Payment Systems Oversight
Banco Central do Brasil
Daso Maranhão Coimbra
Banco Central de Bolívia
Curso de Vigilância de Sistemas de Pago - Noviembre
Noviembre,, 2011
1
Agenda
¾ Oversight Objectives
¾ Securityy and p
payment
y
systems
y
¾ Retail payment system – payment instrument
¾ Recent improvements in Retail Systems
¾ Positive Factors
¾ Challenges
2
Oversight objectives
• The central banks have an interest in the smooth
functioning of payment systems and instruments
• Oversight aims at
– preventing systemic risk
– promoting efficiency of the payment systems and
instruments
– safeguarding the transmission channel for monetary
policy
3
Payment system oversight
Legal Scope
• Systems and instruments
– Funds transfer systems
– Securities, derivatives and foreign exchange settlement systems
– CCP
– CSD
– ICT service providers to settlement systems
– Traditional payment instruments
•
Pending legal regulation
– Non traditional Payment schemes
• Payment Cards, e-money
– Non-financial payment institutions
4
Payment system oversight
Systemically important infrastructures
• Any securities, derivatives and foreign exchange settlement system
• Fund transfer systems
– Fi
Financial
i l tturnover
– Contagion risk (see paper with the methodology)
http://www.bcb.gov.br/ftp/deban/Modelo_Contagio_Avaliacao_Risco_Sistemi
co pdf
co.pdf
• Special requirements
– settlement in central bank money
– payment versus payment or delivery versus payment
– contingency and recovery planning, to ensure processing in the same
y
settlement cycle
– system availability greater than 99.8%
– minimum capital of R$ 30 million
– separated special scrow account with BCB of R$ 10 million
5
Payment system oversight
Systemically important payment system
• Deferred Net Settlement systems
y
((DNS))
– Ensure timely settlement of obligations of the highest position, (except the
issuer risk) in case of default
– If SSS => Central Counterparty
– Ensure adequate mechanisms and safeguards
• defining operational limits
• establishment of mechanisms for sharing of losses among the
p
participants
p
• provision of guarantees by the participants and a mutual fund
• provision of liquidity lines
6
Overview of the Brazilian Payment System
Banco Central
do Brasil
CIP – Câmara Interbancária de Pagamentos
SILOC
SITRAF
Funds Transfer
Funds Transfer
SELIC
DNS (D+1)
Híbrid
COMPE
checks
DNS (D+1)
Government Securities
RTGS
CETIP
Corporate bonds, swaps, other
derivatives
DNS (D+1)
RTGS
RSFN
STR
Large values funds transfer
RTGS
National Financial System
Network
Equities
Stocks and options on stocks
DNS (T+1;T+3)
RTGS
BM&F – Bovespa (CCP)
Settlement Accounts
Derivatives
DNS (D+1)
Securities
Government Securities
DNS (D0;D+1)
Câmbio
Interbancário
DNS ((D+1;D+2)
;
)
7
BCB Organizational structure for payment systems
Board of Directors
Deputy Governor for
Monetary Policy
Office
Disip
Oversight – fund
transfer system and
retail payments
14
Diati
Oversight
g – SSS
10
Banking Operations
and Payment Systems
Dipla
Administr. of IT
M
Messaging
i
RSFN
9
Internal Control
Gemon
Operation and
M it i
Monitoring
off STR
Conep
Studies and
Research
Diban
Discount window
R
Reserve
Requirement
28
9
24
Payment system area
8
Payment system oversight tools
Tools
Authorizations
Assessment against
CP and Business
Continuity Plans
On-site
inspections
Quantitative
and qualitative
analyses
Back testing
Stocktaking
Cooperation
with other
authorities
Others tools to
induce changes
9
Oversight tools – Authorizations
Must be submitted for the authorization of the Banco Central do Brasil
• The creation of new
payment and settlement
systems
• Any change in existing payment and
settlement systems involving the following
aspects:
– The safety and integrity of the payment and
settlement system
– The procedures for settling securities and
derivatives operations or transfering funds
– The credit and liquidity risk management
Objective:
Verify the legal framework of the payment and settlement
system and the compliance with principles
10
Oversight tools
• Assessment of the infrastructure against the
Core Principles, RSSS, RCCP and Business
Continuity Plan
Questionnaires
Customization of
assessment
methodology
Self-assessment
Pre analysis of answers
Pre-analysis
Interviews
Meetings with
infrastructure´s staff
Additional evidences
Reports
Assessment of the
compliance with the
recommendations.
