For the main EU Payment and Settlement systems, the means of protecting payments “in transit” against the insolvency of one of the Financial Institutions on either side of the payment transaction is provided via their designation under the relevant Settlement Finality Regulations. Specifically, payment and settlement systems that are designated may apply for protection against the operation of insolvency law for instructions entered into their system. This is achieved via the application of the relevant Settlement Finality law operable in that country. For countries within the EU it would be the local law passed under the “umbrella” of the 1998 EU Settlement Finality Directive. By virtue of the application of the regulations, payments then effectively become final and irrevocable at the point in the system’s processes where settlement is deemed to have taken effect.
A list of all the EU Designated Payments and Securities Settlement systems is maintained by the European Securities and Markets Authority (ESMA) and is accessible here.
With respect to the UK, the protection is provided under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 http://www.legislation.gov.uk/uksi/1999/2979/pdfs/uksi_19992979_en.pdf). A list of those systems in the UK that have been designated under the Settlement Finality regulations is set out on the Bank of England’s website (http://www.bankofengland.co.uk/financialstability/Pages/fmis/supervised_sys/systems.aspx). In order to become designated, the Payment or Settlement system must apply for designation and meet the criteria set out in the Settlement Finality Regulations. Once designated, there are then obligations placed upon the System that must continue to be maintained (in particular, the ongoing provision of information to the Designating authority).
Both the EU Settlement Finality Directive and related local regulations continue to be amended and updated, which all participating systems must continue to remain cognisant of.