The domestic inter-bank payment systems in Belgium are the Electronic Large-value Inter-bank Payment System (ELLIPS), the Centre for Exchange and Clearing, and the Clearing House of Belgium. Of the three, only the ELLIPS has been explicitly classified as a systemically important payment system (SIPS) by the National Bank of Belgium in its 2007 Financial Stability Review. In its 2004 assessment of the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) system components, the European Central Bank (ECB) concluded that the ELLIPS fully observed eight of the ten Core Principles for Systemically Important Payment System (CPSIPS) as defined by the Committee on Payment and Settlement Systems. It largely observed Principle VII and VIII. TARGET was replaced by TARGET2 in November 2007. The migration of TARGET member countries has taken place in groups of four. Belgium was part of the second group of countries that joined TARGET2 on February 18, 2008. With the adoption of TARGET2 by Belgium, the ELLIPS ceased to exist. With TARGET, the large value interbank payment systems of member countries were interlinked, but TARGET2 provides harmonized payment services under a single shared platform across its member countries. However, there is little information assessing TARGET2's compliance with the CPSIPS, except for a statement in the ECB's 2002 report on TARGET2, in which it indicates that the system is expected to fully comply with the CPSIPS. 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 Belgium by the 2004 ECB assessment is maintained until TARGET2 is fully implemented in all its member countries and assessed against the CPSIPS.

General Overview

The National Bank of Belgium (NBB) is the central bank of Belgium and, according to Article 8 of the Organic Law of the NBB, it is responsible for ensuring that the clearing and payment systems in the country operate properly, and making certain that they are efficient and sound. In its 2007 Financial Stability Review, the NBB explicitly classified the Electronic Large-value Inter-bank Payment System (ELLIPS) to be of systemic importance. The report states that the ELLIPS fulfilled all the three criteria for a systemically important payment system (SIPS) as defined by the Committee for Payment and Settlement Systems (CPSS), namely: (1) the system is used for the settlement of financial market transactions or for the settlement of other payment systems; (2) it is the principal payment system in Belgium in terms of the aggregate value of payment instructions; and (3) it mainly handles payment instructions of a high individual value. Besides the ELLIPS, the other main interbank payment systems operating in the country are the Centre for Exchange and Clearing (CEC), the Belgian Automated Clearing House (ACH) for retail payments; and the Clearing House of Belgium (CHB), a paper-based system which operates from the head office of the NBB in Brussels. None are classified as SIPS by the NBB. The CEC, according to a 2005 assessment of Euro retail payment system by the European Central Bank (ECB), is classified as a prominently important retail payment system (PIRPS). The report also states that "PIRPS have to observe a subset of the Core Principles [for Systemically Important Payment Systems, namely Core Principles I, II, and VII to X (the "Retail Standards"), as described in the oversight standards for euro retail payment systems" (p. 5). Per the 2007 ECB report on Euro Area Countries, the ELLIPS and CEC together handle 99.5% of interbank payments in Belgium by volume and 99.4% by value.

The ELLIPS was part of the now defunct Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) system, the payment system for the Euro area. In its 2004 assessment of TARGET components, the ECB concluded that the ELLIPS fully observed eight of the ten Core Principles for Systemically Important Payment System (CPSIPS) as defined by the CPSS. It largely observed Principle VII and VIII. As of November 19, 2007 the ECB's TARGET has been replaced by its successor, TARGET2. It has been a phased replacement in four groups - Group 1 (November 19, 2007), Group 2 (February 18, 2008), Group 3 (May 19. 2008), and Group 4 (September 15, 2008). Belgium was a member of Group 2, joining TARGET2 on February 18, 2008. 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 the 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 2008 report titled "TARGET Annual Report: 2007" (hereafter referred to as the 2008 ECB report), the ECB states that TARGET2 better meets user needs by: "providing a harmonized service level with a harmonized pricing structure; ensuring cost-efficiency; preparing for future developments; and including the enlargement of the EU and the euro area" (p. 26).

In its 2002 report on TARGET2, the ECB states that "TARGET2 is expected to fully comply with the BIS [Bank for International Settlement] 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) will 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 beginning when the country migrates to TARGET2, so as to allow participants more time to facilitate their change-over to the SSP. Therefore, despite the transition to TARGET2, member countries' national central banks still have supervisory authority, and national legislation remains significant. 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 must apply when performing its oversight role.

