Oversight of Payment System

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• Oversight of Payment System
• December 20, 2008
• G. Gopalakrishna
• Executive Director, Reserve Bank of India

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Coverage

• Oversight Principles
• Need for oversight
• Effective powers and capacity (Principle C)
• International Standards (Principle B)
• Retail Payment Systems
• Institutional arrangement

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Oversight Principles

• Central bank oversight of payment and settlement
  systems (May 2005)
• Five principles for oversight
• Transparency
• International standards
• Effective powers and capacity
• Consistency
• Cooperation with other authorities
• Five Principles for international cooperative
  oversight

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Need for oversight

• Interest and Role of Central Bank
• maintain public confidence in money and in the
  instruments and the systems used to transfer
  money
• Maintenance of the stability of the financial
  system
• cooperation and coordination of activities with
  other authorities
• Oversight of payment and settlement systems is a
  central bank function whereby the objectives of
  safety and efficiency are promoted by monitoring
  existing and planned systems, assessing them
  against these objectives and, where necessary,
  inducing change
• Oversight entails - putting in place systems and
  procedures that
• ensure the smooth and efficient provision of
  payment services to all participants and users in
  a fair manner
• minimize and control the risk of transmitting
  shocks through the economy caused by failures of
  individual participants to settle their payment
  obligations
• ensure development of technical and institutional
  infrastructure to meet growing payment system
  needs of the country

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Effective powers and capacity

• Central banks should have the powers and capacity
  to carry out their oversight responsibilities
  effectively (Principle C)
• The powers conferred on the central bank
  through treaties, statutes or other documents
  external to the central bank
• Explicit powers - Bank of Canada, Hong Kong
  Monetary Authority, Netherlands Bank, Monetary
  Authority of Singapore
• US across various statutes.
• The Federal Reserve is in the process of
  finalising a separate statute empowering it to
  perform oversight of payment systems - was put
  for public comments

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Effective powers and capacity

• Reserve Bank of India Act, 1934
• Power to frame regulations for clearing houses
  and electronic payments operated by banks
• Uniform Rules and Regulations for Bankers
  Clearing House
• Apart from RBI, one of the commercial bank
  operates a clearing house
• Exercised through the Regulatory and supervisory
  powers conferred under the RBI Act
• Assessment of CCIL done by mutual consent

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Effective powers and capacity

• Payment and Settlement Systems Act, 2007
• An Act to provide for the regulation and
  supervision of payment and settlement systems in
  India and to designate the Reserve Bank of India
  as the authority for that purpose and for matters
  connected therewith or incidental thereto
• Board for Regulation and Supervision of Payment
  and Settlement Systems Regulations, 2008
• Composition and functions of BPSS
• Prescribe policies relating to the regulation and
  supervision of all types of payment and
  settlement systems, set standards for existing
  and future systems, authorise the payment and
  settlement systems, etc.
• Payment and Settlement Systems Regulations, 2008
• Authorisation of Payment Systems, furnishing of
  returns / information
• Came into effect from August 12, 2008

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International Standards

• Core Principles for Systemically Important
  Payment Systems (SIPS) - January 2001
• 10 principles
• 4 central bank responsibilities
• Recommendations for Securities Settlement Systems
  November 2001
• 19 principles
• Recommendations for Central Counter Parties -
  November 2004
• 15 principles

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International Standards

• Central banks perform oversight of payment
  systems
• Designating systems for close attention
• Individual / total value exceeding a limit
• Payment Systems whose proper functioning is
  material to the monetary and financial stability
• Reports published - Bank of England (Payment
  Systems Oversight Report annual 1st was in
  2005), Banque de France details the assessment
  on its website

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International Standards

• Assessment against International Standards
• Report published in November, 2007
• Oversight of Payment and Settlement Systems and
  Status
• Transparency - policy announcements in public
  domain
• International standards- CPSIPS, RSSS, RCCP
• Effective powers and capacity exercised under
  RBI Act, and now formal powers under PSS Act
• Consistency standards applicable to all CHs
  (managed by RBI / banks)
• Cooperation with other authorities SEBI, IRDA,
  PFRDA, Ministry of Finance - High Level
  Coordination Committee
• Financial Sector Assessment Programme (FSAP)

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International Standards

• CPSS Core Principles and Central Bank
  Responsibilities RTGS
• Observed 6 (1, 2, 4, 6, 9, 10)
• Broadly Observed 3 (3, 7, 8)
• Partly Observed -
• Not Observed -
• Not applicable 1 (5)
• CB responsibilities 4 (all observed)
• CPSS Core Principles and Central Bank
  Responsibilities High Value
• Observed 7 (1, 2, 6, 7, 8, 9, 10)
• Broadly Observed 2 (3, 4)
• Partly Observed 1 (5)
• Not Observed -
• Not applicable -
• CB responsibilities 4 (all observed)

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International Standards

• Recommendations for Securities Settlement Systems
  - Government Securities
• Observed 17 (1, 2, 3, 4 5, 6, 7, 8, 9, 10, 11,
  12, 13, 14, 15, 17, 18)
• Broadly Observed -
• Partly Observed -
• Not Observed -
• Not applicable 2 (16, 19)
• Recommendations for Central Counterparties CCIL
• Observed 6 (1, 2, 7, 8, 13, 15)
• Broadly Observed 6 (3, 4, 6, 9, 12, 14)
• Partly Observed 1 (5)
• Not Observed -
• Not applicable 2 (10, 11)

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Retail Payment Systems

• General guidance for national payment system
  development, CPSS, BIS January 2006
• No international principles
• RBI prepared standards for retail payment systems
  
• Access Criteria for Payment Systems
• MSOE MICR / MMBCS centres
• Self Assessment Report
• Standards for Operational Efficiency in ECS /
  NEFT Operations

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Institutional arrangement

• BPSS apex body for policy
• DPSS
• Supervisory Departments
• Analysis of systems / procedures / returns

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• THANK YOU