In 2004 the European Central Bank (ECB) assessed the Austrian Real-Time Interbank Settlement (ARTIS) system, which was then designated as the systemically important payment system in the country. ARTIS was Austria's component of the Euro area's Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system. The ECB's 2004 report concluded that the system observed nine of the ten Core Principles for Systemically Important Payment Systems (CPSIPS) as stipulated by the Committee on Payment and Settlement Systems. However, in November 2007, the ARTIS system was replaced by TARGET2, the successor to TARGET, which harmonized payment services under a single shared platform (SSP) across its member countries. In its 2002 report on TARGET2, the ECB did indicate that the system is expected to fully comply with the CPSIPS. Further, information on the Austrian National Bank's website indicates that it fulfills the requirements defined for national payment systems oversight authorities within the Eurosystem, and the implementation measures taken are meant to fulfill both Austrian and European requirements. However, apart from rather general statements, there is little information assessing TARGET2's compliance with the CPSIPS. The ECB points out in its 2007 report that despite the SSP, national legislation and national central banks will still maintain primary supervision for their national components of TARGET2. Despite the lack of information on TARGET2, it is generally believed that TARGET2 is an improvement over its predecessor and its component systems. Therefore the level of compliance assigned to Austria's payment system by past assessments is maintained until TARGET2 is fully implemented in all the member countries and assessed against the CPSIPS.

General Overview

In 2004, the European Central Bank (ECB) conducted a self-assessment of all the payment systems linked to the Trans-European Automated Real-time Gross Settlement Express Transfer (TARGET) system, the Euro area payment system. The report concluded that the Austrian Real-Time Interbank Settlement (ARTIS) system, the Austrian TARGET component and the country's systemically important payment system (SIPS), observed nine out of the ten core principles (CPs), and largely observed CP VIII. However, the ARTIS system was later discontinued and replaced by TARGET's successor, TARGET2, on November 19, 2007. According to a 2007 report by the ECB titled "Payment and Securities Settlement Systems in the European Union: Euro Area Countries," (hereafter referred to as 2007 ECB report on Euro Area Countries) TARGET2 provides a harmonized service level with a single technical platform across its member countries, as opposed to the decentralized structure of its predecessor. In its 2002 report on TARGET2, the ECB stated "TARGET2 is expected to fully comply with the BIS CPSS report on Core Principles for Systemically Important Payment Systems" (p. 7).

The 2007 report by the ECB titled "Fifth Progress Report on TARGET2 --Annex 2: User Information Guide to TARGET2 Pricing," (hereafter referred to as the 2007 ECB TARGET2 -- Annex 2 report) notes that the Bundesbank (German central bank), Banca d'Italia (Italian central bank), and Banque de France (French central bank) provide TARGET2 participants with a single technical platform, called the Single Shared Platform (SSP). The report further indicates that, despite the SSP, "TARGET2 is legally composed of national components governed by the national legislation of each participating member state [thus] the business relationship with the users and their accounts remain with the national central banks" (p. 4). Furthermore, national central banks (NCBs) are permitted to continue processing payments via their Proprietary Home Account application (PHAs) instead of the SSP for a four-year transitional period from when the country migrates to TARGET2, so as to allow participants more time and to facilitate their change over to the SSP (ECB 2007c).

Despite the transition to TARGET2, member countries' NCBs still have supervisory authority and national legislation still hold significance. According to the 2007 ECB report on Euro Area Countries, "central banks monitor developments in the field of payment and settlement systems in order to assess the nature and scale of the risks inherent in these systems...they define principles and standards for the promotion of safe, sound and efficient payment and settlement systems. They analyze and assess the extent to which the systems comply with these principles and standards" (p. 19). Per the same report, the Governing Council of the ECB adopted the CPSIPS as one of the standards the Eurosystem (the ECB and the NCBs of the euro area) must apply when performing its oversight role.

The Austrian National Bank (Oesterreichische Nationalbank, or OeNB) supervises payment systems in Austria. The OeNB website indicates that the "OeNB has fulfilled all of the requirements defined for national payment systems oversight authorities within the Eurosystem [and] the OeNB's interpretation of its mandate under Austrian law as well as the implementation measures taken are meant to fulfill both Austrian and European requirements." The 2007 ECB report on Euro Area Countries noted that there are several laws governing payment systems in Austria, one of which is the Civil Law, which governs the relationships between transacting parties. The 2007 ECB report on Euro Area Countries also stated that "the Cross-Border Credit Transfers Act (Überweisungsgesetz), the Settlement Finality Act (Finalitätsgesetz), the Electronic Signatures Act (Signaturgesetz), and the E-Money Act (E-Geldgesetz) constitute the transposition into Austrian law of Directives 97/5/EC, 98/26/EC, 1999/93/EC and 2000/46/EC respectively" (p. 335). The Federal Act on the OeNB defines the OeNB's role and responsibilities for payment systems oversight.