The main laws governing payment systems operation in Belgium are the Law on the Legal Status and Supervision of Credit Institutions of 1993; the Law on the Supervision of the Financial Sector and on Financial Services of 2002; Article 8 of the Organic Law of the NBB of 1988; and the Law on Settlement Finality in Payments of 1999, which transposes EU Directive 98/26/EC. According to the 2007 ECB report on Euro Area Countries, since 1999 the NBB has been legally responsible for the oversight of payment and clearing systems in Belgium. The NBB runs the ELLIPS, the Center for Exchange and Clearing (the low-value retail payment system), and the Clearing House of Belgium. The NBB's responsibility for oversight is defined in Article 8 of its Organic Law: "The Bank shall ensure that the clearing and payment systems operate properly and shall make certain that they are efficient and sound. It may carry out all transactions or provide facilities for these purposes. It shall provide for the enforcement of the regulations adopted by the ECB in order to ensure the efficiency and the soundness of the clearing and payment systems within the European Community and with other countries."

The main organizations operating the interbank payment systems in the country are: the CEC, founded as a non-profit association in 1974 by the banking sector as a whole in order to automate the exchange of payment transactions; the ELLIPS, founded in 1995 as a non-profit association in order to manage the ELLIPS system; the Banking, Finance, and Insurance Commission (CBFA), the financial supervisory authority; and the Belgian Bankers' Association, a professional organization which aims to promote its members' professional interests. ELLIPS was a real-time gross settlement system. At the end of 2005, the system had 15 direct participants and 70 indirect participants. The system settled each transfer individually by debiting the sender's current account with the NBB and crediting the beneficiary's account and there was immediate finality of payments. ELLIPS processed credit transfers in euro only. When Belgium joined TARGET2 in February 2007, ELLIPS ceased to exist. The CEC is a low-value interbank payment system that settles mostly retail payments. According to the ECB's 2007 report on "Payment and Securities Settlement Systems," the CEC's participants are "all credit institutions legally entitled to operate in Belgium, as well as the Post Office, the NBB, and some payment organizations (e.g. Atos Worldline), may make use of the services of the CEC either directly, as members, or through other participants, as indirect members" (p. 87). The report added that, at the end of December 2005, the CEC comprised 22 direct members and 61 indirect members. The Clearing House is governed by its Board of Directors, which is composed of representatives of the most important member institutions and chaired by the NBB, which also acts as the system operator. Participants in the system include all credit institutions legally active in Belgium and the Post Office and the NBB. At the end of December 2005, the Clearing House comprised 25 direct participants and 57 indirect participants.

In terms of non-cash payments, the most commonly used payment instrument in Belgium is the credit transfer. According to the 2007 ECB report on Euro Area Countries, "the use of checks issued by individual credit institutions and postal checks, which until 1992 were the second most frequently used cashless payment instrument after the credit transfer, has tended to diminish by an average of 10% per year since 1995, in line with the increasing use of electronic money and debit and credit cards" (p. 81). Finally, the Single Euro Payments Area (SEPA) project is worth mentioning in the context of the EU's integration of its payment systems. The SEPA project "consists of a series of initiatives aimed at the introduction of common instruments, standards, and infrastructures for retail payments in euro across Europe" (ECB 2007b, p. 28) which would imply that 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 about 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

TARGET2 replaced the Belgian SIPS, ELLIPS, in February 2008. According to a 2008 ECB report, in 2007, the Eurosystem completed the TARGET2 Guideline, which forms the basis for the NCBs to establish their TARGET2 component systems, governed by their national legislation. The TARGET2 Guideline contains the main legal elements of TARGET2, including governance arrangements and audit rules, as well as transitory provisions on the migration from TARGET to TARGET2. The Guideline was published in the Official Journal of the European Union in September 2007 and is also available on the ECB's website in all EU languages. The Guideline has a harmonized set of rules for all TARGET2 participants and allows Eurosystem NCBs to implement these rules in an identical manner, with deviations only if national laws require such. The harmonized conditions also contain relevant alternatives which will enable NCBs to customize their respective implementation in line with the requirements of national law. According to the 2008 ECB report "this approach implements the decision of the Governing Council of the ECB in October 2005 to legally construct TARGET2 as a multiple system, but aiming at the highest degree of harmonization of the legal documentation used by the central banks within the constraints of their respective national legal framework" (p. 27).

