The Strategic Approach to Reforming Payments and Securities Settlement Systems

Transcription

1 GLOBAL PAYMENT SYSTEM CONFERENCE REDESIGNING THE LANDSCAPE OF PAYMENT SYSTEMS WORLD BANK Cape Town, SOUTH AFRICA, April 7-10, 2009 The Strategic Approach to Reforming Payments and Securities Settlement Systems Massimo Cirasino Head Payment Systems Development Group The World Bank Co-Chairman CPSS/ WB Task Force on General Principles for International Remittance Services 1

2 The World Bank Role in Payment System Development 2

3 Payment Systems Development Group (PSDG) Vision / Core Value Proposition Assist countries in developing safe and efficient payment, remittance and SS systems Support operation of a sound financial sector Support efficiency of trade and of the overall economy Support enhanced access to finance 3

4 PSDG s Core Activities 1. Help develop sound and efficient payment, remittance and SS systems 2. Support Access to Finance Stocktaking & Policy Advice Implementation Support Vision & Strategy Legal Framework Large-Value Systems Retail Payment Systems Government Payments Remittances Securities Settlement Oversight & Cooperation Financing: WB loans, fee-based TA, Regional Initiatives, FSAPs, FIRST, 4 Others

5 The PSDG Modus Operandi The Payment System Development Group is at the center of an international network, whose main objective is supporting countries to reform Payments, Remittances and Securities Settlement Systems World Bank Payments Weeks, SIBOS, Regional events, International Conferences Develop Regional Initiatives Arab Payments Initiative Western Hemisphere Forum CIS Payments Initiative, SADC, others under preparation Economic research on broad range of payment system issues (also remittance payments), new technologies (mobile payments) Knowledge Dissemination Research and New Developments Payment Systems Development Group Central Banks and SCs Multilaterals and Standardsetters Major Stakeholders G-10 and non G-10 Central Banks and Securities Commissions CPSS, IMF, IFC, IOSCO, Regional Development Banks, other multilaterals SWIFT, card networks, CLS Bank, commercial banks, other financial institutions, payment system operators, vendors, at the global and domestic levels 5

6 Why do we care? The Church of the Divine Payment 6

7 The Importance of Payment Systems Payment, Remittance & Securities settlement systems represent a basic infrastructure for the functioning of market economies The soundness of the PRSS is indispensable for the stability of financial markets - Financial market crises are likely to show their first signs in the payments system PRSS are essential components for the smooth transmission mechanism of monetary policy The soundness of PRSS is fundamental for the stability of the currency The soundness and, especially, efficiency of PRSS are fundamental factors in sustaining economic activity and economic development The payment system infrastructure is a key component in developing more inclusive financial systems 7

8 QUO VADIS? SINLAND OR DREAMLAND? 8

9 SINLAND: TYPICAL SHORTFALLS o The Legal Framework for payments and securities settlement, presents important deficiencies, regarding for example: the definition of finality, protection of the systems against bankruptcy procedures, improvement of the legal basis for custody arrangements, legal basis for netting arrangements, and the regulation of oversight powers of the central bank 9

10 SINLAND: TYPICAL SHORTFALLS Systemically Important Payment Systems do not comply with the CPSS Core Principles in that: Risk control management is weak: no sufficient provision of intra-day liquidity; no optimal integration with securities settlement systems; no or insufficient guarantee schemes for systems based on netting Operational reliability and business continuity measures might be insufficient in light of recent debate on the issue Too many large value payments are still processed in relatively risky systems (especially cheque systems) Access is restricted to few participants without disclosure of risk considerations. Exit criteria are uncertain Governance arrangements are not transparent and system participants do not have appropriate fora to express their needs 10

11 SINLAND: TYPICAL SHORTFALLS Retail Payments o o o o o o Attention to retail issues is low Instruments are not standardized and are, therefore, processed with cumbersome procedures Even cash distribution is inefficient and costly! Retail systems are characterized by a low degree of interoperability Payment instruments are used in a sub-optimal way, from the efficiency point of view Government payments are processed in a less than efficient way and have several negative implications for the payments system as a whole 11

12 SINLAND: TYPICAL SHORTFALLS Transparency o In many cases, conditions applied to payment services are not transparent nor is it clear to the stakeholders and the public the policies pursued by authorities o Banks and other financial institutions are not forced to provide information to the public on the services they offer in the payments system and the general public nor are able to resort to a bank s Ombudsman and/or to the central bank and/or the consumers protection agencies for resolution of conflicts related to payment services 12

13 SINLAND: TYPICAL SHORTFALLS FX and Cross-Border Payments o Relevant financial risks are present in foreign exchange trading and settlement: true PvP is not achieved in the vast majority of foreign exchange transactions o Cross-border retail payments are costly and not adequately regulated (e.g. migrant s remittances) 13

14 SINLAND: TYPICAL SHORTFALLS Securities Settlement Systems (SSS) SSS and funds transfer (payment) systems are not adequately integrated creating disruptions to the payments system as a whole Many SSS around the world do not comply with the CPSS-IOSCO Recommendations for SSS Central Counterparties (CCPs) are introduced without appropriate risk control mechanisms and concentrate a substantial amount of risk 14

