1 the quality of the payment system who’s concern?
TRANSCRIPT
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The quality of the Payment SystemWho’s concern?
Copyright NCB ConsultingCopyright NCB Consulting
www.ncbconsulting.nlwww.ncbconsulting.nl
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Content
Definition Payment SystemOversight (tasks and organisation)Poll/surveyConcern quality payment systemConcluding remarksQuestions
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The Payment System - Definition
• Starts and ends at the client
• Starts with Payment Instruments like: credit transfer, direct debit, debit and credit cards, e-purses and• In Payment Instruments are included Input Devices like the POS terminal, the home PC, the telephone equipment, an ATM with input facilities
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The Payment System - Definition
•Channels: mail system and telecommunication connections like telephone lines, local networks, wide area networks like internet
•Other institutions like Acquirers, Clearing institutions, Issuers, Processors, Settlement institutions (incl. for securities settlement)
•Ends at the client via paper or electronic output
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Legal Owner
Issuer
Clearing Institution
Acquirer
Issuing processor
Clearing processor
Acquiringprocessor
Settlement processor
Settlement Institution
Retailer
Networkprocessor
Acceptant Payment Service Provider
Scheme oriented organisation retail payments
Acceptantser
vice providor
Acquirer
Consumer
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Payment system is all about trust...
Trust Currency Trust Issuer Trust Payment system Trust Authenticity Trust Legal system
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Mission of the central bank
A National Central Bank (NCB) is responsible for safeguarding financial stability.
More particularly, a NCB contributes to – defining and implementing the monetary policy; – promotes the smooth operation of the payment system; – and can supervise financial institutions and the financial
sector. – All NCB’s have an active role in payments. – Per NCB differences may exist in the active role in
payments.
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Mission of the central bank
Scope
Monetary stability: stable currency
Financial sector stability: reliable financial
institutions
Payment system: smooth and secure
payments
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Payments: different roles of a NCB
Operator - Cash - Large value payment system - Services to securities settlement systems
Overseer - Payment systems - Payment productsCatalyst
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Oversight task
Oversight is a task of a central bank aiming:
– Contributing to the reduction of systemic risks by
performing oversight on the payment system
– Promoting the adequate functioning of the
payment system by performing oversight on this
system
– Contributing to financial stability
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Systemic risk
Systemic risk is the risk that propagation of a serious failure in a sector of the society will imperil other sectors (a ‘domino’ effect).
The infection is propagated via the interfaces between the sectors
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Oversight’s objectives
Objectives Reduce systemic risk Smoothen payment system Maintaining public confidence
in the safety of the payment system
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Staffing: organisation at DNB
Multidisciplinary staff (11, including head of
department): lawyers, risk management experts,
(IT) auditors, economists
experience in securities, payments and / or
supervision
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Deliverables of oversight
Assessment reports:
Initial assessment in case of new system
Partial assessment in case of major change
Annual oversight report
Internal: extensive, including sensitive findings
External: summary of conclusions
Regular oversight
Regular meetings (monthly, quarterly)
Regular reporting of statistics, incidents, financials (monthly quarterly)
Ad hoc reporting in case of crises
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Standards
Assessments based on standards
Use of international standards if available
By using standards the level of playing field is guaranteed
Authority to set up minimum standards for the objects of oversight (oversight framework)
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Oversight standards (1)
Wholesale
Core principles for systemically important
payments systems (SIPS) (BIS, 2001)
Terms of Reference for the assessment of
Large Value Payment Systems (LVPS) (ECB)
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Oversight standards (2)
Retail
Framework for the Oversight on Card Payment
Systems (ECB)
Recommendations for Payment Products (DNB)
Oversight standards for Euro Retail Payment
Systems (ECB)
Electronic Money Security System Objectives
(ECB)
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Oversight standards (3)
SecuritiesRecommendations for Central
Counterparties (CCPs) (CPSS/IOSCO, 2004)
Recommendations for Securities Settlement Systems (SSS) (CPSS/IOSCO, 2001)
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Annual report Oversight
Transparency - ´Central banks should set out publicly their oversight policies, including the policy requirements or standards for systems and the criteria for determining which systems these apply to´, CPSS 2005
Enforcement tool – no legal instruments for Oversight, except ´moral suasion´
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Trends / developments
Consolidation / concentration European consolidation underway
– TARGET2– Single European Payment Area (SEPA)– LCH.Clearnet mergers– Euroclear mergers
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Trends / developments
Competition, fragmentation
MiFID and Code of conduct for clearing and
settlement
New trading platforms and CCPs compete with
incumbents (EMCF new CCP in the Netherlands)
Interoperability between trading platforms, CCPs and
CSDs create equal access and competition
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Trends / developments
Specialisation
multiple operators/owners: card schemes, transaction
networks, imaging and clearing new providers of payment products/ payments services
telecom providers network providers public transport non bank ATM’s acceptant payment service providers
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Trends / developments (1)
Consequences
Standardisation increasingly important
Increasing (need for) co-operation between overseers
(criteria, standards, approach)
Legal and oversight frameworks need to be harmonised
(MoU’s)
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Trends / developments (2)
Consequences
Increasing (need for) co-operation with other regulators
(e.g. supervisors, securities regulators, etc.)