According to the 2007 ECB report on Euro Area Countries, the retail payment systems in the region are to be categorized as systemically important systems, prominently important systems, and other systems, and the Eurosystem ensures that these systems are also overseen by consistent policy. Finally, the Single Euro Payments Area (SEPA) "consists of a series of initiatives aimed at the introduction of common instruments, standards and infrastructures for retail payments in euro across Europe" (p. 28) which would imply that from 2008 onwards, citizens of EU Member States should be able to make euro payments throughout Europe from a single bank account, using a single set of payment instruments with fairly the same ease and security as they do now.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

FC

According to an ECB assessment in 2004, Austria observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system. However, as of November 2007, ARTIS was replaced by TARGET2 and there is little information publicly available as to Austria's compliance with this and all the following principles since the inception of the new system. According to the 2007 ECB report on Euro Area Countries, Austria's payment system is governed by Austrian law, which has fully implemented the relevant European directives. Furthermore, as indicated by the ECB, despite the transition to TARGET2, member countries' national central banks still have supervisory authority and national legislation still hold significance. The 2007 ECB report on Euro Area Countries noted that there are several laws governing payment systems in Austria: the Civil Law; the Consumer Protection Act (Konsumentenschutzgesetz); the 1955 Cheques Act (Scheckgesetz); and the 1955 Bill of Exchange Act (Wechselgesetz). The Civil Law, per the report, primarily governs the relationships between transacting parties. The 2007 ECB report on Euro Area Countries also stated that "the Cross-Border Credit Transfers Act (Überweisungsgesetz), the Settlement Finality Act (Finalitätsgesetz), the Electronic Signatures Act (Signaturgesetz) and the E-Money Act (E-Geldgesetz) constitute the transposition into Austrian law of Directives 97/5/EC, 98/26/EC, 1999/93/EC and 2000/46/EC respectively" (p. 335). The Federal Act on the OeNB defines the OeNB's role and responsibilities for payment systems oversight.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

FC

Per the findings of an ECB assessment in 2004, Austria observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system. The 2004 ECB assessment, when evaluating ARTIS, which has since been replaced by TARGET2, concluded that the rights and obligations of the participants, the operator and the settlement institution are clearly documented and participants could be monitored for their understanding of the risks they incurred.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

FC

According to the ECB assessment in 2004, Austria observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system, which has since been replaced by TARGET2. The 2007 ECB report on Euro Area Countries notes that "the following sources of liquidity can be used in TARGET2: balances on RTGS accounts, provision of intraday liquidity, and offsetting payment flows (i.e. the use of algorithms to settle a number of queued payments)" (p. 39). The report further states that intraday credit will be granted to participants against eligible collateral by the respective national central banks. According to a 2005 report by the Bundesbank, TARGET2 has bilateral and multilateral limits that will permit liquidity management for all TARGET2 participants.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

FC

Austria observed this principle according to the findings of the ECB assessment in 2004. At the time of this assessment, the SIPS in Austria was the ARTIS system, which has since been replaced by TARGET2. According to the 2007 ECB report on Euro Area Countries, the EU's Settlement Finality Directive of 1998 harmonized laws in member states and thereby ensures that the operations of payment and settlement systems are not stopped by the bankruptcy of a participant. Furthermore, the report also states that unless otherwise indicated by the participant, payments in TARGET2 (a real time gross settlement system) are settled immediately or at least by the end of the business day.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

According to 2004 ECB assessment, this principle is not applicable to Austria. TARGET2 the successor to TARGET and the ARTIS system is an RTGS system.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

FC

The 2004 ECB assessment concluded that Austria observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system, which has since been replaced by TARGET2. According to the 2007 ECB report on Euro Area Countries, "any euro payment which participants wish to process in real time and in central bank money can be executed in TARGET2" (p. 38).

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

CP

Austria broadly observed this principle, per the findings of the 2004 ECB assessment. At the time this assessment, the SIPS in Austria was the ARTIS system, which has since been replaced by TARGET2. Although there is no comprehensive assessment publicly available of TARGET2's functioning against the CPSS' requirements for this principle, a 2007 report by the ECB titled "Fourth Progress Report on TARGET2" does indicate that a "a concept called 'Measures to ensure the security and operational reliability of TARGET2 participants' has been developed. By implementing this concept, the report states, the Eurosystem, in its capacity as TARGET2 system operator, will meet CP VII in respect of the security and operational reliability of TARGET2 participants" (p. 9).

