Increasing role for Belgium-based systemically important financial market infrastructures, payment institutions and service providers

The National Bank of Belgium’s supervision of financial market infrastructures, payment institutions and service providers, including several global players which are located in Belgium, is gaining in importance due to the increase in electronic payments and the internationalisation of financial markets. As shown by the Financial Market Infrastructures and Payment Services Report which was published today, one of the Bank’s top priorities in this regard is preventing cyber incidents that could infect the financial system.

Belgium is home to various financial market infrastructures, custodians, payment service providers, such as payment institutions and electronic money institutions, and providers of critical services. As they process several millions of transactions daily, they are critical hubs for the smooth functioning of the Belgian and international financial system. Payments and securities transfers are processed by a network of interconnected systems and institutions. As a result, a safe and efficient settlement of these financial flows is one of the priorities of the National Bank’s supervisory activities.

The National Bank supervises Belgium-based financial market infrastructures, payment institutions and service providers in the capacity of lead supervisor – including for players of international systemic importance such as Euroclear Bank and SWIFT – or in collaboration with other authorities. These systems and institutions play an increasingly greater role, as illustrated by a comparison of several key figures for 2017 over a five-year period. The digitalisation of retail payments led to a significant increase in the number of payment transactions processed by Worldline (2.1 billion in 2017, +46 % compared to 2012) and Bancontact (1.4 billion, +27 %). The services of other institutions of international systemic importance also registered significant growth owing to increased activity and further internationalisation of the financial markets. The same applies to the value of securities deposits held by institutional customers with Euroclear Bank (12.8 trillion, +18 %) and with Bank of New York Mellon (3.6 trillion, +26 %). The number of financial transaction messages processed by SWIFT, as a critical service provider to the financial system, also recorded a substantial increase over this period (7.1 billion, +54 %).

The Report published today by the National Bank contains a recurrent overview of these systems and institutions that are located in, or are relevant to, Belgium, and also discusses the Bank's role as supervisor in this sector. The Report then discusses recent changes in the regulatory framework, as well as the Bank's approaches to oversight and prudential supervision during the year under review, and its main objectives for 2018. Operational risk management – and specifically cyber security – remains one of the Bank’s main concerns for this sector because of the possibility of an incident infecting the rest of the financial system.

Payment service providers

The Report also examines specific developments in a particular category of systems or institutions, such as the fast-growing market for payment service providers in our country. Payment institutions and electronic money institutions can further develop their payment services – competing with traditional banks in this regard – in accordance with the European PSD2 Directive, which offers a regulatory framework for new services making use, inter alia, of the possibility to access and exploit individual account data under strict (confidentiality and security) conditions. The number of payment service providers located in Belgium has further increased recently, inter alia due to the relocation of institutions such as MoneyGram International. 

The Report also contains one thematic article (“Endpoint security: a comparative overview of approaches to reduce payment fraud”) that focuses on interconnectivity between actors in payment processing and the complex cyber security challenges that it brings. In payment processing, the chain of transactions is only as strong as its weakest link. As a result, the security of each endpoint where information is exchanged in the context of payment instructions should be guaranteed. The article describes the options available for operationalising a relevant strategy from different points of view: that of the institution, the industry association and the legislator.