1. © National Bank of Belgium Exploring Frontiers in Payments Systems Development Washington DC, May 29 - June 1, 2007 Johan PISSENS Head of Oversight Unit Oversight of Non-traditional Payment Providers

2. © National Bank of Belgium 2 Oversight  Objectives  safety and efficiency of payment systems  Components  monitoring / analysing  assessing  inducing change  Rationale  Financial stability  some central banks: confidence in the currency / payment systems

3. © National Bank of Belgium 3 Components of oversight: detail (1/2)  Monitoring / analysing  importance of analytical framework  importance of risk based analysis  Assessing  importance of internationally accepted standards (CP, CPSS-IOSCO...)  Inducing change  typically use of moral suasion, sometimes complemented with additional regulatory tools

4. © National Bank of Belgium 4 Components of oversight: detail (2/2)  Traditionally:  focus on payment systems  Evolving focus:  Securities Clearing and Settlement Systems (SCS)  service providers  card payment schemes  Rationale:  relevance for smooth functioning of payment systems (= safety and efficiency)

5. © National Bank of Belgium 5 Oversight of SCS (1/2)  Key role of securities markets, and securities clearing and settlement (SCS), in the integration of financial markets;  Size of SCS - SCS is systemically important fot maintaining/promoting financial stability;  SCS have links with national and international securities markets, FX markets, money markets,...

6. © National Bank of Belgium 6 Oversight of SCS (2/2)  In many case cooperation between central bank and securities regulator  CPSS / IOSCO Standards for SSS and CCPs

7. © National Bank of Belgium 7 Oversight of service providers  Well known example of SWIFT  SWIFT is not a payment system  Oversight on SWIFT motivated by its importance for the good functioning of correspondent banking payments and payment and settlement systems  The objective of the oversight of SWIFT is to obtain comfort that SWIFT has put in place appropriate governance arrangements, structures, processes, risk management procedures and controls that enable it to effectively manage the risks it may pose to financial stabiltiy and to the soundness of financial infrastructures  Standards for the oversight of SWIFT have been developed - High Level Expectations for the Oversight of SWIFT

8. © National Bank of Belgium 8 High level Expectations for the Oversight of SWIFT Standards for the oversight of SWIFT developed by the central banks  Risk Identification and Management  Information Security  Reliability and Resilience  Technology Planning  Communication with Users  detailed presentation to be published in the NBB's forthcoming FSR (June 2007)

9. © National Bank of Belgium 9 Oversight of card payment schemes  Not all central banks oversee retail payments  Explicit Eurosystem policy  Standards for oversight of card payment schemes have been issued for market consultation by Eurosystem

10. © National Bank of Belgium 10 Selected issues  conflict of interest with other roles of central bank: commercial relationship (customer, competition) of central bank with SSS / service provider / card payment scheme  separation of activities / confidentiality arrangements  disclosure: distinction between, on the one hand, disclosure on overseer's responsibilities and policies, organisation, processes, methodologies for oversight, and on the other hand disclosure of results of oversight assessments

11. © National Bank of Belgium 11 Disclosure of results of assessments  confidentiality  level of detail  liability  what with bad results?  level playing fields  self assessments

12. © National Bank of Belgium 12 Future trends : towards a risk based oversight ?  Evolve from standard based approach towards risk based approach  example (next slide) :

13. © National Bank of Belgium 13 RISK TO PLANNING MATRIX Multi-Year Rolling Plan (Probability * Impact) Risk Scoring and Management Quality Scoring Business activities Business components Types of Risk (based on standards CCP, CPSS- IOSCO,...) Legal, Operational Credit, Liquidity,... (Inherent) Risk Matrix Business activities Business components Management Quality Matrix

14. © National Bank of Belgium 14 International cooperative oversight  Multicurrency of cross-border systems including non traditional payment providers: several (or even many) central banks have an interest in smooth functioning of systems  International cooperation in order to:  coordinate central bank actions  avoid gaps  increase effectiveness  avoid unnecessary duplication  Lamfalussy principles as updated in the CPSS oversight report

15. © National Bank of Belgium