As indicated in the 2004 ECB assessment of TARGET components, ELLIPS observed this principle. The 2007 ECB report on Euro Area Countries notes that Belgium does not have a general legal and regulatory framework relating to payment systems, payment service providers, or payment instruments. Instead, these areas are primarily governed by specific legislation or regulations, which are in part an implementation of the European Commission Directives and are often aimed at consumer protection. The legal arrangements and system rules in Belgium clearly and comprehensively address the timing of irrevocability, final settlement, and insolvency. All systems have been designated under the EU's Settlement Finality Directive. Upon entry into the system, new participants are required to seek legal counsel to guarantee that participation in the systems does not result in unnecessary risks for other participants.

The main laws governing payment systems and payment service providers are: (1) the 1993 Law on the Legal Status and Supervision of Credit Institutions; (2) the 1999 Law on Settlement Finality in Payments transposes Directive 98/26/EC; and (3) Article 8 of the 1998 Organic Law of the NBB. The 1993 Law on the Legal Status and Supervision of Credit Institutions seeks to protect the public's savings and ensure the smooth functioning of the credit system by laying down rules for the establishment, operation, and supervision of credit institutions. Mainly, the Law seeks to guarantee the legal certainty of offsetting agreements for debts between two or more credit institutions in the event of the bankruptcy of one of those institutions or any other situation involving concurrent claims governed by Belgian law. The 1999 Law on Settlement Finality in Payments transposes Directive 98/26/EC, and Article 9 of this Law states that cash settlement accounts held with an operator or a settlement agent of a settlement system may not be blocked, by any means, by a participant other than the operator or the settlement agent of the system, a counterparty or a third party. Article 8 of the 1998 Organic Law entrusts the NBB with supervisory powers with regard to clearing, payment, and securities settlement systems.

As of February 18, 2008, Belgium joined TARGET2. Despite the transition to TARGET2, member countries NCBs still have supervisory authority and national legislation still applies. According to the 2007 ECB report on Euro Area Countries, the relevant provisions for regulating EU area payment systems are put forth in the Treaty and the Statute of the European System of Central Banks (ESCB). Other important EU directives relating to payment systems are the Cross-Border Credit Transfers Directive (Directive 97/5/EC) of January 27, 1997, and the Settlement Finality Directive (Directive 98/26/EC) of May 19, 1998.

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

As the designated SIPS in Belgium, ELLIPS observed this principle, according to the 2004 ECB assessment. The assessment noted that ELLIPS design and operating times were clearly documented and, in most instances, information was provided to enable the participants to better understand the risks they would incur by participating in the system. However, in 2008, Belgium joined TARGET2 and ELLIPS ceased to exist. According to a 2008 ECB report, the general functional specifications of TARGET2 provide the public with a high-level overview of the SSP for TARGET2 and its functional specifications. The user detailed functional specifications provides the public with a more in-depth and detailed explanation of the core services and the optional services offered by the SSP. Further, the user handbook for the information and control module (ICM) of the SSP describes the online information tools and control measures of the ICM, allowing access to the other relevant modules of the SSP. In 2007 the Eurosystem completed the TARGET2 Guideline, which forms the basis for the NCBs to establish their TARGET2 component systems, governed by their national legislation. The TARGET2 Guideline contains the main legal elements of TARGET2, including governance arrangements and audit rules, as well as transitory provisions on the migration from TARGET to TARGET2. The Guideline was published in the Official Journal of the European Union in September 2007 and is also available on the ECB's website in all EU languages.

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

ELLIPS, the designated SIPS in Belgium ceased operation on February 18, 2008 when Belgium joined TARGET2. There is little information regarding TARGET2's compliance with this principle, however, a 2004 ECB report indicated that ELLIPS observed this principle. The 2007 ECB report on Euro Area Countries states that "as ELLIPS [was] an RTGS system, payments [were] settled one by one on the settlement accounts held by participants with the NBB. If sufficient funds [were] available on the account of the sending participant, the individual transactions [were] booked instantly, thus becoming final immediately" (p. 87). The report further noted that several instruments contributed to ensuring sufficient liquidity in the system such as monetary reserves, free intraday credit guaranteed by collateral, the marginal lending facility, and the deposit facility.

