The possible impact of Brexit on financial flows, the use of artificial intelligence, cybercrime and technological developments within the fintech framework: such are the main points of attention of the National Bank in its annual report (Financial Market Infrastructures and Payment Services), published today, on supervision of financial market infrastructures, payment institutions and other providers of (payment) services. This supervisory task of the NBB is of great importance in view of the fact that a number of players based in Belgium play a critical role in payment transactions worldwide.

In the sector in which financial market infrastructures, payment institutions and providers of (payment) services operate, Belgium is home to a number of global players who play a critical role in national and international payment transactions. As a result of a strong growth in their activities, their systemic importance for financial markets and the economy is growing increasingly. The payment service industry is at a crossroads in this respect, due to the opening up of the payment market and to technological innovations.

Given that the processing of payment and securities transfers is carried out by a web of interlinked systems and institutions, a number of companies established in our country act as critical nodes in the smooth functioning of the Belgian and international financial system. The National Bank supervises the systems and institutions established in Belgium, either in its capacity as lead supervisor ‑ also for international systemic players such as Euroclear Bank and SWIFT ‑ or in cooperation with other authorities.

Every day, these companies process millions of financial transactions and financial messages for professional market participants or users of payment services in Belgium and abroad. Turnover has grown enormously in some cases. For instance, the number of transactions processed by Euroclear Bank and SWIFT has more than doubled since the financial crisis year of 2008. Therefore one of the priorities in the National Bank's supervisory activities focuses on safe and efficient settlement of these financial flows.

The annual Report published today by the National Bank provides a complete overview of the systems and institutions established in, or relevant to, Belgium. It also discusses the role of the National Bank as supervisor in this sector. The Report subsequently looks at recent changes in the regulatory framework, as well as the National Bank's approaches to oversight and prudential supervision, and its main objectives for the operating year 2019. Here is an overview.

The payment industry at a crossroads

The realm of payment services is expected to change drastically as a result of the introduction of the European PSD2 Directive. PSD2 regulates matters such as access to and operation of individual account data, making it possible for new market (fintech) players to compete with traditional operators such as banks. PSD2 also imposes strict conditions regarding e.g. confidentiality and security. The National Bank is in charge of supervising and assessing all existing payment service providers in this respect. Additionally, since March 2019, technological developments make it possible for retail instant payments to be carried out in Belgium. This also leads to extra work for the NBB.

Brexit

Financial flows within the EEA will to a large extent be overhauled as a result of Brexit. At the end of 2018, clearing for the Belgian repo market for government securities was transferred from the London central counterparty (LCH Ltd) to the French subsidiary (LCH SA). From the point of view of financial stability, this entails that the activity will henceforth be processed by an institution in the euro area with access to central bank services in euro. In the payment industry, the National Bank continues to receive applications from UK institutions for a Belgian licence to keep providing services in the EEA after Brexit. The Report also discusses money remittance activities, in which a number of major players have decided to move their activities from the United Kingdom to Belgium.

Cyber risk management remains a top priority

Operational risk management ‑ and in particular cyber security ‑ has for many years been among the main concerns of the National Bank as supervisor of systems and institutions. Given that these systems and institutions act as critical nodes, an incident at one of them could potentially contaminate the rest of the financial system. As part of its mission to ensure stability of the financial system, the National Bank has implemented a framework for bespoke controlled cyber-attack tests in 2018, under the name TIBER-BE (Threat Intelligence Based Ethical Red teaming). The Report also includes a thematic article that further elaborates on the potential of artificial intelligence in detecting fraud in payments and on the policies and strategies currently being developed respectively by supervisors and the industry itself ("Detecting payment fraud with artificial intelligence").