Importance of Payment Systems Oversight
The Committee on Payment and Market Infrastructures (CPMI) of the Bank for International Settlement has issued, since 2012, a set of Principles for Financial Market Infrastructures that recommends, inter alia, central banks to disclose their payment systems objectives, role and major policies, to ensure compliance of central bank systems and to cooperate with other authorities for oversight of non-central bank systems.
The Central Bank is the overseer of the payment system. This is an important function of the Bank which is directly linked to its core functions of maintaining monetary stability and ensuring the safety and soundness of the financial system. The Bank’s oversight role relates to the fact that it operates the payment system and that it provides the settlement asset. The Bank is also a significant user of the payment system in its role as fiscal agent of government and banker to the banks.
Oversight of payment systems ensures that a healthy payment system infrastructure exists in a country. In the absence of oversight, payment systems become disruptive and have effects on
- Economic activity
People, businesses as well as agencies of the government rely upon an efficient payment system to pay for goods and services, receive payments and pay for investments. When the system is safe and reliable, transactions are completed on time with minimum risk. This reduces transaction costs in the economy and contributes to economic performance.
- Monetary Policy
Payment systems are transmission channels for monetary policy and improve financial market liquidity
- Financial transactions
Payment systems enable customers of one bank to enter into financial transactions with customers of another bank without the need to open accounts in multiple banks. Therefore, they are able to focus on the quality and cost of services and the products offered by a bank in determining where to open an account. This levels the playing field somewhat and helps make the banking sector more competitive.
The Bank uses a risk-based approach for payment systems oversight whose objective is to provide an effective process to monitor and assess the compliance of the payment systems with the obligations imposed under their respective operational rules, in particular the safety and efficiency requirements, on a continuing basis.
The principles used in assessing the safety and efficiency of payment systems and in conducting oversight are based on the Principles for FMIs issued jointly by the Committee on Payment and Settlement Systems of the Bank for International Settlements and the International Organization of Securities Commissions.