Exchange Settlement Account System

Transcription

1 Exchange Settlement Account System Report to accountholders 30 June 2017 Reserve Bank of New Zealand, August

2 Directory Exchange Settlement Account System ( ESAS ) System Operator: Reserve Bank of New Zealand ( Reserve Bank ) rtgshelpdesk@rbnz.govt.nz Telephone: (64) (4) Fax: (64) (4) Website: 2

3 Exchange Settlement Account System Report to accountholders June 2017 Contents System overview System overview 3 Management commentary 4 Key statistics 6 Risk management 8 Financial performance 9 Plan for About ESAS ESAS is New Zealand s principal high-value payments system which is used to settle payment instructions between accountholders. The system is charged with providing an efficient and safe process for the real time electronic settlement of payments between accountholders. The Reserve Bank has provided ESAS as a real-time gross settlement system ( RTGS ) since Accountholders electronically submit instructions to debit an account and credit another account using an authorised electronic submitting mechanism. Authorised submitting mechanisms include closed user groups which use the SWIFT electronic messaging system, the NZClear system and direct entry of transaction details to ESAS. The system is available to accountholders for 23.5 hours each business day. Each business day begins at 9.00 am on a working day and ends at 8.30 am the following working day. 3

4 A payment will be settled (i.e. funds are transferred from one ESAS accountholder s exchange settlement account to another ESAS accountholder s exchange settlement account) once a transaction instruction is authenticated, the payment instruction is authorised by the payer and the payer has sufficient funds in their exchange settlement account to effect the transaction. Once a transaction is settled it cannot be revoked. The ESAS system is owned and operated by the Reserve Bank on a cost-recovery basis. The Reserve Bank s Financial Services Group ( FSG ) is responsible for administering the operational aspects of the System. FSG is headed by Mike Wolyncewicz, the Reserve Bank s Chief Financial Officer. Day-to-day business support is provided by the Payment and Settlement Services Team within FSG that is managed by the Acting Manager of Payments and Settlement Services, Jaimee Taylor-Burt. FSG reports on the operation of ESAS to Geoff Bascand, the Reserve Bank s Deputy Governor and Head of Operations. The Reserve Bank s Knowledge Services Group supports the telecommunications network and related security features used by the system. Software support, software development and operational support services are provided by Datacom Systems (Wellington) Limited ( Datacom ). The aggregate level of liquidity in the ESAS system is managed by the Reserve Bank s Financial Markets Department ( FMD ). FMD injects or withdraws liquidity from the system by undertaking such as reverse repurchase agreements, foreign currency swap, and issuance of Reserve Bank Bills. FMD s objective is to ensure that there is adequate aggregate liquidity in the system to ensure the efficient operation of payments, while also maintaining short-term wholesale interest rates at levels close to the Official Cash Rate. Typically aggregate system liquidity is maintained in the range of $7 billion to $9 billion. ESAS is a designated settlement system under Part 5C of the Reserve Bank Act The regulator is the Prudential Supervision Department of the Reserve Bank ( PSD ). Institutional arrangements ensure that dealings between FSG and PSD occur on an arm s length basis. Management commentary Key performance statistics for the year ended 30 June 2017 Key performance indicator System availability (%) Average daily transaction volume 13,498 12,434 Average daily transaction value ($billion) Operating expenses ($000) 3,563 4,670 Customer satisfaction meets or exceeds expectations (%)

