Global Settlement Layer Dominance And Financial Sovereignty Risks

Introduction

Global settlement layer dominance refers to a situation in which a small number of financial infrastructures, payment networks, clearing systems, correspondent-banking arrangements, messaging systems, central counterparties, or technology platforms become sufficiently important that a large portion of cross-border financial transactions depends upon them.

The issue is broader than ordinary market concentration. A dominant settlement layer can influence who may transact, which currencies can circulate internationally, how transactions are cleared, which institutions receive access, what compliance standards apply, and whether a state can conduct independent monetary or financial policy.

This creates a potential conflict between competition law, financial regulation, national security, monetary sovereignty, sanctions policy, and international economic law.

1. Meaning of a Global Settlement Layer

A settlement layer is the infrastructure through which financial obligations are ultimately discharged.

It can include:

1. Payment systems — systems transferring funds between financial institutions.
2. Clearing systems — mechanisms determining obligations between counterparties.
3. Central counterparties (CCPs) — intermediaries standing between buyers and sellers.
4. Correspondent banking networks — banks providing cross-border access to financial institutions.
5. Financial messaging systems — systems transmitting payment instructions.
6. Securities settlement systems — infrastructure for delivery-versus-payment transactions.
7. Central-bank settlement systems — systems providing final settlement in central-bank money.
8. Stablecoin and digital-payment infrastructure — potentially emerging private settlement layers.
9. Cloud and technological infrastructure supporting critical financial networks.

Dominance becomes particularly significant where switching is difficult or where network effects make alternative infrastructures commercially unattractive.

2. Why Settlement Infrastructure Can Become Dominant

A. Network effects

Financial infrastructure becomes more valuable as more institutions participate.

For example:

More banks use a particular settlement network → more counterparties become reachable → the network becomes more attractive → additional banks join → alternatives become less viable.

This creates a self-reinforcing cycle.

B. Liquidity concentration

A settlement venue may accumulate liquidity because market participants prefer the infrastructure with the greatest volume.

Liquidity concentration can eventually make competitors commercially ineffective even where no formal exclusion exists.

C. High switching costs

Financial institutions may need to change:

• technical systems;
• compliance procedures;
• reporting architecture;
• contractual relationships;
• risk-management systems;
• operational protocols;
• regulatory approvals.

Consequently, nominally available alternatives may not constitute effective competitive alternatives.

D. Interoperability dependence

A dominant settlement infrastructure may control the technical interfaces through which competitors connect.

Restrictions concerning:

• APIs;
• messaging standards;
• access protocols;
• interoperability;
• authentication;
• settlement windows;

can therefore become competition concerns.

3. The Competition-Law Problem

The principal competition-law question is:

When does control over indispensable settlement infrastructure constitute abusive dominance rather than legitimate financial-risk management?

Several doctrines become relevant.

3.1 Essential facilities

If a settlement infrastructure is genuinely indispensable and cannot reasonably be duplicated, refusal of access may potentially constitute an abuse of dominance.

However, courts generally impose a high threshold.

Relevant considerations include:

• indispensability;
• absence of realistic alternatives;
• elimination of effective competition;
• objective justification;
• feasibility of access;
• proportionality.

3.2 Discriminatory access

A dominant settlement provider may favour:

• affiliated banks;
• preferred currencies;
• preferred exchanges;
• preferred payment providers;
• domestic institutions.

Such discrimination can distort downstream financial markets.

3.3 Margin and collateral discrimination

A CCP or clearing institution can potentially influence competition through:

• margin requirements;
• collateral eligibility;
• default-fund contributions;
• settlement fees;
• membership requirements.

These rules may be objectively justified by risk, but disproportionate requirements can raise exclusionary concerns.

3.4 Interoperability foreclosure

A dominant infrastructure can potentially prevent competing systems from connecting to it.

This is particularly important where customers require access to the dominant network to reach a critical mass of counterparties.

4. Financial Sovereignty Risks

Settlement dominance has consequences extending beyond competition law.

A. Monetary sovereignty

If international trade and financial transactions become heavily dependent upon one currency or settlement infrastructure, states may experience reduced freedom to pursue independent monetary policies.

