23.7.2014 EN Official Journal of the European Union L 217/16 REGULATION OF THE EUROPEAN CENTRAL BANK (EU) No 795/2014 of 3 July 2014 on oversight requirements for systemically important payment systems (ECB/2014/28) THE GOVERNING COUNCIL OF THE EUROPEAN CENTRAL BANK, Having regard to the Treaty on the Functioning of the European Union and, in particular Article 127(2) thereof, Having regard to the Statute of the European System of Central Banks and of the European Central Bank and, in particular Article 3.1, Article 22 and the first indent of Article 34.1 thereof, Whereas: (1) The fourth indent of Article 127(2) of the Treaty and the fourth indent of Article 3.1 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’) empower the Eurosystem to promote the smooth operation of payment systems. (2) The Eurosystem promotes the smooth operation of payment systems, inter alia, by conducting oversight. (3) In January 2001, the Eurosystem adopted the Core Principles for Systemically Important Payment Systems developed by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) as minimum requirements for systemically important payment systems (SIPS) (1). (4) In April 2012, the Core Principles for Systemically Important Payment Systems were replaced by the CPSS and the Technical Committee of the International Organization of Securities Commission's (IOSCO) principles for financial market infrastructures (hereinafter the ‘CPSS-IOSCO principles’) (2), which harmonise and strengthen existing international oversight standards for, inter alia, SIPS. (5) According to the CPSS-IOSCO principles, SIPS should be subject to effective oversight, against clearly defined and publicly disclosed criteria, because of their potential to trigger systemic risks if insufficiently protected against the risks to which they are exposed. In addition, competent authorities should have sufficient powers and resources to fulfil their respective tasks, including taking corrective action. The CPSS-IOSCO recommends implementing these principles to the fullest extent allowed by the national legal and regulatory frameworks. (6) Therefore, and in order to ensure the efficiency and soundness of SIPS, the European Central Bank (ECB) has decided to implement the CPSS-IOSCO principles by means of a regulation. Authorities in other countries are also expected to similarly introduce and apply the CPSS-IOSCO principles in their respective legal and regulatory framework to the fullest extent allowed by such framework. (7) This Regulation covers SIPS, including both large-value payment systems and retail payment systems of systemic importance. It applies to payment systems operated both by central banks and private operators. The CPSS-IOSCO principles acknowledge that there are exceptional cases where they are applied differently to payment systems operated by central banks due to requirements laid down in relevant law, regulation, or policy. The Eurosystem has public policy objectives, responsibilities and an institutional set-up defined in the Treaty and the Statute of the ESCB meaning that Eurosystem SIPS may be exempted from certain requirements under this Regulation. Against this background, Eurosystem SIPS should be exempted from specific requirements on governance, wind-down plans, equity and liquid assets, collateral and investment risks, which cover the same areas as the respective requirements formally adopted by the Governing Council. These exemptions are specified in several provisions of the Regulation. (8) Under Guideline ECB/2012/27 of 5 December 2012 on a Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) (3) TARGET2 has a decentralised structure linking together a multiplicity of payment systems. The TARGET2 component systems are harmonised to the greatest extent possible with certain exceptions in the event of national law constraints. TARGET2 is also characterised by a single technical platform called the Single Shared Platform. The Governing Council has final competence in relation to TARGET2 and safeguards its public function: this governance arrangement is reflected in the oversight of TARGET2. (9) The efficiency and soundness of a SIPS requires compliance with applicable national laws and clear rules, procedures and contracts under which it operates. Compliance with the law refers to the legal systems of all countries in which a SIPS operator or its participants operate. (10) The efficiency and soundness of a SIPS also depends on the clarity and appropriateness of its governance arrangements, which must be clearly documented. (11) A sound and evolving framework to comprehensively manage legal, credit, liquidity, operational, general business, custody, investment and other risks is essential to identify, measure, monitor and manage the entire range of risks that arise in or are borne by a SIPS operator. This also holds true for the soundness and resilience of a SIPS operator's collateral framework participant default rules and procedures and business continuity plans. (12) The reduction of systemic risk requires, inter alia, settlement finality. The Union has adopted Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (4). Directive 98/26/EC requires the rules for systems designated under it to define the moment of entry (after which transfer orders shall be legally enforceable and, even in the event of insolvency proceedings against a participant, binding on third parties) and the moment of irrevocability of transfer orders. Intraday or real time settlement may also be advisable if compatible with the SIPS general business model and necessary to enable the SIPS operator and participants to manage their respective credit and liquidity risks. (13) Objective, risk-based, and publicly disclosed criteria for participation in a SIPS, permitting fair and (subject to acceptable risk control standards) open access to a SIPS, promote the safety and efficiency of the SIPS and of the markets it serves, while not restricting free provision of services to a disproportionate extent. (14) Provisions of this Regulation requiring a SIPS operator to collect, process and transmit data should be without prejudice to any applicable rules on protection of data of participants or customers. (15) An overall efficient and effective SIPS, with clearly defined, measurable and achievable goals and objectives, is best equipped to meet the needs of the SIPS participants and the markets it serves. (16) The ECB has recourse to the national central banks to carry out ESCB tasks to the extent deemed possible and appropriate. (17) The requirements laid down in this Regulation are proportionate to the specific risks and exposures of SIPS. (18) The possibility for competent authorities to request corrective measures to remedy or avoid repetition of non-compliance with this Regulation, and the possibility for the ECB to impose effective, proportionate and dissuasive sanctions for infringements of this Regulation are essential elements in implementing the CPSS-IOSCO principles to the fullest extent allowed under the Treaty and the Statute of the ESCB. (19) It is necessary to subject compliance with the oversight requirements set by this Regulation to a transitional period, allowing for the SIPS operators to familiarise themselves with and to implement the requirements, HAS ADOPTED THIS REGULATION: Article 1 Subject matter and scope 1. This Regulation lays down oversight requirements for SIPS. 2. The Governing Council shall adopt a decision identifying the payment systems that are subject to this Regulation, their respective operators and competent authorities. This list shall be maintained on the ECB's website and updated after each change. 3. A payment system shall be identified as a SIPS if: (a) it is eligible to be notified as a system pursuant to Directive 98/26/EC by a Member State whose currency is the euro or its operator is established in the euro area, including establishment by means of a branch, through which the system is operated; and (b) at least two of the following occur over a calendar year: (i) the total daily average value of euro-denominated payments processed exceeds EUR 10 billion; (ii) its market share is at least one of the following: — 15 % of total volume of euro-denominated payments, — 5 % of total volume of euro-denominated cross-border payments, — 75 % of total volume of euro-denominated payments at the level of a Member State whose currency is the euro; (iii) its cross-border activity (i.e. participants established in a country other than that of the SIPS operator and/or cross border links with other payment systems) involves five or more countries and generates a minimum of 33 % of the total volume of euro-denominated payments processed by that SIPS; (iv) it is used for the settlement of other FMIs. 4. SIPS operators shall ensure compliance of the SIPS they operate with the requirements set out in Articles 3 to 21. Article 2 Definitions For the purposes of this Regulation: (1) ‘payment system’ means a formal arrangement between three or more participants, not counting possible settlement banks, central counterparties, clearing houses or indirect participants, with common rules and standardised arrangements for the execution of transfer orders between the participants; (2) ‘transfer order’ has the same meaning as defined in Article 2(i) first indent of Directive 98/26/EC; (3) ‘systemic risk’ means the risk of a participant or the SIPS operator not meeting their respective obligations in a SIPS will cause other participants and/or the SIPS operator to be unable to meet their obligations when they become due, potentially with spillover effects threatening the stability of or confidence in the financial system; (4) ‘SIPS operator’ means the legal entity legally responsible for operating a SIPS; (5) ‘competent authority’ means the Eurosystem central bank with primary oversight responsibility identified as such pursuant to Article 1(2); (6) ‘Eurosystem SIPS’ means SIPS owned and operated by a Eurosystem central bank; (7) ‘legal risk’ means the risk arising from the application of law or regulation, usually resulting in a loss; (8) ‘credit risk’ means the risk that a counterparty, whether a participant or other entity, will be unable to fully meet its financial obligations when they fall due or at any time in the future; (9) ‘liquidity risk’ means the risk that a counterparty, whether a participant or other entity, will have insufficient funds to meet its financial obligations when they fall due, although it may have sufficient funds to do so in the future; (10) ‘operational risk’ means the risk that deficiencies in information systems or internal processes, human error, management failures, or disruptions caused by external events or outsourced services will result in the reduction, deterioration or breakdown of services provided by a SIPS; (11) ‘custody risk’ means the risk of incurring a loss on assets held in custody in the event of a custodian's or sub-custodian's insolvency, negligence, fraud, poor administration or inadequate recordkeeping; (12) ‘investment risk’ means the risk of loss faced by a SIPS operator or participant when the SIPS operator invests its own or its participants' resources, e.g. collateral; (13) ‘market risk’ means the risk of losses, in both on- and off-balance sheet positions, arising from movements in market prices; (14) ‘deferred net settlement system’ (DNS) means a system which settles on a net basis at the end of a predefined settlement cycle, e.g. at the end of, or during, the business day; (15) ‘cross-border collateral’ means collateral for which, from the perspective of the country in which the assets are accepted as collateral, at least