Oversight Report
Inducing changes
Issuance of adequacy
measures
Follow up
p
11
Oversight tools: On-site inspection
• Partnership with the banking supervision team
• Focused on the IT systems responsible for the risk
management, clearing and settlement processes
• Auditing of:
– Internal controls
– Information security procedures
– Business continuity planning
– Third-party services providers
12
Oversight Tools – Backtests
• Assessment of central counterparties credit and
liquidity risk management procedures
Counterparty credit risk
• Risk of loss from a participant’s
default
Liquidity risk
• Ri
Riskk faced
f
d by
b the
th clearing
l i as it
must fulfill its payment obligations
to non-defaulting participants on
schedule
13
Backtestt
Credit Rissk
C
Simulate the costs
associated with the
close-out of default for
the highest participant´s
portfolio at the
p
prevailing market prices
Calculate the
risk (cost) not
covered by the
default
participant
p
p
collateral
Compare this
risk with the
total CCP´
CCP´s
financial
resources
Backttest
Liquidity
y Risk
Oversight tools – Backtests – Description
Calculate the total
amount of CCP´s
CCP s liquid
financial resources and
credit lines
Calculate the
highest debit
position among
the participants
Compare it
against CCP´
CCP´s
liquid
resources and
credit lines
14
Backtest
• Ongoing improvements (see methodology paper to verify if the
accuracy level of risk management models of the CCP’s )
Financial Risks
Credit risk
Liquidity risk
Stressed market conditions
Accuracy level of risk management models
15
Oversight tools
C
Cooperation
ti with:
ith
• Securities Commission
• Antitrust Authorities
• Banking Supervision - within the Central Bank
16
Oversight tools
Other tools to induce changes
• Moral suasion
• Reports
• Public speeches
• Operator of the Large Value Transfer System (STR)
• BCB letter
l tt requiring
i i changes
h
tto an individual
i di id l FMI
• Application of sanctions
17
Oversight Tools – quarterly Oversight Newsletter –
Funds transfer systems
Informações Gerais
Giro
Total
Sistema Médio
Diário
(R$ bi)
1
Risco Sistêmico
Risco de Liquidação
Concentração Indicador
Percentu
de mercado10 Geral de al em
Contágio
Risco
relação (magnitude)3
ao STR2
11
12
IC4
IHH
STR
590,5
-3,9%
32,4
0,05
Q
100,0
N/A
Sitraf
21,5
-18,6%
64,4
0,12
Q
5,8
N/A
Liquidez
excedente
do SPB4
(R$ bi)
Sil
Siloc
49
4,9
5 0%
5,0%
73 9
73,9
0 16
0,16
Q
13
1,3
0 000
0,000
Q
Compe
4,5
2,2%
66,6
0,14
Q
1,1
0,01%
Q
786,2
1
5,2%
Percentu
al dos
pagame
ntos das
IFs com
baixa
liquidez 5
0,30
1
Eficiência
Risco Operacional
Concentração
de
mensagens
em final de
dia 6
Utilização Atrasos na Reprocessa
Disponib
da
grade de mento na
ilidade 7 Capacidade liquidação grade de
8
9
liquidação9
Poder de
Compensação
7
40,1%
Q 99,90%
88,2%
N/A
N/A
Q
N/A
33,7%
Q 100,00%
64,4%
0
0
Q
N/A
-45,5%
N/A
N/A
N/A
1
5
Q
83 0%
83,0%
N/A
N/A
N/A
0
0
Q
92,2%
Legenda:
Sistemicamente importantes
Q
Sem risco iminente
Não sistemicamente importantes
Q
Requer atenção
Q
Requer ação imediata
Notas:
1: Variação em relação ao trimestre anterior (detalhamento no Informativo do SPB).
2: Giro em relação ao do STR - O maior índice do trimestre.
3: Máxima magnitude dos pagamentos do SPB que seria comprometida, na hipótese de inadimplência de um participante - O maior índice do trimestre.
4: Diferença entre a Liquidez Total do Sistema e a Necessidade efetiva de liquidez - O menor valor do trimestre.
5: Percentual dos pagamentos do STR das Ifs que demandaram mais de 50% de sua liquidez de início do dia - O maior índice do trimestre.
6: Mensagens liquidadas no último quartil do período de tempo de funcionamento dos sistemas.
7 O menor ííndice
7:
di ddo ttrimestre.
i
t
8: Percentual máximo do trimestre da quantidade de transações processadas por hora em relação à capacidade instalada.
9: Total no trimestre.
10: Análise por quantidade de transações em que os participantes dos sistemas são debitados.
11: IC4 = Percentual dos 4 maiores participantes.
12: IHH (Índice de Herfindahl-Hirschman).