Per the 2007 ECB TARGET2 -- Annex 2 report, TARGET2 has set contingency arrangements for failures in the system due to central bank failure, proprietary home account failure, an ancillary system failure, a bank failure, and the failure of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Further the 2007 ECB report on Euro Area Countries notes that "TARGET2 will offer the highest possible level of reliability and resilience, as well as sophisticated business contingency arrangements commensurate with the systemic importance of the TARGET2 infrastructure" (p. 37).

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

CP

According to the 2004 ECB assessment, Austria broadly observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system. However, as of November 2007, ARTIS was replaced by TARGET2 and there is little information publicly available as to Austria's compliance with this principle since the inception the new system.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

FC

According to the 2004 ECB assessment, Austria observed this principle. At the time of this assessment, the SIPS in Austria was the ARTIS system. However, as of November 2007, ARTIS was replaced by TARGET2 and there is little information publicly available as to Austria's compliance with this principle since the inception of the new system. A 2006 report by the Bundesbank mentions that "TARGET2 provides open and competitively neutral access to large-value payments in euro. In principle, credit institutions will be free to choose between direct or indirect participation" (p. 4).

X. The system's governance arrangements should be effective, accountable and transparent.

FC

Austria observed this principle according to the findings of an ECB assessment in 2004. At the time of this assessment, the SIPS in Austria was the ARTIS system, which has since been replaced by TARGET2.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

FC

As stated in the 2007 ECB TARGET2 -- Annex 2 report, despite the transition to TARGET2, member countries' national central banks still have supervisory authority and national legislation still hold significance. Per the 2007 ECB report on Euro Area Countries, "central banks [in the EU countries] monitor developments in the field of payment and settlement systems in order to assess the nature and scale of the risks inherent in these systems and to ensure the transparency of the arrangements concerning payment instruments and services. Where necessary, they define principles and standards for the promotion of safe, sound and efficient payment and settlement systems. They analyze and assess the extent to which the systems comply with these principles and standards" (p. 19).

Information provided on the OeNB's website states that the Governing Council of the ECB in 2003 established a framework that requires all large-value payment systems in the country to comply with the CPSIPS and also requires central banks to ensure that the SIPS in Euro area countries comply with these standards. Further the website also indicates that since 2002, "OeNB has fulfilled all of the requirements defined for national payment systems oversight authorities within the Eurosystem [and] the OeNB's interpretation of its mandate under Austrian law as well as the implementation measures taken are meant to fulfill both Austrian and European requirements." OeNB's payment oversight activities are based on Articles 44a and 82a of the Federal Act on the Oesterreichsiche Nationalbank. The Act defines the OeNB's legal mandate to review system stability and specifies the OeNB's authority to issue regulations, perform inspections, and impose sanctions.

B. The central bank should ensure that the systems it operates comply with the Core Principles.

FC

The 2007 ECB report on Euro Area Countries notes that in 2001 the Governing Council of the ECB adopted the CPSS' CPSIPS as one of the standards the Eurosystem must apply when performing its oversight role. In addition, information provided on the OeNB's website states that the Governing Council of the ECB in 2003 established a framework that requires all large-value payment systems in the country to comply with the CPSIPS and also requires central banks to ensure that the SIPS in Euro area countries comply with these standards. Further the website also indicates that since 2002, "OeNB has fulfilled all of the requirements defined for national payment systems oversight authorities within the Eurosystem [and] the OeNB's interpretation of its mandate under Austrian law as well as the implementation measures taken are meant to fulfill both Austrian and European requirements."

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

FC

The 2007 ECB report on Euro Area Countries notes that in 2001 the Governing Council of the ECB adopted the CPSIPS as one of the standards the Eurosystem must apply when performing its oversight role. In addition, information provided on the OeNB's website states that the Governing Council of the ECB in 2003 established a framework that requires all large-value payment systems in the country to comply with the CPSIPS and also requires central banks to ensure that the SIPS in Euro area countries comply with these standards. Further the website also indicates that since 2002, the "OeNB has fulfilled all of the requirements defined for national payment systems oversight authorities within the Eurosystem [and] the OeNB's interpretation of its mandate under Austrian law as well as the implementation measures taken are meant to fulfill both Austrian and European requirements."

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

The 2007 ECB report on Euro Area Countries states "in order to institutionalize cooperation and the exchange of information regarding large-value payment systems in the EU, banking supervisors and payment system overseers from all EU Member States concluded a memorandum of understanding, which came into force on 1 January 2001" (p. 106). The report does not address the OeNB's compliance with this principle however.