one of the following is foreign: (a) the currency of denomination; (b) the country in which the assets are located; or (c) the country in which the issuer is established; (16) ‘cross-border payment’ means a payment between participants established in different countries; (17) ‘financial market infrastructure’ (FMI) means a multilateral system among participating institutions, including the system operator, used to clear, settle, or record payments, securities, derivatives, or other financial transactions; (18) ‘participant’ means an entity that is identified or recognised by a payment system and, either directly or indirectly, is allowed to send transfer orders to that system and is capable of receiving transfer orders from it; (19) ‘the Board’ means the administrative or supervisory board of a SIPS operator, or both, in accordance with national law; (20) ‘the Management’ means executive directors, i.e. members of a unitary board who are engaged in the daily management of the SIPS operator and members of a managerial board of the SIPS operator in a dual board system; (21) ‘relevant stakeholders’ means participants, FMIs that have an impact on the risk in a SIPS, and, on a case-by-case basis, other affected market actors; (22) ‘credit exposure’ means an amount or value at risk that a participant will not settle for full value, either when due or at any time thereafter; (23) ‘collateral’ means an asset or third-party commitment that is used by a collateral provider to secure an obligation vis-à-vis a collateral taker. Collateral includes both domestic and cross-border collateral; (24) ‘liquidity provider’ means a provider of cash under Articles 5(3), 6(5), 8(1), 8(9) and 8(11) or assets under Article 8(4), including a SIPS participant or external party; (25) ‘extreme but plausible market conditions’ means a comprehensive set of historical and hypothetical conditions, including the most-volatile periods that have been experienced by the markets the SIPS serves; (26) ‘intended settlement date’ means the date that is entered into SIPS as the settlement date by the sender of a transfer order; (27) ‘general business risk’ means any potential impairment of the financial position of the SIPS as a business concern as a consequence of a decline in its revenues or an increase in its expenses, such that expenses exceed revenues and result in a loss that must be charged against capital; (28) ‘recovery plan’ means a plan developed by a SIPS operator to re-establish the smooth operation of a SIPS; (29) ‘orderly wind-down plan’ means a plan developed by a SIPS operator for the orderly closure of a SIPS; (30) ‘material’ qualifies a risk, a dependency and/or a change which may affect the ability of an entity to perform or provide services as expected; (31) ‘relevant authorities’ means authorities who have a legitimate interest in accessing information from a SIPS to fulfil their statutory requirements, e.g. resolution authorities and supervisors of major participants; (32) ‘principal risk’ means the risk that a counterparty will lose the full value involved in a transaction, i.e. either the risk that a seller of a financial asset will irrevocably deliver the asset, but not receive payment, or the risk that a buyer of a financial asset will irrevocably pay for, but not receive the asset; (33) ‘custodian bank’ means a bank holding and safeguarding the financial assets of third parties; (34) ‘settlement bank’ means a bank holding accounts with regards to payments, where the discharge of obligations arising from a payment system takes place; (35) ‘nostro agent’ means a bank used by the participants in a SIPS for settlement; (36) ‘one-sided payment’ means a payment involving only one funds transfer in one currency; (37) ‘two-sided payment’ means a payment involving two funds transfers in different currencies in an exchange-for-value settlement system; (38) ‘wrong-way risk’ means risk arising from exposure to a participant or issuer when the collateral provided by that participant or issued by that issuer is highly correlated with its credit risk; (39) ‘business day’ has the same meaning as defined in Article 2(n) of Directive 98/26/EC. Article 3 Legal soundness 1. A SIPS operator shall assess whether the applicable law in all relevant legal systems provides a high degree of certainty for and supports each material aspect of the activities of its SIPS. 2. A SIPS operator shall establish SIPS rules and procedures and enter into contracts, which are clear and consistent with the applicable law in all relevant legal systems. 3. A SIPS operator shall be able to specify the applicable law, rules, procedures and contracts for the operation of a SIPS to the competent authority, participants, and, where relevant, participants' customers, in a clear and understandable way. 4. A SIPS operator shall take measures to ensure that its rules, procedures, and contracts are enforceable in all relevant legal systems, and that the actions it takes under such rules, procedures and contracts will not be voided, reversed, or subject to stays. 5. A SIPS operator conducting business in more than one legal system shall identify and mitigate the risks arising from any potential conflict of laws. 6. A SIPS operator shall use its best efforts to ensure the SIPS's designation under Directive 98/26/EC. Article 4 Governance 1. A SIPS operator shall have documented objectives which place a high priority on the safety and efficiency of the SIPS. The objectives shall explicitly support financial stability and other relevant public interest considerations, in particular open and efficient financial markets. 2. A SIPS operator shall have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements shall be made available to the competent authority, owners and participants. A SIPS operator shall make abridged versions thereof available to the public. 3. The Board's roles and responsibilities shall be clearly defined. The Board's roles and responsibilities shall include all of the following: (a) establishing clear strategic aims for the SIPS; (b) establishing documented procedures for the SIPS' functioning, including procedures to identify, address and manage conflicts of interest of its members; (c) with the exception of Eurosystem SIPS, ensuring the effective selection, monitoring, and, where appropriate, removal of members of Management; (d) with the exception of Eurosystem SIPS, establishing appropriate compensation policies, consistent with best practices and based on long-term achievements. 4. Except for Eurosystem SIPS, the Board shall review both its overall performance and the performance of its individual Board members at least annually. 5. The Board's composition shall ensure integrity and, except for Eurosystem SIPS, an appropriate mix of technical skills, knowledge and experience both of SIPS and of the financial market in general, allowing the Board to fulfil its respective roles and responsibilities. The composition shall depend further on the general allocation of competencies according to the national law. Except for Eurosystem SIPS, when permitted by national law, the Board shall include non-executive board members. 6. Management's role, responsibilities and reporting lines shall be clearly defined. The composition shall ensure integrity and an appropriate mix of technical skills, knowledge and experience both of SIPS and of the financial market in general, allowing Management to fulfil its responsibilities for the operation and risk management of the SIPS operator. Management's responsibilities shall include, under Board direction, ensuring all of the following: (a) that the SIPS operator's activities are consistent with its objectives, strategy and risk tolerance; (b) that internal controls and related procedures are appropriately designed, executed and overseen in order to promote the SIPS operator's objectives; (c) that internal controls and related procedures are subject to regular review and testing by well-trained and sufficiently staffed risk-management and internal-audit functions; (d) active involvement in the risk-control process; (e) that sufficient resources are allocated to the SIPS's risk-management framework. 7. The Board shall establish and oversee a documented risk-management framework, which shall: (a) include the SIPS operator's risk-tolerance policy; (b) assign responsibilities and accountability for risk decisions; (c) address decision making in crises and emergencies; (d) address internal control functions. The Board shall ensure that the risk management and internal control functions have sufficient authority, independence, resources and access to the Board. 8. The Board shall ensure that major decisions affecting the SIPS's technical and functional setup, rules and overall strategy, in particular, with regard to choice of a clearing and settlement arrangement, operating structure, scope of products cleared or settled, and use of technology and procedures, appropriately reflect the legitimate interests of the SIPS's relevant stakeholders. The relevant stakeholders and, where appropriate, the public shall be consulted reasonably in advance on such decisions. Article 5 Framework for the comprehensive management of risks 1. A SIPS operator shall establish and maintain a sound risk-management framework to comprehensively identify, measure, monitor and manage the range of risks that arise in or are borne by the SIPS. It shall review the risk-management framework at least annually. The risk-management framework shall: (a) include the SIPS operator's risk-tolerance policy and appropriate risk-management tools; (b) assign responsibility and accountability for risk decisions; (c) address decision-making in emergency situations relating to a SIPS, including developments in financial markets potentially having an adverse effect on market liquidity and the stability of the financial system in any Member State whose currency is the euro where the SIPS operator or one of the participants are established. 2. A SIPS operator shall provide incentives to participants and, where relevant, their customers to manage and limit the risks they pose to and bear from the SIPS. With regard to participants, such incentives shall include an effective, proportionate and dissuasive financial penalties regime or loss-sharing arrangements, or both. 3. A SIPS operator shall review the material risks the SIPS bears from and poses to other entities, including, inter alia, FMIs, settlement banks, liquidity providers and service providers, as a result of interdependencies at least annually. The SIPS operator shall develop risk-management tools that are robust and proportionate to the identified level of risk. 4. A SIPS operator shall define the SIPS' critical operations and services. The SIPS operator shall identify specific scenarios that may prevent it from being able to provide these critical operations and services as a going concern and assess the effectiveness of all options for recovery or, with the exception of Eurosystem SIPS, an orderly wind-down. It shall review the SIPS' critical operations and services at least annually. Based on this assessment, a SIPS operator shall prepare a plan for the SIPS' recovery or, except for Eurosystem SIPS, an orderly wind-down. The recovery and orderly wind-down plan shall contain, inter alia, a substantive summary of the key recovery and orderly wind-down strategies, a restatement of the SIPS's critical operations and services, and a description of the measures needed to implement the key strategies. A SIPS operator shall, where applicable, provide relevant authorities with the information needed for purposes of resolution planning. It shall review the recovery and orderly wind-down plan at least annually. Article 6 Credit risk 1. A SIPS operator shall establish a robust framework to measure, monitor and manage its credit exposures to its participants and credit exposures amongst participants arising from the SIPS payment, clearing, and settlement processes. 