Systemically Important Payment System: Difference between revisions

Revision as of 02:18, 23 August 2009

Latest revision as of 17:20, 14 February 2025

(30 intermediate revisions by 18 users not shown)

Line 1:

{{Short description|Designation for financial payment systems}}

'''Systemically Important Payment Systems''' (SIPS) are payment systems which have the characteristic that a failure of these systems could potentially endanger the operation of the whole economy. In general, these are the major payment clearing systems of individual countries, but in the case of Europe, there are certain pan-European payment systems. [[TARGET2]] is a pan-European SIPS dealing with major inter-bank payments. [[STEP2]], operated by the [[Euro Banking Association]] is a major pan-European clearing system for retail payments which has the potential to become a SIPS.

A '''Systemically Important Payment System''' ('''SIPS''') is a [[payment system]]s whose failure could potentially endanger the operation of the whole economy. In general, these are the major payment clearing systems or [[real-time gross settlement]] systems of individual countries, but in the case of Europe, there are certain pan-European payment systems. As of late 2023, the [[European Central Bank]] had designated five payment systems as SIPS, namely [[T2 (settlement system)|T2]], [[EURO1]], [[STEP2]], [[STET-CORE|CORE(FR)]], and [[Mastercard Europe]].<ref>{{cite web |website=International Monetary Fund |date={{date|2023-9-8}} |url=https://www.imf.org/en/Publications/CR/Issues/2023/12/07/Belgium-Financial-Sector-Assessment-Program-Detailed-Assessment-of-Observance-Assessment-of-542179 |title=Belgium: Financial Sector Assessment Program-Detailed Assessment of Observance-Assessment of the CPSS–IOSCO Principles for Financial Market Infrastructures Euroclear Bank}}</ref>{{rp|12}}

In the event of a bank failure, adherence to the rules for the operation of SIPS should prevent a domino effect whereby payment obligations of the failing bank are effected against the solvent banks. Clearly, this does not prevent the effects of a bank failure from spreading; however, it closes off one route.

==OPERATIONOperation OFof Aa SIPS==

In 2001, the [[Bank for International Settlements]] (BIS) issued the "Core Principles for Systemically Important Payment Systems",<ref>{{cite web|url=http://www.bis.org/publ/cpss43.pdf?noframes=1|title=Core Principles Systemically Important Payment Systems|date=2008-01-01|accessdate=2008-12-30|publisher=[[Bank for International Settlements]]}}</ref> and these are summarised below. In certain banking circles, these have become known as the 10 Commandments.

In 2003 the [[European Central Bank]] (ECB) further elaborated on how the principles should be applied in Euro retail payment systems",.<ref>{{cite web|url=http://www.ecb.int/pub/pdf/other/retailpsoversightstandardsen.pdf|title=OVERSIGHT STANDARDS FOR EURO RETAIL PAYMENT SYSTEMS|date=2003-05-01|accessdate=2008-12-30|publisher=[[European Central Bank]]}}</ref>

Subsequently, in response to the perceived increased risks of terrorist attacks, the ECB in 2006 published detailed oversight expectations for business continuity planning, greatly expanding on core principle number 7.<ref>{{cite web|url=http://www.ecb.int/pub/pdf/other/businesscontinuitysips2006en.pdf|title=BUSINESS CONTINUITY OVERSIGHT EXPECTATIONS FOR SYSTEMICALLY IMPORTANT PAYMENT SYSTEMS |date=2006-0506-0109|accessdate=20082017-12-3006|publisher=[[European Central Bank]]}}</ref> .

BIS added an additional recommendation in relation to countries which use cheques. It urged the operators of cheque clearing to have special regard to the fact that cheques may be dishonoured and returned some days after presentation, and this poses special risks. This is particularly relevant to countries such as Britain, Ireland, France, and US and should be regarded as the 11th commandment of payments.

BIS CPSS is currently preparing for the new global standards for not only payment systems but also securities settlement systems, central counterparties and trade repositories. The new standards (Principles for FMI) is now under market consultation and are going to be published in 2012.

==CORE PRINCIPLES (Summary)==

A Systemically Important Payment Systems (SIPS) should have:-

1...A well-founded legal basis

2...Rules & procedures which enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

3...Clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks

4...Prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day.

5...Where multilateral netting takes place, it should, at a minimum be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation

6...Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk

==Core principles==

7...A high degree of security and operational reliability, and contingency arrangements for timely completion of daily processing

{{see|CPSS-IOSCO Principles for Financial Market Infrastructures}}

A Systemicallysystemically Importantimportant Paymentpayment Systemssystem (SIPS) should have:-

8...Practical for its users and efficient for the economy

1...# A well-founded legal basis

9...Objective and publicly disclosed criteria for participation, which permit fair and open access

2...# Rules &and procedures which enable participants to have a clear understanding of the system’s impact on each of the [[financial risksrisk]]s they incur through participation in it.

3...# Clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks

4...# Prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day.

5...# Where multilateral netting takes place, it should, at a minimum be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation

6...# Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk

7...# A high degree of security and operational reliability, and contingency arrangements for timely completion of daily processing

8...# Practical for its users and efficient for the economy

9...# Objective and publicly disclosed criteria for participation, which permit fair and open access

10..# Governance arrangements which are effective, accountable and transparent

==See also==

10..Governance arrangements which are effective, accountable and transparent

* [[Financial market infrastructure]]

* [[Systemic risk]]

* [[Systemically important financial market utility]]

* [[Systemically important financial institution]]

== References ==

Line 39 ⟶ 42:

[[Category:Financial regulation]]

[[Category:Systemic risk]]