securities settlement systems, to designate the systems to be covered by the new rules. The FSA will publish guidance on 13 December setting out the approach it will follow in processing and considering applications for designation. The Bank of England is already in contact with the relevant payment systems.
NOTES FOR EDITORS
The Financial Markets and Insolvency (Settlement Finality) Regulations 1999 (SI 2979) implement Directive 98/26/EC of the European Parliament and of the Council on settlement finality in payment and securities settlement systems.
The Directive is a single market measure to reduce systemic risk. It addresses the fact that the failure of a participant in a system can have repercussions for other participants which endanger the system's stability.
The main provisions of the Directive are :
- Bilateral and multilateral netting are to be protected from the potentially disruptive provisions of insolvency law.
- Payment or securities transfer orders are to be protected from insolvency law provisions from the moment that they have entered a designated system.
- Prohibition of insolvency rules having retroactive effects on rights and obligations in payment or security settlement systems.
- The law governing the system will determine the effect of insolvency proceedings on participants' rights and obligations arising from participation in the system.
- Insulation of collateral security from the effects of insolvency law of the member state of a failed system participant.
Copies of the Regulations can be obtained from HMSO at £3.00. The text can be viewed on the HMSO website at the address below.
Copies of the FSA's guidance are available priced £10 by sending a cheque payable to the FSA to the FSA's Sales and Distribution Department at 25 The North Colonnade, Canary Wharf, London E14 5HS, or from the FSA website at the address below.
Media contacts :
HM Treasury press office : Charles Keseru 0207 270 5188.
FSA press office : Andy Newton 0207 676 3232.
Bank of England press office : 0207 601 4411.