2. A SIPS operator shall identify all sources of credit risk. The measurement and monitoring of credit exposures shall take place throughout the day, using timely information and appropriate risk-management tools. 3. A SIPS operator, including one operating a DNS with a settlement guarantee, that in the course of SIPS operations incurs credit exposure vis-à-vis its participants, shall cover its credit exposure to each participant using collateral, guarantee funds, equity (after deduction of the amount dedicated to cover general business risk) or other equivalent financial resources. 4. A SIPS operator, including one operating a DNS with no settlement guarantee, but where participants face credit exposures arising from the SIPS payment, clearing and settlement processes, shall have in place rules or contractual arrangements with these participants. The rules or contractual arrangements shall ensure that the participants will provide sufficient resources, as defined in paragraph 3, to cover credit exposures resulting from the SIPS payment, clearing and settlement processes in relation to the two participants which, together with their affiliates, have the largest aggregate credit exposure. 5. A SIPS operator shall establish rules and procedures to address losses directly resulting from defaults by one or more participants on their obligations to the SIPS. These rules and procedures shall address the allocation of potentially uncovered losses, including the repayment of any funds a SIPS operator may borrow from liquidity providers. They shall include the SIPS operator's rules and procedures to replenish any financial resources used by the SIPS during a stress event, to the level laid down in paragraph 3. Article 7 Collateral 1. A SIPS operator shall only accept the following assets as collateral: (a) cash; and (b) assets with low credit, liquidity and market risks, i.e. assets for which the SIPS operator can demonstrate to the competent authority based on an adequate internal assessment that they meet all of the following conditions: (i) they have been issued by an issuer with low credit risk; (ii) they are freely transferable without any legal constraint or third party claims; (iii) they are denominated in a currency the risk of which is managed by the SIPS operator; (iv) they have reliable price data published on a regular basis; (v) they are not otherwise subject to significant wrong-way risk; (vi) they are not issued by the participant providing the collateral or an entity that is part of the same group as that participant, except in the case of a covered bond and only where the assets in the cover pool are appropriately segregated within a robust legal framework and satisfy the requirements set out in points (i) to (v). In performing the internal assessment of points (i) to (vi), the SIPS operator shall define, document and apply an objective methodology. 2. A SIPS operator shall establish and implement policies and procedures to monitor the credit quality, market liquidity and price volatility of each asset accepted as collateral. A SIPS operator shall monitor on a regular basis, and at least annually, the adequacy of its valuation policies and procedures. Such review shall also be carried out whenever a material change occurs that affects the SIPS's risk exposure. A SIPS operator shall mark-to-market its collateral at least on a daily basis. 3. A SIPS operator shall establish stable and conservative haircuts and shall test them at least annually and take into account stressed market conditions. Haircut procedures shall be validated by personnel other than those who created and applied the haircut procedures at least annually. 4. A SIPS operator shall take measures to avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects. 5. A SIPS operator that accepts cross-border collateral shall identify and mitigate the risks associated with its use and ensure that the cross-border collateral can be used in a timely manner. 6. A SIPS operator shall use an effective and operationally flexible collateral management system. 7. Paragraph 1 shall not apply to Eurosystem SIPS. Article 8 Liquidity risk 1. A SIPS operator shall establish a comprehensive framework to manage liquidity risks posed by the SIPS's participants, settlement banks, nostro agents, custodian banks, liquidity providers and other relevant entities. 2. A SIPS operator shall put in place operational and analytical tools, which enable it to identify, measure and monitor settlement and funding flows, including the use of intraday liquidity, on an on-going and timely basis. 3. A SIPS operator shall hold, or ensure that participants hold, sufficient liquid resources at all times, in all currencies in which it operates, to effect same-day settlement of payment obligations in a wide range of potential stress scenarios. Where appropriate, this shall include intraday or multiday settlement. The stress scenarios shall include: (a) a default, under extreme but plausible market conditions, of the participant which, together with its affiliates, has the largest aggregate payment obligation; and (b) other scenarios in accordance with paragraph 11. 4. A SIPS operator settling one-sided payments in euro shall hold, or ensure that participants hold, liquid resources, in accordance with paragraph 3, to effect timely settlement of payment obligations in the event of a default of the participant which, together with its affiliates, has the largest aggregate payment obligation as determined by paragraph 3(a) in any of the following ways: (a) in cash with the Eurosystem; or (b) in eligible collateral as defined in the collateral framework of the Eurosystem laid down in Guideline ECB/2011/14 of 20 September 2011 on monetary policy instruments and procedures of the Eurosystem (5), in particular if the SIPS operator has access to Eurosystem standing facilities. 5. A SIPS operator settling one-sided payments in euro shall hold, or ensure that participants hold, additional liquid resources, in accordance with paragraph 3(b), in the ways defined in paragraph 4 or with a creditworthy commercial bank in one or more of the following instruments: (a) committed lines of credit; (b) committed foreign exchange swaps; (c) committed repos; (d) assets as defined in Article 7(1), which are held by a custodian; (e) investments that are readily available and convertible into cash with prearranged funding arrangements for which the SIPS operator can demonstrate to the competent authority, based on an adequate internal assessment, that the funding arrangements are highly reliable, even in extreme but plausible market conditions. The SIPS operator shall be prepared to demonstrate to the competent authority, based on an adequate internal assessment, that the commercial bank is creditworthy. 6. A SIPS operator settling two-sided payments or one-sided payments in currencies other than the euro shall hold, or ensure that participants hold, liquid resources, in accordance with paragraph 3, in ways defined in paragraph 5. 7. Where a SIPS operator supplements the resources referred to in paragraph 3 with other assets, these assets shall be likely to be marketable or acceptable as collateral (for e.g. lines of credit, swaps, or repos) on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed under extreme but plausible market conditions. Where a participant supplements the resources referred to in paragraph 3 with other assets, the SIPS operator shall ensure that these other assets meet the requirements set out in the first sentence. Assets shall be presumed as likely to be marketable or acceptable as collateral if the SIPS operator has taken into account the rules and practices of the relevant central bank on the eligibility of collateral. 8. A SIPS operator shall not assume that emergency central bank credit will be available. 9. A SIPS operator shall carry out due diligence to verify that each provider of the SIPS' liquid resources under paragraph 3: (a) has sufficient and up-to-date information to understand and to manage its liquidity risks associated with the provision of cash or assets; and (b) has the capacity to provide cash or assets as required. A SIPS operator shall review its compliance with the due diligence obligation at least annually. Only entities with access to credit from the central bank of issue shall be accepted as liquidity providers. A SIPS operator shall regularly test its procedures for accessing the SIPS liquid resources. 10. A SIPS operator with access to central bank accounts, payment services or securities services shall use these services, where practicable. 11. A SIPS operator shall, through rigorous stress testing determine how much cash and other assets are required to satisfy the requirements under paragraphs 3 and 4. It shall regularly review this amount, inter alia, by considering a wide range of scenarios, including: (a) the peak historic price volatilities of the above mentioned assets; (b) shifts in other market factors including, inter alia, price determinants and yield curves; (c) one or more participant defaults on the same day and on different subsequent days; (d) simultaneous pressures in funding and assets markets; (e) a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. Such scenarios shall also take into account the design and operation of the SIPS; examine all entities that might pose material liquidity risks to the SIPS, including, inter alia, settlement banks, nostro agents, custodian banks, liquidity providers, and linked FMIs; and where appropriate, cover a multiday period. 12. A SIPS operator shall document its reasons for holding, and shall have appropriate governance arrangements relating to, the amount of cash and other assets maintained by the SIPS operator or participants. It shall establish clear procedures for reporting the results of its stress tests to the Board. It shall use these results to evaluate the adequacy of and make adjustments to its liquidity risk-management framework. 13. A SIPS operator shall establish clear rules and procedures enabling the SIPS to effect same-day and, where appropriate, timely intraday and multiday settlement of payment obligations following the default of one or more of its participants. These rules and procedures shall: (a) address unforeseen and potentially uncovered liquidity shortfalls; (b) aim to avoid the unwinding, revocation or delay of same-day settlement of payment obligations; (c) indicate how to replenish the cash and other assets used by the SIPS during a stress event, to the extent required pursuant to paragraphs 3 to 5. Article 9 Final settlement A SIPS operator shall establish rules and procedures to enable final settlement to take place no later than the end of the intended settlement date. Article 10 Money settlements 1. A SIPS operator settling one-sided payments in euro shall ensure that final settlement takes place in central bank money. 2. A SIPS operator settling two-sided payments or one-sided payments in currencies other than euro shall ensure that final settlement takes place in central bank money where practicable and available. 