5 Operations and development While the average value transacted through the system each day declined very slightly, the year saw transaction volumes for ESAS continue to grow. Transaction volume growth occurred for each of the three main transmission channels. We note that the number of Settlement Before Interchange (SBI) submitted each day increased as members of that switch submitted for bilateral interchange and settlement both more frequently and earlier in the banking day. This is consistent with the policy objective of reducing settlement risk for retail. The system had limited downtime, with system availability recorded at 99.95%, exceeding the target of 99.90% availability. With the current system due to be replaced in 2019, functional changes made to the system are now very limited. The Bank continues to ensure the system is well maintained and systems changes are still made to ensure systems security is retained at appropriate levels, and software patches and upgrades are applied after testing. The Bank uses system support and development resources efficiently while Datacom has applied resources to the systems replacement project, in the event of competing demands priority is given to maintenance and support of the current system. The reduction in operating costs reflects the fact that the current system is now almost completely fully depreciated see the Finance section below. and NZClear systems as well as the establishment of new infrastructure, security and support services, is due to go live in The year has been dominated by the preparatory phases for the programme which principally involved the Bank interacting with its main vendors, SIA-Perago and Datacom. The Bank accomplished completion of the clarification and planning phase with resulting near-final application and technical infrastructure design. Delivery of the RTGS software will occur in phases and an initial delivery has been subject to preliminary testing. Datacom has progressed the implementation of the infrastructure in line with the schedule for the programme. Accountholders have been consulted on the implications of the new system in terms of changes to functionality and resulting consequences for users systems. Accountholders have also been briefed on the impact of the project on operating costs and forecast transaction fees over the next several years. The regulator has been briefed on the programme s progress. In addition to the Payment Systems Replacement programme of work, the Bank is running a project to enhance the Bank s operations of the SWIFT system. This includes upgrading to SWIFT version 7.2 and enhancing security in line with SWIFT s recently announced Customer Security Programme. Extensive preparatory work occurred during and changes are now under way to complete this work in the first half of The Payment Systems Replacement Programme has made significant progress over the last year and remains broadly in line with our schedule. The programme, which encompasses replacement of both the ESAS 5

6 Key statistics Transactions All Number of Value of ($bn) 14, There are three primary interfaces or Accountholder Submitting Systems which are used by ESAS accountholders to submit payment instructions to ESAS: 12,000 10,000 8,000 6, directly from the NZClear system. via the SWIFT system where members of the Assured Value Payment AVP closed user group use ESAS to pay other members of that closed user group. The Reserve Bank is the administrator of the AVP closed user group. via the SWIFT system where members of the Settlement Before Interchange SBI closed user group use ESAS to pay other members of that closed user group. Payments NZ Limited is the administrator of the SBI closed user group. Once an SBI settlement has been effected in ESAS, a confirmation is sent to SWIFT which then allows an associated interchange file containing underlying payment details to be released to the destination bank. 4,000 2,000 0 Average daily number of (LHS) Average daily turnover by value (RHS) There is steady growth in the volume of submitted to ESAS. Although transaction volumes increased, the average daily value of processed decreased slightly to $29.3 billion. Transactions Sourced from SWIFT AVP Number of 12,000 10,000 8,000 6,000 4, Value of ($bn) ,000 0 Average daily number of (LHS) Average daily turnover by value (RHS) Transactions submitted to ESAS via the main SWIFT closed user group known as AVP dominate overall ESAS activity, both in terms of volumes and values. Transaction numbers are growing at a steady rate. 6

7 Transactions Sourced from SBI Number of Value of ($bn) System outages year ended 30 June (hours:mins) Application - all 1:20 0:07 0:00 0:00 0:00 users Application - subset 4:45 8:32 5:30 6:04 2:09 of users Connectivity 0:00 0:00 0:00 0:33 2: Average daily number of (LHS) Average daily turnover by value (RHS) The system was available 99.95% during core support hours (2016: 99.84%) and exceeded target availability of 99.90%. The SBI interface to ESAS began operation in February Volumes are growing steadily as banks submit more files to ESAS during the banking day. Transactions Sourced from NZClear Number of 1,600 1,400 1,200 1, Value of ($bn) Customer satisfaction Exceed expectations 79% 81% 74% 88% 82% Meet expectations 21% 19% 26% 12% 18% Does not meet 0% 0% 0% 0% 0% expectations Total 100% 100% 100% 100% 100% The 2017 annual customer satisfaction survey showed that customer satisfaction remains at a high level Average daily number of (LHS) Average daily turnover by value (RHS) Transactions sourced from the NZClear system reflect high NZClear turnover in recent years resulting from high activity on the New Zealand share market. 7

