CPSS-IOSCO Review of Standards for Payment, Clearing and Settlement Systems

The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have launched a comprehensive review of their existing standards for financial market infrastructures such as payment systems, securities settlement systems and central counterparties.

There are currently three sets of standards involved, namely:
• the 2001 Core principles for systemically important payment systems
• the 2001/2 Recommendations for securities settlement systems
• the 2004 Recommendations for central counterparties.

Financial market infrastructures generally performed well during the recent financial crisis, and did much to help prevent the crisis becoming even more serious than it actually was. Nevertheless, the committees believe that there are lessons to be learned from the crisis and, indeed, from the experience of more normal operation in the years that have passed since the standards were originally issued. It thus seems timely to review the standards with a view to strengthening them where appropriate.

Robust financial market infrastructures make an essential contribution to financial stability by reducing what could otherwise be a major source of systemic risk. Moreover, insofar as they enable settlement to take place without significant counterparty risk, they also help markets to remain liquid even during times of financial stress.

The review will be led by representatives of the central banks that are members of the CPSS and those of the securities regulators that are members of the IOSCO Technical Committee. The International Monetary Fund and the World Bank are also participating in the review. The review is part of the Financial Stability Board's work to reduce the risks that arise from interconnectedness in the financial system.

The committees will coordinate with other relevant authorities and communicate with the industry, as appropriate, as the work progresses. They aim to issue a draft of all the revised standards for public consultation by early 2011.

Separately, as announced in the press release on 20 July 2009, the CPSS and the Technical Committee of IOSCO are already in the process of providing guidance on how the 2004 Recommendations for central counterparties should be applied to CCPs handling OTC derivatives. The guidance will also cover other relevant infrastructures handling OTC derivatives such as trade repositories. This aspect of the work has been put on a fast track because of the new CCPs for OTC derivatives and trade repositories that have recently started, or are about to start, operating.
A consultative document on the guidance will be issued within the next few months. This new guidance will not entail amendments to the existing recommendations for CCPsbut will of course be incorporated into the general review of the standards that has now begun.

The Committee on Payment and Settlement Systems (CPSS) serves as a forum for central banks to monitor and analyse developments in payment and settlement infrastructures and set standards for them. Its members are central banks from 24 countries and regions. The chairman of the CPSS is William C Dudley, President of the Federal Reserve Bank of New York. The CPSS secretariat is hosted by the BIS. More information about the CPSS, and all its publications, can be found on the BIS website at www.bis.org/cpss .

The International Organization of Securities Commissions (IOSCO) is a policy forum for securities regulators. The organisation’s membership regulates more than 95% of the world’s securities markets in over 100 jurisdictions. The Technical Committee is a specialised working group established by IOSCO’s Executive Committee and is made up of 18 agencies that regulate some of the world’s larger, more developed and internationalized markets. Its objective is to review major regulatory issues related to international securities and futures transactions and to coordinate practical responses to these issues. Kathleen Casey, a Commissioner of the US Securities and Exchange Commission, is the chair of the committee. More information about the Technical Committee can be found at www.iosco.org/ .

The review will be co-chaired by the chairs of the CPSS and the IOSCO Technical Committee, ie William C Dudley and Kathleen Casey.

Is this the future of Banking?

Australia’s Commonwealth Bank has a vision to be number one in customer satisfaction. This short video shows their idea of what the future of banking looks like with the customer clearly in the centre of their focus.

Is this really what the future of banking will be like?

Payment Systems in India – A Vision for the Future

Recently the Reserve Bank of India released a report entitled ‘Payment Systems in India - Vision 2009-12‘. In this the Indian central bank discusses initiatives it has taken and what it plans to do to improve security of cards, make ATMs more accessible to the public, make banking more accessible to the public, improve its efficiency, timings and reduce risks. It notes that the future is in mobile payments and offers its outlook on alternate methods to improve the Indian payments industry.
This succinct summary of the Reserve Bank of India’s proposal MEDIANAMA is a “must read”. Access it at RBI’s Vision For Mobile & E-payments, Major Projects | MediaNama

RBI Proposes New Payment Systems

The Reserve Bank of India (RBI) has proposed an action plan on payment systems which have been targeted to be achieved in the next one-to-three years. This includes putting in place alternate settlement arrangements in the event of non-availability of RBI as a settlement bank.

Additionally a road map for the National Payments Corporation of India (NPCI) is to be finalized. NPCI has been set up as an umbrella organization by the banking community to take over the retail payment system activities.

All large-value and time-critical payments will be processed only by electronic means. All bank branches will be enabled with Indian Financial System Code (IFSC) and MICR codes. The intention is to leave the user with the choice of payment product for retail and small-value transactions.

The RBI document ‘Payment systems in India — Vision 2009-12’ is available on the central bank’s website for public comment. The document may be downloaded at http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=573

New projects and major initiatives listed in the plan include;