3. If central bank money is not used, a SIPS operator shall ensure that money settlements take place using a settlement asset with little or no credit and liquidity risk. 4. If a settlement takes place in commercial bank money, the SIPS operator shall monitor, manage, and limit credit and liquidity risks arising from the commercial settlement banks. In particular, the SIPS operator shall establish and monitor adherence to strict criteria for its settlement banks that take account of, among other things, their regulation and supervision, creditworthiness, capitalisation, access to liquidity, and operational reliability. The SIPS operator shall also monitor and manage the concentration of credit and liquidity exposures to the SIPS's commercial settlement banks. 5. If a SIPS operator conducts money settlements on its own books, it shall minimise and strictly control its credit and liquidity risks. 6. If a settlement takes place in commercial bank money, a SIPS operator's legal agreements with any commercial settlement banks shall state clearly: (a) when transfers on the books of individual settlement banks are expected to occur; (b) that transfers are to be final when effected; (c) that funds received shall be transferable as soon as possible, at least by the end of the day. Article 11 Payment versus payment A SIPS operator using a payment versus payment mechanism shall eliminate principal risk by ensuring that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs. This rule shall be followed regardless of whether settlement takes place on a gross or net basis and when finality occurs. Article 12 Participant-default rules and procedures 1. A SIPS operator shall establish a definition of participant default in the SIPS rules and procedures, which shall include, as a minimum, a participant's failure to meet its financial obligations when they fall due, as a result, inter alia, ofoperational reasons, breach of agreement, or the commencement of insolvency proceedings against such participant. A SIPS operator shall distinguish between automatic and discretionary default. In the case of discretionary default, the SIPS operator shall specify which entity shall exercise that discretion. It shall review this definition at least annually. 2. A SIPS operator shall have default rules and procedures that enable it to continue to meet its obligations in the event of a participant default, which address the replenishment of resources following a default. The rules and procedures shall define, as a minimum, all of the following: (a) the actions that a SIPS operator can take when a default occurs; (b) whether taking such actions is automatic or discretionary and the means by which that discretion is exercised; (c) potential changes to a SIPS operator's normal settlement practices to ensure timely settlement; (d) the management of payments at different stages of processing; (e) the probable sequencing of actions; (f) the roles, obligations and responsibilities of the relevant parties, including non-defaulting participants; (g) other mechanisms to be activated to limit the impact of a default. 3. A SIPS operator shall be prepared to implement its default rules and procedures, including any appropriate discretionary procedures provided for in its rules. A SIPS operator shall ensure, inter alia, that: (a) it has the operational capacity, including sufficient well-trained personnel, to implement the procedures outlined in paragraph 2 in a timely manner; and (b) the SIPS's rules and procedures address documentation, information and communication needs, and, when more than one FMI or authority is involved, coordination. 4. A SIPS operator shall publicly disclose the key aspects of the rules and procedures outlined in paragraph 2, including, as a minimum, all of the following: (a) the circumstances in which action shall be taken; (b) who shall take those actions; (c) the scope of the actions which shall be taken; (d) the mechanisms to address a SIPS operator's obligations towards non-defaulting participants. 5. A SIPS operator shall test and review the SIPS rules and procedures outlined in paragraph 2 at least annually or after any material changes to the SIPS affecting those rules and procedures. A SIPS operator shall involve SIPS participants and relevant stakeholders in such testing and review. Article 13 General business risk 1. A SIPS operator shall establish robust management and control systems to identify, monitor, and manage general business risks, including losses resulting from poor execution of business strategy, negative cash flows, or unexpected and excessively large operating expenses. 2. A SIPS operator shall hold liquid net assets funded, by equity, e.g. common stock, disclosed reserves or other retained earnings, so that it can continue operations and services as a going concern if it incurs general business losses. The amount of these assets shall be determined by its general business risk profile and the length of time required to achieve a recovery or orderly wind-down of its critical operations and services if such action is taken. 3. A SIPS operator shall maintain a viable recovery or, except for Eurosystem SIPS, orderly wind-down plan. 4. A SIPS operator shall hold sufficient liquid net assets funded by equity to implement the plan referred in paragraph 3. As a minimum, a SIPS operator shall hold liquid net assets funded by equity with a value equal to at least six months of current operating expenses. These assets are in addition to resources held to cover participant defaults or other risks covered under Articles 6 and 8. Equity held under international risk-based capital standards may be included to avoid duplicate capital requirements. 5. Assets held to cover general business risk shall be of sufficient liquidity and high quality to be available in a timely manner. The SIPS operator shall be able to realise such assets with little, if any, adverse price effect, so that it can continue operations as a going concern if it incurs general business losses. 6. A SIPS operator shall establish a viable plan for raising additional equity should its equity fall close to or below the amount referred to in paragraph 4. The plan shall be submitted to the Board for approval and be updated at least annually. 7. Paragraphs 2 and 4 to 6 shall not apply to Eurosystem SIPS. Article 14 Custody and investment risks 1. A SIPS operator shall hold its own and participants' assets with supervised and regulated entities (hereinafter the ‘custodians’), that have accounting practices, safekeeping procedures and internal controls that fully protect these assets against the risk of loss in the event of a custodian's or sub-custodian's insolvency, negligence, fraud, poor administration or inadequate recordkeeping. 2. A SIPS operator shall have timely access to its assets and the assets provided by the participants. 3. A SIPS operator shall evaluate and understand its exposures to its custodian banks, taking into account the full scope of its relationships with each. 4. A SIPS operator shall establish its investment strategy, which shall be consistent with its overall risk-management strategy and fully disclosed to the participants. It shall review the investment strategy at least annually. 5. A SIPS operator's investments under its investment strategy shall be secured by, or be claims on, high-quality obligors. A SIPS operator shall define the criteria for high-quality obligors. Investments shall be in instruments with minimal credit, market and liquidity risks. 6. Paragraphs 3 to 5 shall not apply to Eurosystem SIPS. Article 15 Operational risk 1. A SIPS operator shall establish a robust framework with appropriate systems, policies, procedures and controls to identify, monitor and manage operational risk. 2. A SIPS operator shall establish service level and operational reliability objectives and policies designed to achieve those objectives. It shall review the objectives and policies at least annually. 3. A SIPS operator shall ensure that a SIPS, at all times, has scalable capacity to handle increases in payment volumes that occur due to stress events, and that it can achieve its service level objectives. 4. A SIPS operator shall establish comprehensive physical and information security policies that adequately identify, assess and manage all potential vulnerabilities and threats. It shall review the policies at least annually. 5. A SIPS operator shall establish a business continuity plan that addresses events posing a significant risk of disrupting the SIPS' operations. The plan shall include the use of a secondary site and be designed to ensure that critical information technology systems can resume operations within two hours of those events. The plan shall be designed in such a way that the SIPS is always able to settle all payments due by the end of the business day on which the disruption occurs. The SIPS operator shall test the plan and review it at least annually. 6. A SIPS operator shall identify critical participants based, in particular, on payment volumes and values and their potential impact on other participants and the SIPS as a whole, in the event of a significant operational problem experienced by such participants. 7. A SIPS operator shall identify, monitor, and manage the risks that critical participants, other FMIs, and service and utility providers might pose to the SIPS' operations. Article 16 Access and participation criteria 1. A SIPS operator shall establish and publicly disclose non-discriminatory access and participation criteria to the SIPS's services for direct, and, where relevant, indirect participants and for other FMIs. It shall review the criteria at least annually. 2. The access and participation criteria of paragraph 1 shall be justified in terms of the safety and efficiency of the SIPS and the markets it serves, and be tailored to and commensurate with the SIPS's specific risks. In compliance with the principle of proportionality, a SIPS operator shall set requirements that restrict access to the minimum possible extent. If a SIPS operator denies access to an entity, it shall give reasons in writing for this, based on a comprehensive risk analysis. 3. A SIPS operator shall monitor participants' compliance with the SIPS's access and participation criteria on an ongoing basis. It shall establish and publicly disclose non-discriminatory procedures to facilitate the suspension and orderly termination of a participant's right of participation where the participant fails to comply with the access and participation criteria. It shall review the procedures at least annually. Article 17 Tiered participation arrangements 1. For the purpose of risk management, a SIPS operator shall ensure that the SIPS's rules, procedures and contractual arrangements allow it to gather information about indirect participation in order to identify, monitor and manage any material risks to the SIPS arising from participation. This information shall, as a minimum, cover all of the following: (a) the proportion of activity that direct participants conduct on behalf of indirect participants; (b) the number of indirect participants that settle via individual direct participants; (c) the volumes or values of payments in the SIPS originating from each indirect participant; (d) the volumes or values of payments under point (c) in proportion to those of the direct participant through which the indirect participant accesses the SIPS. 2. A SIPS operator shall identify material dependencies between direct and indirect participants that might affect the SIPS. 3. A SIPS operator shall identify indirect participants who pose material risks to the SIPS and the direct participants through which they access the SIPS with a view to managing these risks. 