The issue is not simply currency preference.

It concerns the underlying infrastructure through which:

currency → payment instruction → clearing → settlement → finality

occurs.

B. Sanctions leverage

A globally dominant settlement infrastructure can potentially become an instrument of sanctions enforcement.

Exclusion from critical financial infrastructure may prevent institutions from:

• receiving international payments;
• settling securities;
• accessing correspondent banking;
• financing imports;
• financing exports;
• conducting foreign-exchange transactions.

This creates a form of financial chokepoint power.

C. Extraterritorial regulation

A state controlling a major financial infrastructure may impose regulatory requirements affecting transactions occurring substantially outside its territory.

This creates tension between:

territorial sovereignty
and
extraterritorial financial regulation.

D. Strategic dependence

A country may become dependent upon foreign-controlled:

• clearing houses;
• payment networks;
• financial messaging systems;
• reserve currencies;
• settlement banks;
• financial technology infrastructure.

This can create systemic vulnerability.

5. Important Case Laws

1. United Brands Co. v Commission (1978)

Court: Court of Justice of the European Communities
Principle: Abuse of dominance and discriminatory commercial conditions.

The Court established important principles concerning dominant positions and exploitative or discriminatory conduct.

Relevance

The case is useful by analogy because a dominant settlement infrastructure could potentially exploit its position by imposing discriminatory conditions on participants.

It demonstrates that dominance itself is not unlawful; abusive exploitation of market power is the central concern.

6. Commercial Solvents Corp. v Commission (1974)

Court: European Court of Justice

Commercial Solvents concerned the refusal by a dominant undertaking to supply an essential input to a downstream competitor.

Principle

A dominant firm controlling an indispensable input may breach competition law when it deliberately restricts supplies in a manner capable of eliminating downstream competition.

Settlement-layer relevance

A comparable issue could arise where a dominant financial infrastructure controls an indispensable settlement input and selectively denies access to competing financial institutions.

The analogy is strongest where:

• the infrastructure is indispensable;
• alternatives are unavailable;
• refusal eliminates effective competition;
• access could reasonably be provided.

7. Oscar Bronner GmbH v Mediaprint (1998)

Court: Court of Justice of the European Union

This is one of the leading European essential-facilities decisions.

The Court established a demanding test for compulsory access to infrastructure controlled by a dominant undertaking.

Key principles

The facility generally must be:

1. indispensable;
2. incapable of being reasonably duplicated;
3. subject to a refusal capable of eliminating effective competition;
4. without objective justification.

Settlement relevance

This is particularly important for global settlement systems.

A financial infrastructure should not automatically be treated as an essential facility merely because it is large or important.

The stronger argument arises where economic and technical realities make independent replication practically impossible.

8. IMS Health GmbH & Co. KG v NDC Health (2004)

Court: Court of Justice of the European Union

IMS Health addressed refusal to license an intellectual-property-protected structure that competitors needed to operate effectively.

Principle

The Court developed the exceptional circumstances under which refusal to provide access to a protected resource can constitute abuse.

Settlement-layer relevance

Modern settlement infrastructure may incorporate:

• proprietary technology;
• technical standards;
• software;
• databases;
• intellectual property;
• authentication systems.

Therefore, control over proprietary technological components of a settlement layer could potentially produce foreclosure effects.

9. Deutsche Telekom AG v Commission (2010)

Court: Court of Justice of the European Union

The case concerned pricing conduct involving access to telecommunications infrastructure.

Principle

A vertically integrated dominant undertaking can abuse its position where the relationship between upstream access prices and downstream prices produces an exclusionary effect.

Settlement relevance

The same analytical framework can be relevant where a dominant financial infrastructure:

• controls wholesale settlement access;
• competes downstream;
• provides financial services itself;
• imposes access charges on competitors.

The principal concern is vertical foreclosure.

10. Slovak Telekom a.s. v Commission (2021)

Court: Court of Justice of the European Union

The Court considered exclusionary conduct involving access to infrastructure and the application of Article 102 TFEU.

