Systemically Important Payment System: Difference between revisions

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

'''Systemically important payment systems''' ('''SIPS''') are [[payment system]]s 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 or [[Real Time Gross Settlement]] 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.

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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)==

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

A Systemicallysystemically Importantimportant Paymentpayment Systemssystem (SIPS) should have:

==Core principles (Summary)==

A Systemically Important Payment Systems (SIPS) should have:

# A well-founded legal basis

# 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.

# 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

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

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==See also==

* [[Financial market infrastructure]]

* [[List of systemically important banks]]

* [[Systemic risk]]

* [[Systemically important financial market utility]]

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[[Category:Financial regulation]]

[[Category:Systemic risk]]