4. A SIPS operator shall review the risks arising from tiered participation arrangements at least annually. It shall take mitigating action when needed to ensure that the risks are properly managed. Article 18 Efficiency and effectiveness 1. A SIPS operator shall have a process to identify and meet the needs of the markets the SIPS serves, in particular, with regard to: (a) choice of a clearing and settlement arrangement; (b) operating structure; (c) scope of products cleared or settled; (d) use of technology and procedures. 2. A SIPS operator shall have clearly defined goals and objectives that are measurable and achievable, such as in the areas of minimum service levels, risk-management expectations and business priorities. 3. A SIPS operator shall have established mechanisms for the regular, at least annual, review of the requirements laid down in paragraphs 1 and 2. Article 19 Communication procedures and standards A SIPS operator shall use or accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement and recording. Article 20 Disclosure of rules, key procedures and market data 1. A SIPS operator shall adopt clear and comprehensive rules and procedures that are fully disclosed to participants. Relevant rules and key procedures shall also be publicly disclosed. 2. A SIPS operator shall disclose clear descriptions of the system's design and operations, as well as the SIPS operator's and participants' rights and obligations, so that participants can assess the risks they would incur by participating in the SIPS. 3. A SIPS operator shall provide all necessary and appropriate documentation and training to facilitate participants' understanding of the SIPS' rules and procedures and the risks they face from participating in the SIPS. 4. A SIPS operator shall publicly disclose the SIPS's fees at the level of individual services it offers as well as its discount policies. The SIPS operator shall provide clear descriptions of priced services for comparability purposes. 5. A SIPS operator shall complete and disclose publicly responses to the CPSS-IOSCO Disclosure framework for financial market infrastructures. It shall update its responses following material changes to the system or its environment, but at least every two years. A SIPS operator shall also, at a minimum, disclose basic data on transaction volumes and values. Article 21 Disclosure to the competent authority The competent authority shall have the right to obtain from a SIPS operator all information and documents necessary to assess compliance with the requirements under this Regulation. A SIPS operator shall report the respective specific information to the competent authority. Article 22 Corrective measures 1. Where a SIPS operator has not complied with this Regulation, the competent authority shall: (a) inform the SIPS operator of the nature of the non-compliance; and (b) provide the SIPS operator the opportunity to be heard and provide explanations. 2. Based on the information provided by the SIPS operator, the competent authority may instruct the SIPS operator to implement specific corrective measures in order to remedy the non-compliance and/or avoid repeating it. 3. The competent authority may impose corrective measures immediately where it identifies, with a reasoned opinion, that the case of non-compliance is serious enough to require immediate action. 4. The competent authority shall immediately inform the ECB of any corrective measures imposed on a SIPS operator. 5. Corrective measures may be imposed independent of or in parallel with sanctions in accordance with Council Regulation (EC) No 2532/98 of 23 November 1998 concerning the powers of the European Central Bank to impose sanctions (6). Article 23 Sanctions In case of an infringement of this Regulation, the ECB shall impose sanctions, in accordance with Regulation (EC) No 2532/98 and Regulation (EC) No 2157/1999 of the European Central Bank of 23 September 1999 on the powers of the European Central Bank to impose sanctions (ECB/1999/4) (7). The ECB shall publish a notice on the methodology for the calculation of the amount of the sanctions. Article 24 Review The Governing Council shall review the general application of this Regulation by no later than two years following the date on which it enters into force, and thereafter every two years, and assess whether it needs to be amended. Article 25 Final provisions 1. This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. 2. SIPS operators shall have one year from the date on which the decision of the Governing Council in accordance with Article 1(2) has been notified to them to comply with the requirements laid down in this Regulation. 3. This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaties. Done at Frankfurt am Main, 3 July 2014. For the Governing Council of the ECB The President of the ECB Mario DRAGHI (1) Available on the BIS's website at www.bis.org/publ/cpss43.pdf (2) Available on the BIS's website at www.bis.org/publ/cpss101a.pdf (3) OJ L 30, 30.1.2013, p. 1. (4) OJ L 166, 11.6.1998, p. 45. (5) OJ L 331, 14.12.2011, p. 1. (6) OJ L 318, 27.11.1998, p. 4. (7) OJ L 264, 12.10.1999, p. 21.

Summary: Systemically important payment systems (SIPS) Systemically important payment systems (SIPS) SUMMARY OF: Regulation (EU) No 795/2014 on oversight requirements for systemically important payment systems (ECB/2014/28) Decision (EU) 2019/1349 on the procedure and conditions for exercise by a competent authority of certain powers in relation to oversight of systemically important payment systems (ECB/2019/25) Decision (EU) 2017/2098 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 795/2014 (ECB/2017/33) Decision (EU) 2017/2097 on the methodology for calculating sanctions for infringements of the oversight requirements for systemically important payment systems (ECB/2017/35) WHAT IS THE AIM OF THE REGULATION AND THE DECISIONS? Regulation (EU) No 795/2014 lays down oversight requirements for systemically important payment systems (SIPS). Decision (EU) 2019/1349 sets out the procedure and conditions for the exercise by competent authorities of certain enforcement powers in relation to the oversight of SIPS. Decision (EU) 2017/2098 lays down the procedure for imposing corrective measures for non-compliance with Regulation (EU) No 795/2014. Decision (EU) 2017/2097 sets out the methodology for calculating sanctions for infringements of the oversight requirements for SIPS. KEY POINTS Under Regulation (EU) No 795/2014, the Governing Council of the European Central Bank (ECB) adopts reasoned decisions identifying which payment systems* are SIPS. The process to identify a payment system as a SIPS is clearly set. A review and identification exercise is done by the ECB on an annual basis and the list of SIPS is maintained on the ECB’s website. A payment system is identified as a SIPS if: it is eligible to be notified as a system pursuant to Directive 98/26/EC on payment and securities settlement systems (see summary); it meets certain quantitative criteria over a calendar year. Furthermore, in exceptional cases, the ECB Governing Council can identify a SIPS based on a sound and reasoned judgment. SIPS operators* are required to: ensure that the legal frameworks in which they operate provide a high degree of certainty for their activities; have documented objectives prioritising their system’s safety and efficiency; have effective and documented governance arrangements; ensure clearly defined roles and responsibilities for their administrative or supervisory boards — the composition of the boards and their management shall ensure integrity and an appropriate mix of technical skills, knowledge and experience both of the SIPS and of the financial markets in general. SIPS operators must: establish and maintain a sound framework to comprehensively identify, measure, monitor and manage risks — including for liquidity risk or credit risk and general business or operational risks — that may arise; accept as collateral only cash or assets with low credit, liquidity and market risks that fulfil certain conditions; apply rules and procedures to: ensure that final settlement takes place in either central bank money or assets with little or no credit and liquidity risk, no later than the due dateenable them to continue to meet their obligations if a participant defaultsset up procedures for ensuring money settlement; set up procedures for ensuring money settlement; hold their own and participants’ assets with supervised and regulated bodies (known as ‘custodians’) that are competent to fully protect those assets; determine their own investment strategy, secured by high-quality obligors*; set up and publicly disclose non-discriminatory access and participation criteria, which are reviewed annually, to their services; have a process in place to identify and meet the needs of the markets they serve; adopt clear and comprehensive rules and procedures that are fully disclosed to participants. Where a SIPS operator has not complied with the regulation, the competent authority* may impose corrective measures and/or the ECB may impose sanctions. Decisions (EU) 2017/2098 and (EU) 2017/2097 provide the framework for this. According to ECB Decision (EU) 2019/1349, competent authorities can: require SIPS operators to: provide all information and documents to ensure compliance with the regulation or smooth operation of the payment systemappoint an independent expert to investigate or review the SIPS’ operation; carry out continuous and/or ad hoc oversight to ensure SIPS operators comply with all the requirements; cooperate with other authorities for the purpose of exercising the competences under the decision. Under Decision (EU) 2017/2098, the competent authority may impose corrective measures on a SIPS operator for non-compliance with Regulation (EU) No 795/2014. The decision sets out the relevant procedural aspects for this. A SIPS operator’s failure to implement the corrective measures may lead to the imposition of a sanction by the ECB. Decision (EU) 2017/2097 sets out methodology to be followed by the ECB for calculating the amount of the sanctions to be imposed on the SIPS operator for infringements of Regulation (EU) No 795/2014. That decision sets the baseline sum as 50% of the sum of the following amounts: 1% of turnover 0.0001% of the value of payments processed. The decision also lays down the limits to the amount of sanctions and the duration of the periodic penalty payments to be imposed. FROM WHEN DO THE REGULATION AND THE DECISIONS APPLY? Regulation (EU) No 795/2014 has applied since 12 August 2014. Decision (EU) 2019/1349 has applied since 5 September 2019. Decisions (EU) 2017/2098 and (EU) 2017/2097 have applied since 6 December 2017. Since then they have been amended to reflect the developments. BACKGROUND Payment systems play an important role in the stability and efficiency of the financial sector and the euro-area economy as a whole. Largely invisible, they ensure the safe flow of electronic payments from payer to payee and between financial institutions. Ensuring the smooth operation of payment systems is one of the statutory tasks of the Eurosystem. According to the general principles for financial market infrastructures, SIPS should be subject to effective oversight because of their potential to trigger systemic risks* if insufficiently protected against the risks to which they are exposed. In addition, competent authorities need sufficient powers and resources to fulfil their respective tasks, including taking corrective action. The ECB considers a payment system as systemically important if disruption within it could trigger disruption among participants or in the wider financial system. In addition to a handful of systemically important payment systems, there are 38 non-systemically important ones in the euro area. For