Immediate finality of processed payments
Through the real-time adjustment of the participants’ positions, EURO1 provides immediate finality for every processed payment. EURO1 thereby offers an RTGS-equivalent system operating on a multilateral net basis. A bank’s position cannot be unwound. Instead of having to manage multiple bilateral accounting arrangements, participants have one multilateral position.
A solid and proven legal basis
EURO1 is governed by German law and is based on a legal structure that creates a Single Obligation Structure (SOS) amongst the participants. This means that, at any time on any given business day, each participant only has one single obligation/claim towards the system as a whole, which is adjusted automatically and in real time every time a payment is duly processed.
The SOS is legally validated in every jurisdiction where participants, or offices used for participation, are located.
Identification of EURO1 as a SIPS
EURO1 was classified as a SIPS under the former Core Principles. In August 2014, the EURO1 system was identified as a systemically important payment system (SIPS) under the ECB Regulation on oversight requirements for SIPS.
Minimal counterparty exposure managed by participants
Liquidity in EURO1 is generated by the mutual giving and receiving of bilateral limits between the participants. The bilateral limits granted by a EURO1 Bank to each of the other participants in total provide the multilateral net receiving limit (Credit Cap) of the grantor bank. Similarly, the total of the bilateral limits received by a EURO1 Bank from all the other participants provide the multilateral net sending limit (Debit Cap) of the grantee bank.
With the system of bilateral limits and the Single Obligation Structure, counterparty exposure is managed directly by the EURO1 participants:
- All participants contribute in equal shares to a Liquidity Pool of at least EUR 1 billion (which constitutes the maximum possible exposure of any two participants) in the form of cash deposits held with the ECB.
- The bilateral limits do not restrict the bilateral payment flows between the individual participants. Banks can send payments to any of the other participants within the limit of the total amount of their Debit Cap.
- The overall risk a bank can bring to the system is limited to the amount of the Maximum Debit Cap set at system level. In case of a change of the number of participants, the amount of the Maximum Debit Cap may be revised - as recommended following user consultation - within a range between a minimum and maximum amount, the latter currently being at EUR 500 million. Any revision of the amount of the Maximum Debit Cap is notified in advance to the Participants.
- The risk for a participant based on a single failure is capped at the amount of the limits granted to the failing participant.
- EURO1 Banks can adjust the discretionary element of their limits to the other participants up until 07:00 CET on the same day, allowing banks to quickly react to changing circumstances.
- Participants are granted, by each of the other participants, a Mandatory Limit, the sum of which is equal to its deposit in the EURO1 Liquidity Pool. Accordingly, the Mandatory Limit a participant has to allocate to each other participant in the service amounts to the individual participant’s Liquidity Pool deposit divided by the number of participants, less one.
Operational robustness and resilience
EURO1 is at the forefront of the industry in terms of safety, security and resilience. The system benefits from the state-of-the-art resilience of SWIFT, which provides the processing service of EURO1.
EBA CLEARING runs three separate operations centres for system monitoring in different countries with rotating shifts to ensure that staff in all three locations are regularly engaged in day-to-day activities.
Specific dedicated procedures with critical service providers, including in particular SWIFT and the ECB as provider of settlement services, are ready for activation in case of abnormal events.
All operational procedures, including the resilience arrangements of all EURO1 Banks, are reviewed at regular intervals. In co-operation with its major infrastructure partners, including the ECB and SWIFT, EBA CLEARING is engaged in a continuous process geared at testing, revising and further enhancing the resilience arrangements and procedures around its services.