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

ELLIPS observed this principle as noted in the 2004 ECB assessment. ELLIPS ceased to exist when Belgium joined TARGET2 in February of 2008. However, there is little information regarding TARGET2's compliance with this principle. In ELLIPS each transfer is settled individually by debiting the sender's current account with the NBB and crediting the beneficiary's account, and the payments become final immediately.

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

CEC makes both net and multilateral settlements, and all exchange payments are settled on the same day, provided that they have been remitted before the cut-off time. However, the CEC is classified in the 2005 ECB assessment as a prominently important retail payment system (known better by the acronym PIRPS) not as a SIPS.

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

As stated in the 2004 ECB report, ELLIPS observed this principle. All interbank payment systems in the country settle on current accounts held at the NBB. ELLIPS ceased to exist when Belgium joined TARGET2 in February of 2008. However, there is little information regarding TARGET2's compliance with this principle. 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

ELLIPS broadly observed this principle as noted in the 2004 ECB assessment. ELLIPS ceased to exist when Belgium joined TARGET2 in February of 2008. 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 Eurosystem, in its capacity as TARGET2 system operator, will meet CP [Core Principle] 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(s)' failure, proprietary home account (PHA) 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

The 2004 ECB report concluded that ELLIPS broadly observed this principle. According to the report, ELLIPS allowed participants to be involved in the determination of the domestic pricing policy for its payment system. Further, ELLIPS had an efficient design, could handle local demand, and was able to deal with unexpected rises in the number of transactions. Also, the ELLIPS featured a generous formal pricing policy, which offered users full cost recovery. However, since the transition to TARGET2, there is little information on Belgium's compliance with this principle.

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

FC

ELLIPS observed this principle as noted in the 2004 ECB assessment. ELLIPS ceased to exist when Belgium joined TARGET2 in February of 2008. 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). In the case of ELLIPS, access criteria were listed in Article 3 (a) of the TARGET Guideline. These criteria were also detailed in the terms and conditions of the Belgian payment system, in membership agreements and other similar documents. Upon entry, each participant received documentation on access criteria. This information is also available to the public via the NBB's website and in printed form on demand.

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

FC

ELLIPS observed this principle, as noted in the 2004 ECB assessment. The NBB, which is ultimately held accountable by Belgian citizens, ran the system and assumed the daily management on a clear contractual basis between the NBB and ELLIPS. The NBB performs a similar duty with regards to the other Belgian payment systems. All governance arrangements are transparent and are available on the NBB website. However, as noted above, ELLIPS ceased to exist when Belgium joined TARGET2 in February of 2008.

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 remains significant. The NBB's responsibility for oversight is defined in Article 8 of its Organic Law, which reads as follows: "The Bank shall ensure that the clearing and payment systems operate properly and shall make certain that they are efficient and sound. It may carry out all transactions or provide facilities for these purposes. It shall provide for the enforcement of the regulations adopted by the ECB in order to ensure the efficiency and the soundness of the clearing and payment systems within the European Community and with other countries."

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. According to the 2008 Annual Report on TARGET, "throughout 2007, the TARGET2 design was subject to an intensive assessment against the relevant Core Principles. In terms of scope, the oversight assessment of the TARGET2 design included the design of the SSP, as well as the proprietary home accounts (PHAs) of four NCBs [the NBB, the Deutsche Bundesbank, Lietuvos Bankas, and the Bank of Portugal] which will be used to provide RTGS services during the transition period" (p. 25).

Information provided on the NBB website states that "the National Bank oversees both payment and settlement systems, regardless of whether or not it runs those systems itself. To avoid conflicts of interest (the National Bank is both overseer and operator of a number of systems), it has decided to keep oversight and operational activities strictly separate." Further, the NBB ensures that the systems it oversees - ELLIPS, CEC, Banksys, and MasterCard Europe - comply with the Committee for Payment and Settlement System's Core Principles for Systemically Important Payment Systems, and the Oversight Standards for Euro Retail Payment Systems.

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

Refer to Principle B.

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). However, there is little information publicly available addressing Belgium's compliance with this principle.