more information, see: Payment systems (European Central Bank)Revised Eurosystem assessment methodology for payment systems (European Central Bank). KEY TERMS Payment system: a formal arrangement between three or more participants with common rules and standardised arrangements for the execution of transfer orders between the participants. SIPS operator: the legal entity legally responsible for operating a SIPS. Obligor: someone who owes or undertakes a contractual obligation to another. Competent authority: the European Central Bank or a Eurosystem national central bank with primary oversight responsibility. Systemic risk: the risk of a participant or the SIPS operator not meeting their respective obligations in a SIPS will cause other participants and/or the SIPS operator to be unable to meet their obligations when they become due, potentially with spillover effects threatening the stability of or confidence in the financial system. MAIN DOCUMENTS Regulation of the European Central Bank (EU) No 795/2014 of 3 July 2014 on oversight requirements for systemically important payment systems (ECB/2014/28) (OJ L 217, 23.7.2014, pp. 16-30) Successive amendments to Regulation (EU) No 795/2014 have been incorporated into the original text. This consolidated version is of documentary value only. Decision (EU) 2019/1349 of the European Central Bank of 26 July 2019 on the procedure and conditions for exercise by a competent authority of certain powers in relation to oversight of systemically important payment systems (ECB/2019/25) (OJ L 214, 16.8.2019, pp. 16-24) See consolidated version. Decision (EU) 2017/2098 of the European Central Bank of 3 November 2017 on procedural aspects concerning the imposition of corrective measures for non-compliance with Regulation (EU) No 795/2014 (ECB/2017/33) (OJ L 299, 16.11.2017, pp. 34-37) See consolidated version. Decision (EU) 2017/2097 of the European Central Bank of 3 November 2017 on the methodology for calculating sanctions for infringements of the oversight requirements for systemically important payment systems (ECB/2017/35) (OJ L 299, 16.11.2017, pp. 31-33) RELATED DOCUMENTS Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, pp. 45-50) See consolidated version. last update 30.08.2021


19.7.2014 EN Official Journal of the European Union L 214/38 COMMISSION RECOMMENDATION of 14 July 2014 on principles for the protection of consumers and players of online gambling services and for the prevention of minors from gambling online (Text with EEA relevance) (2014/478/EU) THE EUROPEAN COMMISSION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 292 thereof, Whereas: (1) In 2011, the Commission held a public consultation on its ‘Green Paper on online gambling in the internal market’ (1). It identified common objectives of the Member States regarding the regulation of online gambling services and helped to identify the key priority areas for Union action. (2) In its Communication ‘Towards a comprehensive European Framework for online gambling’ adopted on 23 October 2012 (2), the Commission proposed a series of actions which seek to respond to the regulatory, societal and technical challenges of online gambling. In particular, the Commission announced that it would present Recommendations on the protection of consumers in the area of online gambling services, including the protection of minors, and on responsible commercial communication of online gambling services. This Recommendation is designed to combine both those subject matters and to improve the protection of consumers, players and to prevent minors from gambling online. This Recommendation aims to ensure that gambling remains a source of entertainment, consumers are provided a safe gambling environment and measures are in place to counter the risk of financial or social harm as well as to set out action needed to prevent minors from gambling online. (3) In its Resolution of 10 September 2013 on online gambling in the internal market, the European Parliament (3) called on the Commission to explore the possibility of interoperability between national self-exclusion registers, to raise awareness about the risks of gambling addiction and to consider compulsory third-party identification checks. It also called for online gambling operators to be obliged to provide on the gambling website information on regulatory authorities and warnings to minors and the use of self-restrictions. In addition, the European Parliament called for common principles for responsible commercial communications. It recommended that commercial communications should contain clear warnings as to the consequences of compulsive gambling and the risks of gambling addiction. Commercial communications should be neither excessive nor displayed on content specifically targeted at minors or where there is a higher risk of targeting minors. (4) The European Economic and Social Committee has also called on the Commission to intervene to improve consumer protection as regards online gambling, and to protect minors (4). (5) In the absence of harmonisation at Union level, Member States are in principle free to set the objectives of their policy on games of chance and to define the level of protection sought for the purpose of protecting the health of consumers. The Court of Justice of the European Union has provided general guidance on the interpretation of the fundamental freedoms of the internal market in the area of (online) gambling, taking into account the specific nature of gambling activities. While Member States may restrict or limit the cross-border supply of online gambling services on the basis of public interest objectives that they seek to protect, they are nonetheless to demonstrate the suitability and necessity of the measure in question. Member States have a duty to demonstrate that the public interest objectives are being pursued in a consistent and systematic manner (5). (6) The Court of Justice of the European Union has also established ground rules for commercial communications on gambling services and, in particular, for those provided under monopoly conditions. Advertising by the holder of a public monopoly is to be measured and strictly limited to what is necessary in order to channel consumers towards controlled gaming networks. Such advertising cannot aim to encourage consumers' natural propensity to gamble by stimulating their active participation in it, for example by trivialising gambling, or increasing the attractiveness of gambling by means of enticing advertising messages holding out the prospect of major winnings. In particular, a distinction should be drawn between strategies of the holder of a monopoly that are intended solely to inform potential customers of the existence of products and serve to ensure regular access to games of chance by channelling gamblers into controlled circuits, and those which invite and encourage active participation in such games (6). (7) Protection of consumers and health are the main public interest objectives of Member States in the context of their national gambling frameworks addressing the prevention of problem gambling and the protection of minors. (8) The rules and policies that Member States have introduced to pursue public interest objectives vary considerably. Action at Union level encourages Member States to provide a high level of protection throughout the Union, in particular in light of risks associated with gambling that include the development of a gambling disorder or to other negative personal and social consequences. (9) The aim of this Recommendation is to safeguard the health of consumers and players and thus also to minimise eventual economic harm that may result from compulsive or excessive gambling. To that end, it recommends principles for a high level of protection of consumers, players and minors as regards online gambling services. In preparing this Recommendation, the Commission has drawn from good practices in the Member States. (10) Online gambling services are widely offered and used. Online gambling is a service activity with annual EU revenues of EUR 10,54 billion in 2012. Technological developments, the increase of internet availability and the convenience of mobile technologies are driving the accessibility and growth of online gambling. However, misinformed choices can be made where information is not sufficiently clear or transparent. In addition, online players look for competing gambling opportunities whenever they perceive a lack of attractive offers. (11) A wide range of media contributing to exposure to commercial communications relating to gambling exists, for example print media, direct mail, audiovisual media and outdoor advertising, as well as sponsorship. This may result in vulnerable groups such as minors being attracted to gambling. At the same time, commercial communication of online gambling services can play an important role in directing consumers to an offer which has been allowed and is supervised, for example by showing the identity of the operator and by carrying correct information about gambling including the risks of problem gambling, as well as appropriate warning messages. (12) Some individuals who engage in gambling experience problems as a result of their behaviour to a degree which impacts on person or family, others are severely harmed for reasons of pathological gambling. It is estimated that between 0,1-0,8 % of the general adult population suffers from a gambling disorder and an additional 0,1-2,2 % demonstrate potentially problematic gambling involvement. (7) Therefore, a preventive approach is necessary for online gambling services to be offered and promoted in a manner that is socially responsible, in particular to ensure that gambling remains a source of recreational and leisure activity. (13) Minors are frequently exposed to gambling as they use the internet and mobile applications and media that display gambling advertising as well as outdoor gambling advertising. They also watch or attend sports competitions sponsored by gambling interests or carrying advertising focused on gambling activities. Therefore, this Recommendation is also intended to prevent minors from being harmed or exploited by gambling. (14) Online gambling operators established in the Union increasingly hold multiple licences across several Member States which have chosen license-based systems in relation to gambling regulation. They could benefit from a more common approach. Furthermore, the multiplication of compliance requirements can create unnecessary duplication of infrastructure and costs, resulting in an unnecessary administrative burden on regulators. (15) It is appropriate to invite Member States to put forward rules providing consumers with information about online gambling. Such rules should prevent the development of gambling related disorders and prevent minors from accessing gambling facilities and discourage consumers from availing of offers which are not allowed and therefore potentially harmful. (16) Where appropriate, the principles of this Recommendation should not only be addressed to operators but also to third parties, including so-called ‘affiliates’, who are allowed to promote online gambling services on behalf of the operator. (17) It is appropriate to better inform consumers and players about online gambling services which, consistently with Union law, are not allowed according to the law of the Member State where the online gambling service is received and also to act against such services. Within that framework, Member States that do not allow a specific online gambling service should not allow commercial communication for such a service. (18) The