SADC Road to Financial Integration AACB Conference – Cairo 2019

Agenda Where the region started When the integration agenda got going Strategic approach to integration Where are we now Where to next Questions

SADC – Financial Integration Foundation SADC region is made up of 16 Southern African Countries (Angola; Botswana; Comoros; DRC; Eswatini; Lesotho; Madagascar; Malawi; Mauritius; Mozambique; Namibia; Seychelles; South Africa; Tanzania; Zambia; Zimbabwe). Heads of State and Government of SADC signed the SADC Treaty. Articles 21 and 22 became the instruments used to establish the SADC Finance and Investment Protocol. Committee of Central Bank Governors of SADC (CCBG) working on the Regional Indicative Strategic Development Plan (RISDP) which originally mapped out the phased strategy to achieve a monetary union by 2018. Free Trade Area by 2008, Customs Union by 2010 and a Common and Monetary Union by 2016 and a SADC currency by 2018. Global and regional events caused a number of these dates not to be met. The FIP has been ratified by member states therefore it is legally binding on all SADC countries.

2003 The work began The SA Reserve bank as chair of the Committee of Central Bank Governors (CCBG) Payments sub-Committee initiated a project, funded by the World Bank, to introduce financial market infrastructures in the SADC countries. These infrastructures are payment clearing houses, securities depositories, real time gross settlement systems etc.

SADC – RTGS Implementation Source: SARB: SADC 2018 Opportunities and Issues Presentation to the SADC Banking Association – October 2009

Overview of Payment Infrastructure in SADC at that time RTGS SADC COUNTRY B RTGS CHEQUE/EFT CLEARING HOUSE CARD SWITCH ATM SWITCH BANK CHEQUE/EFT CLEARING HOUSE BANK CARD SWITCH BANK RTGS CHEQUE/EFT CLEARING HOUSE CARD SWITCH ATM SWITCH CSD BANK CMA ATM SWITCH CSD SADC COUNTRY A D SADC COUNTRY CHEQUE/EFT CLEARING HOUSE CARD SWITCH BANK CHEQUE/EFT CLEARING HOUSE CARD SWITCH ATM SWITCH BANK C SADC COUNTRY Common Monetary Area in SADC Source: SADC Banking Association

When the integration agenda got going As can be seen from the previous slides much progress has been achieved in getting domestic financial infrastructures established Using this situation as a base the CCBG then decided to move to the next phase in 2010 The next phase entailed inter-linking the financial infrastructures of the SADC countries This phase commenced in 2010

Key Strategic Principles Project focus: cross border & intra-SADC transactions Use of existing infrastructures wherever possible – banks choose providers Use of international standards to ensure interoperability Invest for straight through processing Each country will keep its own currency and financial infrastructure Regional settlement currency to be the ZAR (South African Rand) Start with Common Monetary Area and build out Cross-border cheques to be phased out

Proposed Infrastructures The following key infrastructures were proposed for the SADC region: A regional inter-bank settlement system to be run by the CCBG – SADC RTGS (formally SIRESS) A regional clearing capability for EFT credits and debits A regional clearing capability for Card/ATM transactions A clearing and settlement capability for cross border securities transactions

CCBG ROAD MAP

Learning from Europe SADC focussed on the non-competitive space Mobile ATMs Internet Branch Banking 3rd Party Outlets (retailers) Postal Networks Ecommerce Providers

Following Work Streams Identified Focus Area HVP Immediate settlement of high value transfers Securities DVP Payment leg of stock market transactions Forex/Fin Markets Forex, money market and bond settlements Bank Notes Bulk ordering and repatriation Cheques Elimination of cross border purposes ATMs Linking for required customer reach Card Achieving interoperability of schemes EFT Debit Needs Assessment for cross border purposes EFT Credit Develop mechanisms & Interfaces P2P Reduce regulatory requirements – make transfers easier

SADC Banking Association Organization The SADC Banking Association was given the mandate to develop the various payment processes and standards as well as self regulatory framework The SADC BA obtained funding from its members Members committed resources for each payment stream Each participating SADC country lead the work in a particular payment stream

SADC-BA Resourcing for the Payments Project CCBG Payments Sub-Committee SADC-BA In Country Payments Leader In country standards expert Retail Payment Expert RTGS Experts Sec DVP Expert Card/ATM Group Legal Group Cheque Elimination Bank Notes P2P