15 SINLAND: TYPICAL SHORTFALLS Cooperation o Cooperation (among authorities, between authorities and stakeholders, and among stakeholders) is largely insufficient o Lack of cooperation is characterized by the absence of joint bodies to address problems of common interest and/or appropriate memoranda of understanding among authorities 15

16 SINLAND: TYPICAL SHORTFALLS Oversight The central bank does not have clear legislative authority for the oversight of clearance and settlement systems. Nor is secondary legislation (bylaws, circulars, etc.) implemented The central bank does not disclose publicly its implementation strategies to achieve its objectives relating to all significant payment system matters The central bank in exercising its oversight role does not have the ability to carry out this function effectively, especially in terms of human and financial resources 16

17 SINLAND: TYPICAL SHORTFALLS Oversight The central bank does not verify that individual payment systems satisfy user needs as well as risk and efficiency requirements through appropriate interventions both at the development stage and during the on-going system implementation and operational phases The central bank does not define and implement appropriate actions should participants not comply with published rules and regulations (e.g. the application of pre-determined penalties and sanctions for compliance failures) the central bank does not collect and distribute relevant statistical information to demonstrate the use being made of each system and the extent to which the systems are satisfying end-user and other market needs 17

18 B. Dreamland: The Commandments for a strategic, holistic and integrated approach to reform A. Banking system Guideline 1: Keep the central bank at the centre: due to its overall responsibility for a sound currency, the central bank has a central role in the development of the use of money as an effective means of payment. Guideline 2: Promote the role of a sound banking system: payment accounts, instruments and services available to end users are mainly provided by banks, which compete individually but often need to act cooperatively as a system. *CPSS General Guidance for National Payment System Development Jan

19 B. Dreamland: The Commandments for a strategic, holistic and integrated approach to reform B. Planning* Guideline 3: Recognise complexity: planning should be based on a comprehensive understanding of all the core elements of the system and the principal factors influencing its development. Guideline 4: Focus on needs: identify, and be guided by, the payment needs of all users in the system and by the capabilities of the economy. Guideline 5: Set clear priorities: plan and prioritise payment system development strategically. Guideline 6: Implementation is key: ensure effective implementation of the strategic plan. 19

20 B. Dreamland: The Commandments for a strategic, holistic and integrated approach to reform C. Institutional framework* Guideline 7: Promote market development: the expansion and strengthening of market arrangements is a key aspect of the evolution of the payment system. Guideline 8: Involve relevant stakeholders: encourage the development of effective consultation among relevant stakeholders in the payment system. Guideline 9: Cooperate with other authorities: effective payment system oversight by the central bank requires collaborative arrangements with other authorities. Guideline 10: Promote legal certainty: develop a transparent, comprehensive and sound legal framework for the system. 20

21 B. Dreamland: The Commandments for a strategic, holistic and integrated approach to reform D. Infrastructure* Guideline 11: Retail give more choice to more people: extend the coverage and choice of noncash payment instruments and services available to end users by expanding and improving infrastructures. Guideline 12: Large value business case leads, technology follows: develop a large-value payment system based primarily on the needs of financial markets and the growth in time-critical interbank payments. Guideline 13: Securities plan securities and payment systems together: coordinate the development of the infrastructures for securities and large-value payments. Guideline 14: Retail, large value and securities coordinate settlement: coordinate settlement processes for the core systems to effectively manage the interrelated liquidity needs and settlement risks among them. 21

22 The Long and Winding Road 22

23 C. Lessons from Experience Implementation: Typical Problems Absence of a vision and a strategy Technology driven decisions (e.g. deciding on software before elaborating the vision and strategy) Too many projects for too many systems (leading to lack of integration) Finding Payment System Experts, very few reliable international consultants and insufficient training facilities in the country 23

24 C. Lessons from Experience Implementation: Typical Problems Intra-organizational Politics (e.g. IT Dept. versus Operations Dept., Monetary policy dept. versus Operations, etc.) Inter-Organizational Politics (e.g. big banks versus small banks, public banks versus private banks, banks versus non bank financial institutions) Excessive trust in the progressive forces of the market Ineffective Communication within Participant Organizations 24

25 C. Lessons from Experience Implementation: Typical Problems Insufficient scope Misperception of the complexity of the process Changes in Representation Affinity towards Operational Issues (deviating from the strategic approach) Questioning the Role of the Central Bank 25

26 Reforming Payment Systems Challenges and Opportunities

27 Challenges and Opportunities 2009 Systemically Important Payment Systems Real Time Gross Settlement Systems Adapting to the new financial environment, new approaches for liquidity, pricing, access and governance Closer look at interpedendencies Strenghtened importance of cross-border payment arrangements based on true PVP 27

28 Challenges and Opportunities 2009 Systemically Important Payment Systems Collateral Management Stronger interlinkages between funds tranfer systems and SSS Organized Interbank Market Strong Legal basis (also for cross-border arrangements 28

29 Challenges and Opportunities 2009 Central Bank Oversight and Payment System Development Crisis Management More effective role in retail payments Stronger cooperation with other domestic authorities and cross-border Growing importance of sub-regional integration 29

30 LET US REDESIGN THE LANDSCAPE OF PAYMENT SYSTEMS 30

31 Thanks!!! PAYMENT SYSTEMS DEVELOPMENT GROUP Massimo Cirasino 31