Currently cooperative oversight on VISA and
MasterCard has started
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Cooperation other authorities
System Lead overseer and/or regulator Other overseers and/or regulators Wholesale TARGET2.NL DNB TARGET2 ECB ESCB CLS Federal Reserve G10-central banks and other central banks of issue
with a currency in CLS SWIFT National Bank of Belgium G10-central banks Securities ECC BaFin Bundesbank, AFM, DNB EMCF AFM/DNB Euroclear Nederland AFM/DNB Euroclear SA National Bank of Belgium and
CBFA AFM, DNB and regulators from France and the United Kingdom
MTS Amsterdam AFM/DNB LCH.Clearnet Group Ltd
Commission Bancaire AFM, DNB and regulators from France, Portugal and the United Kingdom
LCH.Clearnet SA Rotating regulator chairmanship Euronext countries
Other regulators from Belgium, France, the Netherlands and Portugal
Retail Acceptgiro, Chipknip, iDEAL, Incasso, PIN
DNB
Equens DNB Telegiro Nieuwe Stijl DNB UPSS DNB
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Poll/survey (1)
Who uses for mobile phoning a mobile phone service
provider?
Who expects /requires that mobile phoning also will be
available abroad (using networks from other providers)?
Who expects support of its provider for secure and
continue telephoning?
Who is of the opinion that you has user also have a role
in the security of this service?
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Poll/survey (2)
Who expects continuity and security of the mobile
communication as part of the services offered?
Would you change from provider if this provider proves
not to have this operational?
Who has the opinion that the mobile telephone operator
has to monitor (closely) that the services he offers
meets the requirements of the clients?
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Poll/survey (3)
In case of availability of standards. Who has the opinion
that this operator has to be compliant to available
standards?
Who has the opinion that clients of commercial banks
may require the same as you require from your mobile
telephone operator regarding the security and continuity
of the payment services offered?
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What options are possible and fully or partly operational in the Netherlands
Founding of a central owner of interbank payment
products
Setting by the owner of standards/regulations/rules
Monitoring by the owner on compliancy to these rules
and regulations
Internal discussion and cooperation via a national
organised association
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What options are possible and fully or partly operational in the Netherlands
Structured communication with DNB (Dutch NCB)
Close cooperation with DNB regarding the security and
continuity of the payment system (Payment Escalation
Committee)
Participation in sector wide testing
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What improvements can still be made?
(Periodic and structured) monitoring compliance
to standards/rules set by supervising
authorities.
Showing more transparency to the public
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Concluding remarks (1)
Payment and securities (settlement) systems are of critical importance to a country and a country’s economy, especially during times of crisis
Payment systems … … facilitate the exchange of goods and
services… are necessary to conduct monetary policy… can be transmission channels of
‘disturbances’ (financial crises)
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Concluding remarks (2)
Both retail and wholesale payment systems are important but have different profiles and different risks
Roles central bank: operator, catalyst and overseer
Mission DNB: to promote the smooth operation of payment systems, i.e. safe, efficient and accessible
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Concluding remarks (3)
Securities settlement systems Are essential for monetary policy operations Link securities settlement and payment systems (via
DVP) Are important for well-functioning financial markets
INFRASTRUCTURES, in general Essential for Financial Stability
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Concluding remarks (4)
Central Banks Play Key Role But all participants have to cooperate to guarantee the
required trust In the Netherlands the financial sector already showed
its responsibility Further improvements are still possible/recommended Many developments going on European level
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Time’s up………
P.W. Osse RE RA CISANCB Consulting+31 06 25 06 27 [email protected]
THANK YOU FOR YOUR ATTENTION