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Exploring Frontiers in Payments Systems Development Washington DC, May 29 - June 1, 2007

Exploring Frontiers in Payments Systems Development Washington DC, May 29 - June 1, 2007. Oversight of Non-traditional Payment Providers. Johan PISSENS Head of Oversight Unit. Oversight . Objectives safety and efficiency of payment systems Components monitoring / analysing assessing

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Exploring Frontiers in Payments Systems Development Washington DC, May 29 - June 1, 2007

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  1. Exploring Frontiers in Payments Systems Development Washington DC, May 29 - June 1, 2007 Oversight of Non-traditional Payment Providers • Johan PISSENS • Head of Oversight Unit

  2. Oversight • Objectives • safety and efficiency of payment systems • Components • monitoring / analysing • assessing • inducing change • Rationale • Financial stability • some central banks: confidence in the currency / payment systems

  3. Components of oversight: detail (1/2) • Monitoring / analysing • importance of analytical framework • importance of risk based analysis • Assessing • importance of internationally accepted standards (CP, CPSS-IOSCO...) • Inducing change • typically use of moral suasion, sometimes complemented with additional regulatory tools

  4. Components of oversight: detail (2/2) • Traditionally: • focus on payment systems • Evolving focus: • Securities Clearing and Settlement Systems (SCS) • service providers • card payment schemes • Rationale: • relevance for smooth functioning of payment systems (= safety and efficiency)

  5. Oversight of SCS (1/2) • Key role of securities markets, and securities clearing and settlement (SCS), in the integration of financial markets; • Size of SCS - SCS is systemically important fot maintaining/promoting financial stability; • SCS have links with national and international securities markets, FX markets, money markets,...

  6. Oversight of SCS (2/2) • In many case cooperation between central bank and securities regulator • CPSS / IOSCO Standards for SSS and CCPs

  7. Oversight of service providers • Well known example of SWIFT • SWIFT is not a payment system • Oversight on SWIFT motivated by its importance for the good functioning of correspondent banking payments and payment and settlement systems • The objective of the oversight of SWIFT is to obtain comfort that SWIFT has put in place appropriate governance arrangements, structures, processes, risk management procedures and controls that enable it to effectively manage the risks it may pose to financial stabiltiy and to the soundness of financial infrastructures • Standards for the oversight of SWIFT have been developed - High Level Expectations for the Oversight of SWIFT

  8. High level Expectations for the Oversight of SWIFT Standards for the oversight of SWIFT developed by the central banks • Risk Identification and Management • Information Security • Reliability and Resilience • Technology Planning • Communication with Users detailed presentation to be published in the NBB's forthcoming FSR (June 2007)

  9. Oversight of card payment schemes • Not all central banks oversee retail payments • Explicit Eurosystem policy • Standards for oversight of card payment schemes have been issued for market consultation by Eurosystem

  10. Selected issues • conflict of interest with other roles of central bank: commercial relationship (customer, competition) of central bank with SSS / service provider / card payment scheme  separation of activities / confidentiality arrangements • disclosure: distinction between, on the one hand, disclosure on overseer's responsibilities and policies, organisation, processes, methodologies for oversight, and on the other hand disclosure of results of oversight assessments

  11. Disclosure of results of assessments • confidentiality • level of detail • liability • what with bad results? • level playing fields • self assessments

  12. Future trends : towards a risk based oversight ? • Evolve from standard based approach towards risk based approach • example (next slide):

  13. (Inherent) Risk Matrix Types of Risk (based on standards CCP, CPSS-IOSCO, ...) Legal, Operational Credit, Liquidity,... Management Quality Matrix Business activities Business components Business activities Business components (Probability * Impact) Risk Scoring and Management Quality Scoring RISK TO PLANNING MATRIX Multi-Year Rolling Plan

  14. International cooperative oversight • Multicurrency of cross-border systems including non traditional payment providers: several (or even many) central banks have an interest in smooth functioning of systems • International cooperation in order to: • coordinate central bank actions • avoid gaps • increase effectiveness • avoid unnecessary duplication • Lamfalussy principles as updated in the CPSS oversight report

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