Oversight of financial market infrastructures

The National Bank of Ukraine (NBU) performs oversight of financial market infrastructures to ensure their continued, sustainable, and effective functioning. Oversight aims to identify and prevent risky activities that pose a threat to the interests of users of financial market infrastructures.

The NBU adheres to the following oversight principles:

transparency in disclosing oversight policy and general conditions to financial market infrastructures
application of international principles for financial market infrastructures
consistency of requirements for all financial market infrastructures, including those established by the NBU
mandate and capacities for effective oversight
working with government authorities and foreign central banks.

Oversight is one of the key functions of central banks in most countries.

According to the world practices and international oversight standards (the Principles for financial market infrastructure, CPMI-IOSCO, 2012), the following five financial market infrastructures are subject to oversight:

payment systems
central securities depositories
securities settlement systems
central counterparties
trade repositories.

Overseen entities

Overseen Payment Infrastructure Entities

Overseen Payment Infrastructure Entities in line with the Law of Ukraine On Payment Services are as follows:

payment system operators, settlement banks, technical service providers, participants in payment systems overseen for their compliance with the laws that regulate the operation of payment systems, and provision of services by technical service providers
payment services providers overseen in terms of their use of payment instruments, payment transaction schemes, electronic and digital money, interaction with the other participants of the payment market
e-money issuers, in terms of the issuing and using e-money.

Payment system oversight is the NBU’s activities on ensuring the uninterrupted, reliable, and efficient functioning of the payment infrastructure that includes:

payment infrastructure monitoring
assessing the payment infrastructure for its compliance with Ukrainian law and international oversight standards
setting requirements and restrictions for the payment infrastructure operations
providing recommendations to improve the payment infrastructure operation and/or applying corrective measures.

Other Financial Market Infrastructures

On 14 December 2021 the Verkhovna Rada amended the Law of Ukraine On the National Bank of Ukraine and the Law of Ukraine On Capital Markets and Organized Commodity Markets that defines that entities subject to NBU oversight perform the following functions:

central securities depositories
securities settlement systems
central counterparties
trade repositories (hereinafter referred to as “the capital market infrastructure entities”).

As part of oversight of capital markets infrastructures, the NBU shall perform the following:

monitoring overseen entities
assessing overseen entities and their compliance with Ukrainian law and international oversight standards
providing recommendations to improve performance of overseen entities

Legal amendments on extending oversight functions of the NBU shall enter into effect on 1 January 2024.

Determining significant overseen payment infrastructure entities

Pursuant to Article 82 of the Law of Ukraine On Payment Services, the NBU is authorized to determine importance of overseen entities based on importance criteria set by the NBU, as well as set requirements to said entities.

The NBU is authorized to classify a payment system an important payment system and a systemically important payment system based on importance criteria, as well as set requirements to said systems.

Based on the monitoring findings of payment infrastructures and in line with importance criteria prescribed by the Regulation On the Oversight of Payment Infrastructure in Ukraine approved by NBU Board Resolution No. 187 dated 24 August 2022, the NBU determines importance of payment systems, members of payment systems, payment services providers, e-money issuers, and technological operators.

The NBU uses the information to classify overseen entities based on importance criteria to assess entities of comprehensive assessment for compliance with the PFMI, as well as for planning inspections of overseen entities.

The NBU classifies the payment system a systemically important payment system or scheme if it meets at least one of the following importance criteria:

Systemically important	Important
> 10% of interbank payment transactions; performing payment transaction with government securities; regulating liabilities of participants in other payment systems.	> 10% of payment transactions; > 10% of transactions using electronic means of payment issued by said payment system uniform services.

The NBU sets tighter requirements to operations of the payment systems that fall into the importance categories, in particular, in terms of management and organization of operation, available participation in the payment system, risk management system, settlement finality, cyber resilience and business continuity management etc. for improving stability and effectiveness of said payment systems.

Please find the List of Payment Systems Listed According to Importance Categories Based on Their Performance in 2023

The NBU classifies the participant of a significant payment system as important, if said participant accounts for > 25% of payment transactions in this system.

The NBU classifies the payment services provider important if said provider performs > 10% of payment transactions out of the total amount of payment transactions performed by payment services providers in Ukraine.

The NBU classifies the e-money issuer as important, if the share of e-money payment transactions of the e-money issuer accounts for > 10% of the total value of all e-money payment transactions and electronic means of payment.

The NBU classifies technical service provider as important, if said provider processes > 10% transactions (of the total number and/or value) processed by technical service providers for the payment systems, as well as payment services providers and e-money issuers.

Declaring overseen payment infrastructure entities significant

Assessment

Assessment of overseen payment infrastructures
The NBU assesses payment systems and schemes of important payment services providers in order to prevent, detect, and rectify violations in the operation of payment systems and schemes in line with Ukrainian law and to improve performance of payment systems and schemes in line with international oversight standards.

The NBU performs such types of assessment:

assessment of a payment system that intends to operate in Ukraine (save for payment systems established by the NBU)
end-to-end assessment of a significant payment system and the payment system established by the NBU
end-to-end assessment of a payment scheme
assessment of individual aspects (targeted assessment) of a significant payment system or scheme.

According to assessment findings the NBU can provide recommendations to the payment system or scheme operator in order to bring its operation in line with laws and international oversight standards.

Assessing Capital Market Infrastructures
The NBU shall assess entities performing functions of the central securities depository, central counterparty, securities settlement systems, and trade repository to prevent, detect, and rectify operational noncompliance with Ukrainian laws and international oversight standards.

The NBU can conduct the following types of assessments of capital market infrastructures:

end-to-end assessment of overseen entities
assessment of individual aspects of overseen entities (targeted assessment).

According to assessment findings, the NBU can provide recommendations to improve performance of overseen entities and bring their activities in line with Ukrainian laws and international oversight standards.

Legislation

The Law of Ukraine On Payment Services

The vision of introducing oversight of payment systems in Ukraine, approved by NBU Board Resolution No. 426 dated 15 September 2010.

Regulation On the Oversight of Payment Infrastructure in Ukraine approved by NBU Board Resolution No. 187 dated 24 August 2022

Regulation On the Procedure to Conduct Inspections on Compliance by Overseen Entities with the Requirements of the Laws of Ukraine on Payment Systems in Ukraine, NBU Board Resolution No. 503 dated 9 December 2013

Regulation On the Application by the National Bank of Ukraine of Enforcement Measures for Violation by Overseen Entities of the Laws Regulating Payment Systems Operating in Ukraine, NBU Board Resolution No. 524 dated 19 December 2013

The methodology of comprehensive assessment of systemically important payment systems (as amended by NBU Board Decision No. 564 dated 4 September 2020), NBU Board Resolution No. 635 dated 24 September 2015.

Methodological Recommendations on Risk Management in Payment Systems

The methodological recommendations on operational risk management (including cyber risk and business continuity) and storing customer information by payment infrastructure entities.