Concentração de mercado
IHH < 0,1000
,
Concentração
ç baixa
0,10000 < IHH < 0,1800
Concentração moderada
IHH > 0,1800
Concentração alta
Fonte: Horizontal M erger guidelines - Doj e Federal Trade comission
18
Oversight Tools – quarterly Oversight Newsletter
SSS and CCP
Informações Gerais
Analise de Risco de Crédito e de Liquidez - Backtesting
Risco de Liquidez
Sistema
Cetip
Selic
BM&FBOVESPA-Ativos
BM&FBOVESPA-Câmbio
BM&FBOVESPA-Ações
BM&FBOVESPA-Derivativos
Contraparte
Central
Não
Não
Sim
Sim
Sim
Sim
Giro Total
Médio
1
3
1
Ativos
2
Diário
58,0
937,99
937
4,8
4,6
6,2
177,7
Custódia
-8%
2%
228%
-4%
-11%
-7%
3,3
25
2,5
N/A
N/A
1,2
N/A
Risco de
4
Crédito
8%
5%
N/A
N/A
-6%
N/A
N/A
N/A
0,0%
0,0%
0,3%
0,5%
5
N/A
N/A
100% TPF
100% TPF
45% TPF, 50% AÇÕES
91% TPF, 4% AÇÕES
Risco
Operacional
6
Perfil de Garantias
depositadas pelos
participantes
Eficiência
Reais
Dolar
N/A
N/A
24,2%
112,0%
13,1%
4,0%
N/A
N/A
N/A
106,5%
N/A
N/A
Indicador
Índice de
Poder de
Geral de
Compensação Disponibilidade7
Risco
N/A
N/A
Q
Q
Q
Q
44%
N/A
76%
65%
91%
66%
99,83%
99 96%
99,96%
99,97%
99,82%
99,94%
99,70%
Legenda:
Sistemicamente importantes
Q
Sem risco iminente
Não sistemicamente importantes
Q
Requer atenção
Q
Requer ação imediata
Notas:
1: Variação em relação ao trimestre anterior (detalhamento no Informativo do SPB).
2: Média diaria no trimestre em R$ bilhões (Valores nocionais para a câmara de derivativos).
3: Último dia do trimestre. Valores em R$ trilhões.
4: Percentual máximo das salvaguardas adicionais que seria utlizado para a cobertura dos dois maiores riscos de crédito dos participantes, no trimestre, em caso de inadimplência.
5: Posição relativa ao último dia do trimestre.
6: Percentual máximo das linhas de assistência de liquidez que seria utlizado para a cobertura dos dois maiores riscos de liquidez dos participantes, no trimestre, em caso de inadimplência.
7: Média dos últimos 252 dias úteis.
19
Oversight Tools – quarterly Oversight Newsletter
20
Payment System Oversight – Challenges
¾ maintain an appropriate oversight policy and regulatory
f
framework
k to
t the
th international
i t
ti
l best
b t practices
ti
¾ continuously improve the oversight tools
¾ maintain a coordinate action between all the government
agencies
g
involved
21
Payment
y
instruments
22
Background
Payment system structure
• Sistema de Pagamentos Brasileiro reform – 2002
• Improvement of financial settlement infrastructure
• Focus on safety (systemic risk reduction)
• 2nd Stage:
g Payment
y
instruments
23
Oversight of retail payment systems
Policy
o cy Object
Objectives
es
• Ensure credibility in the use of money and payment instruments
• Efficiency and safety of retail payments system
– increasing the relative share of electronic instruments
– increasing economic efficiency and social welfare
– higher value-added
value added payment service
24
Cost and Efficiency in Retail Payment Instrument Usage
• International literature
• Brazilian Unit cost (processing, clearing and settling) :
ƒ electronic instrument: USD 0.60
0 60
ƒ non-cash paper based instrument: USD 1.30
• Full migration of non-cash to electronic instruments would save around 0.7% of
Brazilian GDP (2005)
Cost of Payments (% of 2005 GDP)
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Actual cost
With migration to electronic
25
Our challenge:
O
h ll
once defined
d fi d the
h political
li i l objective,
bj i
how to implement actions aimed at its achievement?