Relevance

The decision reinforces the importance of analysing whether access restrictions imposed by a vertically integrated dominant undertaking can disadvantage downstream competitors.

For financial settlement infrastructure, this could arise where a settlement operator also operates:

• trading platforms;
• custody services;
• payment services;
• brokerage;
• clearing services.

11. Mastercard Inc. v Merricks (2020)

Court: UK Supreme Court

This case concerned collective proceedings arising from alleged excessive multilateral interchange fees.

Importance

Although not a settlement-layer dominance case in the narrow sense, Mastercard demonstrates how payment-system architecture can generate competition-law consequences affecting large numbers of users and businesses.

Settlement relevance

Payment networks have:

• merchants;
• consumers;
• acquiring banks;
• issuing banks;
• network operators.

Such multi-sided structures require competition analysis that considers effects across several interconnected groups.

This is highly relevant to global settlement systems because their market power may arise not from one conventional buyer-seller relationship but from interdependent network participants.

12. American Express Co. v Italian Colors / Ohio v American Express

The U.S. litigation involving American Express provides important insights into competition analysis of payment networks.

American Express operates a multi-sided transaction platform connecting merchants and cardholders.

Competition significance

Payment systems demonstrate how:

• network effects;
• two-sided markets;
• platform rules;
• merchant restrictions;
• transaction fees;

can shape competitive conditions.

Settlement relevance

A global settlement platform can similarly exercise market power through network rules rather than conventional unilateral pricing.

13. A Global Settlement Layer as a “Financial Essential Facility”

The concept can be visualised as follows:

Financial institutions

↓

Payment / messaging infrastructure

↓

Clearing infrastructure

↓

Central counterparty

↓

Settlement system

↓

Central-bank or other final settlement asset

If one institution or interconnected group controls several stages, it may acquire substantial structural power.

The competition concern becomes stronger where the same entity controls:

access + standards + clearing + settlement + data + liquidity

This produces what may be called settlement-layer vertical integration.

14. Sovereignty Versus Competition

A major legal difficulty is that financial infrastructure is not merely an ordinary commercial market.

Governments may legitimately impose requirements concerning:

• financial stability;
• anti-money-laundering;
• sanctions;
• systemic risk;
• capital adequacy;
• settlement finality;
• national security.

Consequently, a rule that excludes competitors is not automatically anticompetitive.

The legal inquiry should distinguish:

Legitimate regulation

Rules necessary to protect:

• systemic stability;
• settlement finality;
• financial integrity;
• consumer protection.

Potentially abusive exclusion

Rules whose actual purpose or disproportionate effect is to:

• protect incumbents;
• exclude rival settlement systems;
• discriminate against foreign participants;
• prevent interoperability;
• preserve monopoly rents.

15. Financial Sovereignty and Competition Law

Financial sovereignty can be divided into several dimensions.

Thus, settlement dominance can produce structural sovereignty dependence without formal political control.

16. Data as a Source of Settlement Power

Modern settlement systems generate enormous amounts of information concerning:

• transaction volumes;
• counterparties;
• currencies;
• liquidity;
• trading behaviour;
• financial exposures;
• cross-border capital flows.

Control over this data can create a second layer of market power.

A dominant settlement infrastructure may therefore possess:

settlement power + information power + network power

This can make entry by competitors considerably harder.

17. The Role of Central Bank Digital Currencies

CBDCs could alter the structure of settlement-layer competition.

Potential models include:

Model 1 — National settlement layers

Each central bank operates its own digital settlement infrastructure.

Model 2 — Interoperable national systems

Different national infrastructures communicate through common protocols.

Model 3 — Multilateral settlement platform

Several jurisdictions use a shared infrastructure.

Model 4 — Private global settlement layer

A private technological network becomes the principal settlement mechanism.

The fourth model presents particularly significant sovereignty questions because a private entity could potentially exercise quasi-public infrastructure power.

18. Stablecoins and Private Settlement Dominance

Stablecoins introduce another possibility.

A widely adopted stablecoin could become:

medium of exchange + payment mechanism + settlement asset + programmable financial infrastructure.

If adoption becomes sufficiently widespread, the issuer could potentially acquire substantial structural influence over financial markets.