8 Risk management business continuity plans are in place and tested regularly; and ongoing oversight and audit of operations. The internal controls of ESAS are audited each year by PricewaterhouseCoopers ( PwC ), as required by the ESAS Terms and Conditions. PwC acts on behalf of the Reserve Bank s external auditor, the Auditor-General. The scope of this audit includes the controls performed by the Reserve Bank s third party independent service provider, Datacom. The Auditor s annual assurance report is addressed to the Governor of the Reserve Bank and is reviewed by the Reserve Bank Audit Committee, with external auditors, Reserve Bank governors and management in attendance. A copy of the assurance report is sent to accountholders, and is published on the Bank s website. Audit findings and recommendations are reviewed and progress in implementing agreed actions is monitored. ESAS is also subject to internal audit by the Reserve Bank s Audit Services division. Regular penetration testing of the system is undertaken by a third party in order to obtain independent assurance regarding system security. Senior management and the audit committee monitor reports on management s actions in responding to recommendations made by auditors and security experts. The main elements of risk management for the system entail: Managing operational risk in the Reserve Bank is seen as an integral part of day-to-day operations. Operational risk management includes Bankwide corporate policies that describe the standard of conduct required of staff, a number of mandated requirements (e.g. a project management template), and specific internal control systems designed around the particular characteristics of various Reserve Bank activities. The Bank also closely manages third party providers of services, including Datacom, to ensure their performance is consistent with relevant contractual terms, including service-level agreements. In recent years particular emphasis has been placed on system security. A number of reviews have been undertaken and system defences continue to be strengthened as new security threats evolve. Currently, the Bank has a programme under way which aims to have the Bank comply with the SWIFT Customer Security Programme when it becomes mandatory for all SWIFT users in The Reserve Bank has a small office in Auckland. As a result, day-today operating activities are shared between staff based in Auckland and those based in Wellington. Staff in the Auckland office will provide ongoing continuity of business operations should a region-wide disaster affect ESAS s Wellington staff or facilities. A second computer site is located in Auckland and is used alternately with the Wellington computers for the live production system. ensuring that procedures and controls are adhered to; measures to manage operational risk, as described below; 8

9 Financial performance A short-form Statement of Financial Performance for the ESAS business is: 2017 $ $000 Operating expenses 3,563 4,670 Cumulative over-recoveries at year end (to be applied against future operating costs) Fees paid by accountholders 4,408 5,025 Average fee charged per transaction $1.30 $1.60 ESAS is operated as a division of the Reserve Bank and services are charged to users on a cost recovery basis. The ESAS business is attributed costs by the Reserve Bank. These include charges for use of the Reserve Bank s resources, such as staff, occupancy, internal audit, governance, accounting and information technology. Indirect costs incurred by the Reserve Bank are allocated to the ESAS System based on estimated costs that the business would incur on a stand-alone basis. The above figures are extracted from the Reserve Bank s audited financial statements, but the accounts of this division have not been subject to a separate external audit. Income and expenditure for the ESAS business is calculated using the accounting policies specified in the Reserve Bank s financial statements. The year saw a material reduction in reported operating costs for the system. The main factors driving this were, firstly, that the capital costs for system hardware and software are now almost fully depreciated and, secondly, in significant operating expenditure was incurred to enhance system resilience and security. The current system continues to be maintained at appropriate levels and with development resources largely dedicated to the payment systems replacement programme, no major functional enhancements of the current system are planned. During the Bank briefed accountholders on the implications of the systems replacement programme on costs and the forecast consequential impact on fees payable by accountholders. The entire programme, which includes investment in new infrastructure and security capabilities, has an estimated capital outlay of about $28 million. This outlay is allocated about evenly between ESAS and NZClear. In addition to amortisation of capital costs the new system will require an increase in support and all these costs have been factored into the forecasts provided to accountholders. The reported operating costs for the current system are unsustainably low because that system is almost fully depreciated and because functional enhancements are limited to those considered essential. Following a period of consultation with accountholders the ESAS Terms and Conditions were amended in June 2017 to allow for transaction fees for the current system to be retained at a minimum of $1.30 per debit transaction. This change allows for a reserve to be accumulated and applied towards a reduction of fees to be charged when the replacement system begins operation, so avoiding unnecessary variability in transaction fees. At June 2017 the reserve stood at $989,000. The change in billing to allow for a floor in fees charged for the current system 9

10 results in smoothing of fees paid by members and does not alter the central principle of the Bank charging fees to users of ESAS on a cost recovery basis. Plan for ESAS s plan for the year ended 30 June 2018 The following project work is planned: Implement SWIFT 7.2 and the SWIFT Customer Security Programme. As part of business as usual we will target to: Have the system available for accountholders for at least percent of core business hours. Have the system subject to an external audit. Survey accountholders satisfaction levels and report back to accountholders by May Undertake a maintenance approach to enhancements, allowing scope to fine tune daily operations (continuous process improvement). Continue the Payment Systems Replacement programme, with a view to significantly advancing system testing of the infrastructure and application, as well as increasing interaction with users on change management. 10