Some Steps
26
Step 1 – get to know the industrial organization and
economic rationale behind the p
provision of retail
payment
• Understand:
• economies of scale and network externalities
• the potential payment scheme players
• scheme owner;; issuer;; acquirer;
q
; network processor
p
• structure and behavior of the industry: the mix between
Cooperation
p
x Competition
p
27
Step 2 - conducting stocktaking of the retail
payments sector: Diagnosis Report after collecting
relevant
l
t qualitative
lit ti and
d quantitative
tit ti data
d t from
f
the
th retail
t il
payment system operators and system participants and
maintaining various indicators that influence safety and
efficiency
ffi i
off retail
il payment systems
Objectives:
• transparency in the structure of payment schemes
• obtain a quantitative and qualitative analysis of the stage of development
• identification of obstacles to modernization
• definition
d fi i i off the
h necessary actions
i
for
f further
f h improvements
i
28
Step 3 - Agreements with Competitive Authorities:
- Develop a comprehensive report on the payment card
industry
- Avoid lack of legal power
- Minimize arbitrage possibility by the market agents and the
regulators
29
Step 4 – Induce change:
- publish the Card Payment Industry Diagnosis
- act as a catalyst
y towards the pprivate sector by
y bilateral and
multilateral meeting: set plan to fix the problems raised in
the analysis using moral suasion
- publish a directive paper regarding the payment card industry
- evaluate the need for further regulation
g
- evaluate the need for antitrust authority requirements
regarding
g
g anticompetitive
p
practices
p
30
Step
p 5 – monitor market developments
p
and
maintain the central bank at the center of
discussions on the retail payment system
- updating annually the Diagnosis - serves as an important tool
to indicate the central bank guidelines and objectives
- attend events in the market on the subject
- issue of technical notes on the subject
31
Recent Developments – motivated by BCB actions
¾ Retail Payment System
¾ Defragmentation of the infrastructure for clearing and settlement of retail payments
¾ Interoperability of ATM: from low to moderate level
¾ multilateral agreement between banks
¾ Mobile Payment – Technical group inside the bank association with the
participation of the Central Bank
¾ National Retail Payment Forum - discussion between the market and the Central
Bank for its implementation
¾ Payment cards industry
¾
¾
¾
¾
Multiple multi-scheme acquirers
g and settlement
Neutralityy in the activities of clearing
establishment of national schemes of debit cards
Interoperability of POS: from zero to moderate/high level
¾ Each POS network now process any brand scheme
32
Brazilian Retail Payment System Oversight
Positive Factors
¾ Comprehensive oversight by the central bank
¾ Central Bank in the center of the discussions
¾ Good cooperation with other national regulators
¾ Central bank´s
bank s role as a catalyst for achieving greater efficiency and
safety in the use of payment instruments
¾ Proprietary message communication pattern developed in
conjunction with participants encompassing all financial business
within
ithi th
the country
t
¾ Real time link between all the clearing and settlement mechanisms
and the STR – all settlements in reais are in central bank money
33
Brazilian Retail Payment System – Challenges
¾ Maintain appropriate oversight policy for this segment
¾ Regulatory framework
¾ cover the activities of non-bank providers of payment services
¾ proportional
ti
l tto th
the risk
i k (b
(balance
l
b
between
t
costt and
d efficiency)
ffi i
)
¾ mitigation of barriers for new entrants
¾ Launch the national Retail Payment Forum
¾ Coordinate action between the government agencies
¾ Promote the retail payment system as a facilitator for financial
inclusion
34
Payment System – Legal framework
• Law 10.214, 28/3/2001
– http://www010.dataprev.gov.br/sislex/paginas/42/2001/10214.htm
http://www010 dataprev gov br/sislex/paginas/42/2001/10214 htm
• Resolution 2.882, 30/8/2001
– http://www.bcb.gov.br/pre/normativos/res/2001/pdf/res_2882_v1_L.pdf
http://www bcb gov br/pre/normativos/res/2001/pdf/res 2882 v1 L pdf
• Circular 3.057, 31/8/2001
– http://www.bcb.gov.br/pre/normativos/circ/2001/pdf/circ_3057_v5_L.pdf
http://www bcb gov br/pre/normativos/circ/2001/pdf/circ 3057 v5 L pdf
35
Publications on retail payment systems and
instruments
¾ http://www.bcb.gov.br/Pom/Spb/Ing/ReportontheBrazilianRetailPaymentSy
http://www bcb gov br/Pom/Spb/Ing/ReportontheBrazilianRetailPaymentSy
stem.pdf
¾ http://www.bcb.gov.br/Pom/Spb/Ing/Payment_Cards_Report.pdf
http://www bcb gov br/Pom/Spb/Ing/Payment Cards Report pdf
¾ http://www.bcb.gov.br/Pom/Spb/Ing/Directive2006_1.pdf
¾ http://www.bcb.gov.br/Pom/SPB/Ing/ReportontheBrazilianRetailPaymentSy
http://www bcb gov br/Pom/SPB/Ing/ReportontheBrazilianRetailPaymentSy
stem-StatisticalUpdate2009.pdf
¾ http://www.bcb.gov.br/htms/spb/Relatorio_sobre_a_Industria_de_Cartoes_
http://www bcb gov br/htms/spb/Relatorio sobre a Industria de Cartoes
de_Pagamentos_-_Adendo%20Estatistico_2008_2009.pdf
36
[email protected]
+55 (61) 3414-1340
Banco Central de Bolívia
Curso Vigilância de Sistemas de Pago - Noviembre
Noviembre,, 2011
37