Stakeholders Stakeholders were identified Strategies were put in place to deal with each stakeholder group Excellent relationship with the CCBG sub-Committee Others have been more challenging – other overlapping regions for example

INTERACTION WITH STAKEHOLDERS CCBG: Payments & Financial Markets Sub-committee Road Map Legal Implications Decisions & Principles for linkage to settlement Standards Governance EAC, COMESA SADC-BA CCBG Banks in SADC 3rd parties SAD SADCBA: Project Execution Dedicated Project Team Funding in place Project plan Approved EAC COMESA Position Paper on implications and solutions for banks with multiple regional membership SADC SEC: Trade Facilitation Trade Barrier payments trade finance, infrastructure finance SADC Banks Securing Participation Business rules Governance Funding SADC Secretariat ISO/SADC STAN COSSE 3RD PARTIES: ECB, EPC, PCH’s, CSD’s, SWIFT, World Bank, etc. Best practices Advisory Information Sharing COSSE MOU Cooperation in the post trade settlement space (DVP) ISO/ SADCSTAN: Standards Adoption Setting up TC to drive standards adoption (ISOTC68) in SADC

Challenges of Regional Integration Lack of political will Fear of loss of sovereignty Countries at different levels of infrastructural development. Countries at different levels of institutional capacity. Larger economies marginalising smaller ones – “Big Brother syndrome” or perception thereof. Challenges observed in other regions e.g. Euro-Zone

SADC BA Approach & Progress SADC Central RTGS Test with SADC Central RTGS & Operators Banks test with each other Select operators/ methods Agree message standards, rules Agree business flows Settlement P2P RTGS Cash EFT Card/ATM Cheque Forex DVP Set up payment stream groups

Where are we now? The SADC Integrated Real-Time Electronic Settlement System (SIRESS) went into production on 21 July 2013 The CMA countries i.e. Namibia, Lesotho, South Africa and Swaziland went live in 22 July 2013 System is stable and values/volumes have far exceeded expectations The process is simple and banks are now investing to Straight Through Processing (STP) into/out of core banking applications Cross-border cheques have been eliminated, four other payment streams incorporated in the SADC-RTGS settlements.

SADC Inter-bank Transfer System A copy function is used in the process to ensure immediate settlement SIRESS - Now SADC -RTGS Debit sending bank Credit receiving bank Copy of settlement detail sent to SADC-RTGS Advice of settlement BANK SWIFT MT103/MT202 BANK Payment instruction from sending bank to receiving bank

Low value credit transfers This payment stream is now in implementation phase An important point for the audience to note is that it allows for interoperability between banks and non-banks If all goes to plan the first transfers should take place in July 2019 We had hoped to do a presentation on this payment scheme but unfortunately the agenda does not allow for that

SADC Low Value Credit Transfers Cleared on an immediate basis via a RCSO operating model Bank can have various roles; -Send own payments -Manages Trust account -Settlement Bank -Nostro settlement bank for non-SIRESS currencies -FX provider SADC RTGS RTGS being a multi-currency settlement system Advices of DR or CR Daily Settlement Direct or via local ACH Direct or via Local ACH Bank Regional CSO Bank Direct or via PPSP ISO20022 Non-bank For CICO Non-bank SMS Notifications/exchange of payment detail For CICO Interoperability Agreement Agent Agent PPSP = message switch – FX provider –AML/KYC - operations

Card based transactions Once the TCIB system goes live and the SADC-RTGS moves to a new platform work will commence on the card project Here SADC is working with VISA/MasterCard etc. to introduce regional settlement of their branded card transactions

Cash leg of securities transactions SADC BA and a work group from the Committee of SADC Stock Exchanges (COSSE) have worked on the operating model and related agreements, rules etc. for the settlement of the cash leg of securities trades. This project will be taken further should progress be made at an African Stock Exchange level to promote greater intra-African trading between markets on the continent.

Ideas for African intra-regional transacting Consider a intra-regional central bank settlement infrastructure using existing networks and methodologies e.g. SWIFT network and Y copy. Consider linking of regional clearing houses for low value payments with settlement via central bank settlement infrastructure above Obtain commitment from Visa and MC for lower cost intra-African settlement via the central bank settlement platform above for intra-African card transactions Standardise on applicable International standards for financial market infrastructures and messaging etc. Establish a best practise and harmonised framework for KYC/AML processes for intra-African payments using a risk based approach with suitable guidelines

Questions?