registration process to open a player account serves the purpose of verifying the identity of the person and enabling the tracking of player behaviour. It is essential that such registration be designed in such a way as to also prevent consumers from dropping out of the registration process and turning to gambling websites that are not regulated. (19) Whilst the registration process has been introduced differently across the Member States, at times with offline or manual steps in the verification process, Member States should ensure that the identification details can be effectively checked to facilitate the completion of the registration process. (20) It is important that player accounts only be made permanent once the identity details provided by the players are validated. Before the account becomes a permanent one, it is desirable that players be allowed to use temporary accounts. In light of their nature, temporary accounts should be for a fixed nominal value and players should not be able to withdraw deposits or winnings. (21) In order to protect players and their funds as well as ensure transparency there should be procedures in place to verify player accounts that have not been active for a determined period, and for closing or suspending a player account. Furthermore, where the person is found to be a minor the player account should be cancelled. (22) In respect of information alerts, where appropriate, the option of a timer should be visibly available to the player during a gambling session. (23) In respect of player support, in addition to the setting of deposit limits, players could be provided with additional protection measures, such as the possibility to set wager or loss limits. (24) In order to prevent the development of a gambling disorder, an operator should also be able, in the event of disconcerting changes in gambling behaviour, to direct the player to take time out or to exclude the player. The operator should, in such circumstances, communicate the reasons to the player, and guide the player to assistance or treatment. (25) Operators are significant sponsors of sports teams and events in Europe. In order to improve accountability of sponsorship by online gambling service providers, requirements should be clear that sponsorship is to be transparent and carried out in a responsible manner. In particular, clearer requirements should be set out to prevent sponsorship by gambling operators from adversely affecting or influencing minors. (26) It is also necessary to create awareness about the inherent risks of prevailing gambling websites, such as fraud, that are outside any form of control at the level of the Union. (27) Effective supervision is necessary for the appropriate protection of public interest objectives. Member States should designate competent authorities, lay down clear guidance for operators and provide easily accessible information for consumers, players and vulnerable groups including minors (28) Codes of conduct can play an important role in the effective application, and monitoring, of the principles on commercial communication of this Recommendation. (29) This Recommendation does not interfere with Directive 2005/29/EC of the European Parliament and of the Council (8) and Council Directive 93/13/EEC (9). (30) Application of the principles laid down in this Recommendation implies the processing of personal data. Directive 95/46/EC of the European Parliament and of the Council (10) and Directive 2002/58/EC of the European Parliament and of the Council (11) therefore apply, HAS ADOPTED THIS RECOMMENDATION: I. PURPOSE 1. Member States are recommended to achieve a high level of protection for consumers, players and minors through the adoption of principles for online gambling services and for responsible commercial communications of those services, in order to safeguard health and to also minimise the eventual economic harm that may result from compulsive or excessive gambling. 2. This Recommendation does not interfere with the right of Member States to regulate gambling services. II. DEFINITIONS 3. For the purposes of this Recommendation the following definitions apply: (a) ‘online gambling service’ means any service which involves wagering a stake with monetary value in games of chance, including those with an element of skill, such as lotteries, casino games, poker games and betting transactions that are provided by any means at a distance, by electronic means or any other technology for facilitating communication, and at the individual request of a recipient of services; (b) ‘consumer’ means any natural person who is acting outside own trade, business, craft or profession; (c) ‘player’ means any natural person who holds a player account with the operator and participates in the online gambling service; (d) ‘player account’ means the account opened by the player in which all transactions with the operator are registered; (e) ‘minor’ means any person under the minimum age set, in accordance with the applicable national law, for participating in an online gambling service due to age; (f) ‘operator’ means any natural or any legal person allowed to provide an online gambling service and anyone acting in the name of or on behalf of such person; (g) ‘commercial communication’ means any form of communication designed to promote, directly or indirectly, the goods, services, or image of an operator; (h) ‘sponsorship’ means a contractual relationship between an operator and a sponsored party under which the operator provides financing or other support to any sporting or artistic event, organisation, team or individual in order to establish an association between the operator's image, brands or products and a sponsorship property, in return for commercial communications or other benefits. III. INFORMATION REQUIREMENTS 4. The following information should be displayed prominently on the landing page of the operator's gambling website and be accessible from all pages on the website: (a) the company details, or other means that ensures the operator is identifiable and can be contacted, including: (i) company name; (ii) place of registration; (iii) e-mail address; (b) a ‘no underage gambling’ sign, which shows the minimum age below which gambling is not permissible; (c) a ‘responsible gambling’ message, which no more than one click away provides: (i) information that gambling can be harmful if not controlled; (ii) information about the player support measures on the website; (iii) self-assessment tests for the players to check their gambling behaviour; (d) a link to at least one organisation providing information and assistance in respect of gambling disorders. 5. The terms and conditions of the contractual relationship between the operator and the consumer should be provided in a concise and legible manner. They should: (a) contain information at least about timeframes and limits regarding withdrawals from the player account, any charges concerning the player account transactions and a link to the applicable payout percentages for every game; (b) be accepted and confirmed by the consumer during the registration process referred to in Section V; (c) be made available by electronic means in a way that allows the consumer to store and retrieve them, and any changes communicated to the consumer. 6. Member States should ensure that information is available to the consumer about the rules concerning the games and bets available on the operator's gambling website. 7. Member States should ensure that the operator's gambling website displays the details of the gambling regulatory authority to show that the operator is authorised. IV. MINORS 8. No minor should be able to play on a gambling website or hold a player account. 9. Member States should ensure that the operator has procedures in place designed to prevent minors from gambling, including age verification checks during the registration procedure referred to in Section V. 10. To prevent minors from having access to gambling websites, Member States should encourage the display of links to parental control programmes on gambling websites. 11. Member States should ensure that commercial communications for online gambling services do not harm minors or induce them to view gambling as a natural element of their leisure time activities. 12. Commercial communications should carry a clear ‘no underage gambling’ message indicating the minimum age below which gambling is not permissible. 13. Member States should encourage that commercial communications are not broadcast, displayed or facilitated: (a) in media, or around programmes, where minors are expected to be the main audience; (b) on websites with minors as the audience profile; (c) in close proximity of places where minors normally spend time and are expected to be the main audience including at least schools. 14. Commercial communications should not: (a) exploit the inexperience or lack of knowledge of minors; (b) use images of minors or young persons or campaigns that particularly appeal to minors; (c) appeal to minors, or to young persons by reflecting or associating gambling with youth culture activities; (d) suggest that to gamble marks the transition from adolescence to adulthood. V. PLAYER REGISTRATION AND ACCOUNT 15. Member States should ensure that a person is only permitted to participate in an online gambling service when registered as a player and holding an account with the operator. 16. The following information should be required in the registration process in order to open a player account: (a) name; (b) address; (c) date of birth; (d) electronic mail address or mobile telephone number. 17. The electronic mail address or mobile telephone number provided should be validated by the player or verified by the operator. These should allow contact and communication between the operator and player in a direct and effective manner. 18. The identity details of the player should be verified. Where direct electronic verification is not possible or in place, Member States are encouraged to facilitate access to national registers, databases or other official documents against which operators should verify the identity details. 19. Member States should ensure that whenever the identity or the age of the person cannot be successfully verified, the registration process to open a player account, including the temporary account, should be cancelled. 20. Member States are encouraged to adopt electronic identification systems in the registration process. 21. Member States should ensure that: (a) the registration process enables identity verification to be completed in a reasonable period and is not unnecessarily burdensome for consumers or for operators; (b) the registration systems allow for alternative means to verify identification, in particular when the consumer does not have a national identification number of that Member State where this is required, or in the event of temporary unavailability of databases. 22. Member States should ensure that players have: (a) access to a temporary account with the operator with whom the account is held until the identity verification is successfully completed; (b) a unique identification username and a password or other access security feature with the operator with whom the account is held. 23. Member States should have rules in place: (a) to ensure that the players' funds are protected and can only be paid out to the player, and are kept separate from the operator's own funds; (b) to avoid collusion by players and money transfers between them including rules regarding annulment of transfers or recovery of funds from player accounts where collusion or fraud is detected. VI. PLAYER ACTIVITY AND SUPPORT 24. Member States should ensure that at the registration stage on the operator's gambling website a player can by default set monetary deposit limits, as well as temporal limits. 