• Implementing a new and feature rich RTGS system – The need to migrate to a new version of RTGS that could leverage on advancements in technology, provide for scalability in volumes, parameterize more features in line with similar facilities available in other countries, result in more flexibility in operations, better liquidity saving features, etc., would be pursued.
• India MoneyLine – A 24x7 system for one-to-one funds transfers – The existing NEFT system operates during weekdays from 9 am to 5 pm and on Saturdays from 9 am to 12 noon. The Bank would pursue the suggestion to consider the need to extend NEFT to function on a 24x7 basis or to develop a new system akin to the Faster Payments Service in the UK which operates on a 24x7 basis.
• India Card – A domestic card initiative –The concept of a domestic payment card (India Card) and a PoS switch network for issuance and acceptance of payment cards would be looked into. The need for such a system arises from two major considerations (a) the high cost borne by the Indian banks for affiliation with international card associations in the absence of a domestic price setter (b) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country.
• Redesigning ECS to function as a true Automated Clearing House (ACH) for bulk transactions – Currently, Local ECS (to facilitate bulk electronic transactions with one-to-many and many-to-one variants) is operational at 76 centres. Centralisation of this process is already underway with the launch of credit variant of NECS at Mumbai (and RECS on a pilot basis). The debit variant is also being planned for implementation. The ECS / NECS solution is internally developed and has been in use since long and the need for building a technology and feature-rich ACH network by totally redesigning the existing ECS to provide end-to-end processing in a straight-through manner would be examined.
• Mobile payments settlement network – Mobile phones are expected to emerge as an important channel for transmission of payment instructions. Efficient mobile payments would require real time transfer of funds with adequate security. Currently all inter-bank mobile transfers are payment instructions for settling funds through existing payment systems. This would require building a national infrastructure for facilitating real time mobile payments.

Bank Training – Critical Element for Today’s Banker

Banking has changed dramatically in the past decade. These changes have been so far reaching that the old disciplines that were core to the successful banker of the 1990s have long since relegated to the dusty back shelf.

To succeed in banking today the banker has to master a wide range of new disciplines. Although he may never become a true expert in these he or she still needs to have a sufficient working knowledge of the subject to enable a reasonable level of effective decision making.

This is equally true for bankers at the “coal face” such as those at the front desk or in the back office as well as those in the more lofty towers of head office, be they in accounting, audit, strategy, planning, operations or the like.

This is why staff training is so very critical. Bankers today need to understand the wider world, whether it is the operation of payment systems, credit cards, real time gross settlement, Swift, ACH operations, electronic payments, mobile payments and so on.

They also need to have a clear understanding of where banking and bank operations are heading – what is done today and how it will be done tomorrow. Technology continues to change the world. To keep up with these changes, to exploit them to your organizations benefit you first need to understand them. Just look at how the Mobile Phone is redrawing the banking world. New applications and processes for the Mobile Phone are being developed and launched by the day.

Of course all these changes also bring with them new dangers and risks – ways in which the ever vigilant banker and his staff may be duped. So an investment in Operational Risk Management training is also critical. What is operational risk? How it can be mitigated? What is fraud and how do you manage it? What is Business Continuity and how do you set it up? All these are key issues that the modern banker needs to know about.

Citadel Advantage offers a wide & comprehensive range of professional courses and training for commercial and central banks in the areas of; Operational Risk Management (for Basel II and for back-office risk mitigation), Specific Operational Risk Management areas including Business Continuity Planning, Anti Money Laundering & Payment Systems, and Liquidity Management.

We also offer a range of Workshops and Introductory Lectures dealing with the main areas covered in our full courses. If you can't find the exact course in our schedule that you are looking for, contact us. We may be able to build a course for your specific needs. Professional courses and training are available at a centralized venue, regionally (currently in Southern Africa & Western Europe), or In-house on your premises.

We use real-life case studies to illustrate the course material, so enhancing the learning process.
Our training courses are offered as:

• Public Courses: Citadel Advantage provide courses and lecturers to the key banking and risk training organizations around the world as well as in its own name. Ask your local or regional provider of banking and risk training courses for a Citadel Advantage course.
• In-house Courses (at your location or offsite at a location of your choice): Citadel Advantage provides cost-effective in-house training programs that allow you to determine the, depth, attendee size, length and sequence of the training within the security of your own organization. If you have 5 or more people to train our In-House training service will save you money. All Citadel Advantage courses can be run on your premises anywhere around the world.
• Tailored Courses (to meet your organization's specific needs): Citadel Advantage also provides tailored training services to the banking and financial sector. We can tailor any course to your needs or develop a new course within a relatively short period of time as required.
• CAPMen Program (the “Citadel Advantage Personal Mentoring” program): This service is designed to provide non-judgmental and professional support to those (Mentee) in senior management or aiming to reach senior management positions requiring an in-depth competency in the areas “Payments & Settlements” and “Operations Risk Management”. “CAPMen” Mentoring utilizes the full range of our experience and specialized professional courses to provide coaching, guidance and advice on a one-to-one basis, in your offices, helping you, the professional, set new goals, broaden your vision and build strategies. “CAPMen” mentoring also helps develop personal management skills such as creative thinking, decision-making, problem-solving, and effective use of resources.
  
• For details of our current course offerings please see; http://www.citadeladvantage.com/schedule.htm
  Our full course catalogue may be viewed at; http://www.citadeladvantage.com/catalog.htm

Liquidity – New Risks In Uncertain Conditions

For the past 15 years at least central banks around the world have been pushing “just-in-time” intraday liquidity as the preferred method of banks funding their real-time settlement (RTGS) accounts. While the implementation of RTGS took the settlement risk out of the majority of financial systems, it adoption and use for more and more critical financial systems (such as CLS) has exacerbated another problem – liquidity risk. This weakness has been spotlighted by t the liquidity crises that affected markets in March 2008 and, more severely, in September and October 2008. It can no longer be taken for granted that just-in-time liquidity will be available to financial market utilities at a time when multiple market participants are in danger of defaulting. This is the findings of researcher made public in the “Chicago Fed Letter” (see http://www.chicagofed.org/publications/fedletter/cflnovember2009_268a.pdf )