Competition authorities would therefore need to examine:

• reserve arrangements;
• redemption access;
• interoperability;
• wallet compatibility;
• exchange access;
• transaction fees;
• technical standards;
• restrictions on competing stablecoins.

19. Regulatory Fragmentation

Global settlement systems operate across multiple legal regimes.

This creates conflicts between:

• EU competition law;
• U.S. antitrust law;
• UK competition law;
• national financial regulation;
• sanctions regimes;
• central-bank regulation;
• securities regulation;
• international economic law.

A settlement practice could therefore be:

permitted in one jurisdiction but restricted in another.

This makes international coordination increasingly important.

20. Possible Competition-Law Remedies

Authorities could consider several remedies.

Structural remedies

• separation of clearing and trading;
• ownership restrictions;
• divestiture;
• independent governance.

Access remedies

• non-discriminatory access;
• transparent membership criteria;
• objective technical standards.

Interoperability remedies

• API access;
• common technical standards;
• cross-platform settlement;
• portability.

Pricing remedies

• reasonable access fees;
• non-discriminatory pricing;
• prohibition of margin discrimination.

Governance remedies

• independent boards;
• participant representation;
• regulatory oversight;
• conflict-of-interest controls.

21. Strategic Policy Response

States seeking greater financial sovereignty could pursue:

1. Multiple settlement channels
2. Interoperable payment systems
3. Domestic clearing capacity
4. Regional settlement arrangements
5. Currency diversification
6. Central-bank settlement alternatives
7. Open technical standards
8. Cross-border regulatory cooperation
9. Resilience requirements for critical financial infrastructure
10. Competition scrutiny of financial technology acquisitions

The objective should not necessarily be autarky.

Rather, it should be:

resilience without unnecessary fragmentation.

22. Key Legal Tests for Future Cases

A competition authority assessing global settlement dominance should ask:

Market definition

• What is the relevant settlement market?
• Is it global, regional, or national?
• Are payment, clearing and settlement separate markets?

Dominance

• What is the infrastructure's market share?
• How strong are network effects?
• Are alternatives commercially viable?

Indispensability

• Can competitors realistically replicate the infrastructure?
• Are switching costs prohibitive?

Conduct

• Has access been refused?
• Is access discriminatory?
• Are prices excessive or exclusionary?
• Are interoperability restrictions justified?

Effects

• Are competitors being foreclosed?
• Are financial institutions dependent?
• Are consumers or businesses harmed?
• Does the conduct create systemic financial risks?

Sovereignty

• Does foreign infrastructure control affect a state's ability to conduct independent financial policy?
• Does the infrastructure create sanctions or geopolitical vulnerability?

23. Central Legal Tension

The central tension can be expressed as:

Financial stability

↕

Infrastructure efficiency

↕

Competition

↕

Interoperability

↕

National sovereignty

A regulatory intervention that maximises one objective can sometimes undermine another.

For example, concentrating settlement in one highly secure infrastructure may reduce operational risk while simultaneously increasing single-point-of-failure and sovereignty risk.

Conclusion

Global settlement layer dominance represents a new form of structural economic power. Unlike a conventional monopoly over a commodity, settlement dominance can determine the infrastructure through which economic transactions themselves become legally and technically possible.

The major competition-law issues concern essential facilities, refusal of access, discriminatory access, vertical foreclosure, excessive pricing, interoperability, network effects and multi-sided platform power. The leading authorities—including Commercial Solvents, Bronner, IMS Health, Deutsche Telekom, Slovak Telekom, United Brands, and the payment-network litigation involving Mastercard and American Express—provide useful doctrinal foundations.

The deeper concern, however, is financial sovereignty. When states, banks and businesses depend upon a concentrated global settlement infrastructure, market power can acquire geopolitical characteristics. Control over settlement can influence access to international liquidity, cross-border payments, financial data, sanctions compliance and ultimately the practical autonomy of national financial systems.

Accordingly, future competition policy should treat global settlement infrastructure not merely as another financial market, but as critical economic infrastructure where competition, resilience, systemic risk and sovereignty intersect.