25. Member States should ensure that a player can at all times easily access the following on the operator's gambling website: (a) the balance on the player's account; (b) the player support function concerning responsible gambling via online forms or personal contact including at least live chat or telephone; (c) helplines to information and assistance organisations as referred to in point 4(d). 26. Member States should ensure that on an operator's website, a player can receive by default information alerts at regular intervals about winnings and losses during a game or bet and how long the player has been playing. The player should confirm the information alert and be able to suspend or to continue gambling. 27. Member States should ensure that on the operator's gambling website a player cannot: (a) make deposits beyond the monetary deposit limit for the specified time period; (b) participate in gambling unless the player account has the necessary funds to cover the game or bet. 28. Member States should not allow for credit to be provided to the player by the operator. 29. Member States should ensure that on the operator's website a player can: (a) reduce the deposit limit, with immediate effect; (b) increase the deposit limit. The request should only come into effect at least twenty-four hours after the player's request; (c) take time out and self-exclude. 30. Member States should ensure that the operator has policies and procedures in place which facilitate interaction with players whenever their gambling behaviour indicates a risk of the development of a gambling disorder. 31. Member States should ensure that the operator keeps a record at least of the deposits and winnings by the player for a determined period of time. These should be made available to the player upon request. VII. TIME OUT AND SELF EXCLUSION 32. Member States should ensure that the player can at any time on the operator's website activate time out or self-exclusion from a specific online gambling service, or from all types of online gambling services. 33. Member States should provide that: (a) time out serves to suspend gambling for at least twenty four hours; (b) self-exclusion with an operator is possible for not less than six months. 34. Member States should ensure that in the case of self-exclusion the player account is closed. 35. Member States should ensure that the re-registration of a player is only possible upon request by the player, in written or electronic form, and in any event only after the self-exclusion period has elapsed. 36. Member States should have rules regarding requests by interested third parties to an operator for player exclusion from a gambling website. 37. Member States are encouraged to establish a national registry of self-excluded players. 38. Where established, Member States should facilitate the access of operators to national registries of self-excluded players and ensure that operators regularly consult these registries so as to prevent self-excluded players from continuing to gamble. VIII. COMMERCIAL COMMUNICATION 39. Member States should ensure that the operator on whose behalf the commercial communication is made is clearly identifiable. 40. Where appropriate, Member States should ensure that commercial communications of online gambling services carry messages including at least the risks for health of problem gambling, in a practical and transparent manner. 41. Commercial communications should not: (a) make unfounded statements about chances of winning or the return that players can expect from gambling; (b) suggest that skill can influence the outcome of a game, when this is not the case; (c) exert pressure to gamble or disparage abstention through timing, location or nature of the commercial communication; (d) portray gambling as socially attractive or contain endorsements by well-known personalities or celebrities that suggest gambling contributes to social success; (e) suggest that gambling can be a resolution to social, professional or personal problems; (f) suggest that gambling can be an alternative to employment, a solution to financial concerns or a form of financial investment. 42. Member States should ensure that play-for-fun games used in commercial communications are subject to the same rules and technical conditions as the corresponding play-for-money games. 43. Commercial communications should not target vulnerable players in particular by making use of unsolicited commercial communications addressed to players who have self-excluded from gambling or have been excluded from receiving online gambling services on reasons of problem gambling. 44. Member States that permit unsolicited commercial communication by electronic mail should ensure: (a) that such commercial communication is identifiable clearly and unambiguously; (b) that the operator respects the opt-out registers in which natural persons not wishing to receive such commercial communications can register. 45. Member States should ensure that commercial communications take into account the risk potential of the online gambling service promoted. IX. SPONSORSHIP 46. Member States should ensure that sponsorship by operators is transparent and that the operator is clearly identifiable as the sponsoring party. 47. Sponsorship should not adversely affect or influence minors. Member States are encouraged to ensure that: (a) no sponsorship is allowed of events designated for or mainly aimed at minors; (b) promotional material of the sponsoring party is not used in merchandising designed for or mainly aimed at minors. 48. Member States should encourage sponsored parties to verify if the sponsorship is authorised, in accordance with national law, in the Member State where the sponsorship should take effect. X. EDUCATION AND AWARENESS 49. Member States, where appropriate with consumer organisations and with operators, are invited to organise or promote regular education and public awareness-raising campaigns to raise awareness of consumers and vulnerable groups including minors about online gambling. 50. Member States should ensure that operators and the gambling regulatory authority are required to inform their respective employees working with gambling related activities about the risks associated with online gambling. Employees interacting directly with players should be trained to ensure they understand problem gambling issues and know how to respond to them. XI. SUPERVISION 51. Member States are invited to designate competent gambling regulatory authorities when applying the principles laid down in this Recommendation to ensure and monitor in an independent manner effective compliance with national measures taken in support of the principles set out in this Recommendation. XII. REPORTING 52. Member States are invited to notify the Commission of any measures taken pursuant to this Recommendation by 19 January 2016 in order for the Commission to be able to evaluate the implementation of this Recommendation. 53. Member States are invited to collect reliable annual data for statistical purposes on: (a) the applicable protection measures in particular the number of player accounts (opened and closed), the number of self-excluded players, those experiencing a gambling disorder and complaints by players; (b) commercial communication by category and by type of breaches of the principles; Member States are invited to communicate this information to the Commission, for the first time by 19 July 2016. 54. The Commission should evaluate the implementation of the Recommendation by 19 January 2017. Done at Brussels, 14 July 2014. For the Commission Michel BARNIER Vice-President (1) COM (2011) 128 final. (2) COM (2012) 596 final. (3) P7_TA(2013)0348. (4) 2012/2322(INI). (5) Cases C-186/11 and C-209/11 Stanleybet International, C-316/07 Stoss & Others and case-law cited. (6) Case C-347/09 Dickinger and Omer and case-law cited. (7) ALICE-RAP policy paper series: ‘Gambling: two sides of the same coin — recreational activity and public health problem’. ALICE RAP is a research project funded under the 7th Framework Programme for research and development (www.alicerap.eu). (8) Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’) (OJ L 149, 11.6.2005, p. 22). (9) Council Directive 93/13/EEC of 5 April 1993 on unfair terms in Consumer contracts (OJ L 95, 21.4.1993, p. 29). (10) Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (OJ L 281, 23.11.1995, p. 31). (11) Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (OJ L 201, 31.7.2002, p. 37).

Summary: Online gambling: protecting consumers, players and children Online gambling: protecting consumers, players and children This European Commission recommendation on online gambling services encourages EU countries to adopt principles for these services and their advertising and sponsorship. These should protect people from the harm that may result from excessive or compulsive gambling both to their health and their finances. ACT Commission Recommendation 2014/478/EU of 14 July 2014 on principles for the protection of consumers and players of online gambling services and for the prevention of minors from gambling online. (OJ L 214 of 19.7.2014, p. 38-46) SUMMARY WHAT DOES THIS RECOMMENDATION DO? This recommendation aims to protect consumers, players and children, from the risks associated with online gambling. It seeks to mobilise EU countries and, through them, other parties such as online gambling operators, to assume their responsibilities and ensure high standards of consumer protection in this rapidly growing sector. KEY POINTS Information requirements Ensure consumers are aware, and informed, of the risks associated with gambling, both when it comes to gambling websites and to advertising. Minors and children Minors and children should not be able to gamble online. Rules are needed in order to minimise their exposure to advertising or promotion of gambling services. Registration process To open an account, players should provide their identity details and age. This information should be checked by operators. Support for players Tools for players to keep their gambling under control (for example, information on how much they are winning/losing as they play, setting spending limits, etc.). Easy access to helplines for advice on their gambling behaviour. Training for employees of online gambling operators to ensure they understand gambling problems and react appropriately in contacts with players. Advertising/promotion Must be unambiguous, socially responsible and transparent. WHEN DOES THE RECOMMENDATION APPLY? The recommendation was adopted on 14 July 2014. EU countries are invited to notify the Commission of any measures they take pursuant to the recommendation by 19 January 2016. The Commission is to evaluate its implementation by 19 January 2017. BACKGROUND Online gambling in the EU is subject to a variety of national rules (or sometimes no rules at all). Because EU countries face similar challenges and online gambling often has a cross-border dimension, tackling the issue collectively at EU level makes sense. In 2012, the Commission adopted an action plan on online gambling which announced this recommendation. Further information is available on the website of the European Commission's Directorate-General for the Internal Market. RELATED ACTS Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Towards a comprehensive European framework for online gambling (COM(2012) 596 final of 23.10.2012). last update 03.11.2014