1. 1 Legal Framework for Payments Systems Overview and New Concepts Maria Chiara Malaguti

2. 2 National Payments System comprises all institutional and infrastructure arrangements in a financial system for initiating and transferring monetary claims in the form of commercial bank and central bank liabilities payment instruments to initiate and direct the transfer of funds between payer and payee payment infrastructures for transacting and clearing payment instruments financial institutions that provide payment accounts, instruments and infrastructures market arrangements laws and regulations CPSS General guidance for national payment system development 2006

3. 3 From a legal viewpoint

4. 4 A B Underlying obligation Cash Often the only recognized Legal tender Cheque Negotiable instrument Wire transfer Credit transfer Debit transfer Each payment instrument has special features: potentially specific legislation

5. 5 Payment by Fiduciary Money Clearing House Bank A Bank B Client B1 Client B2 Client A Correspondent banking (by agreement: agency) Mandate to pay Clearing Central Bank Settlement

6. 6 «The Payments System» in law: a three-level situation Operator to operator Finality of payment by fiduciary money and circulation of instruments (as cheques) Bank to client Agency relation and limits on mandate to pay/receive payment; transparency Bank to bank Bi-multilateral netting: systemic risk; settlement and role of central bank as lender of last resort

7. 7 On securities Investor Custodian Cash clearing and settlement Broker ABroker B Stock Exchange CCP (if any) CSD Funds transfer Cash transfer into Central Bank money Settlement Order to buy DVP Novation

8. 8 Special focus on the interbanking level

9. 9 Some legal barriers: netting and validity of contractual clauses Bilateral netting and legal «compensation» Bilateral netting and «current accounts» Mutuality and bilateralism: «mutuality» if set-off on behalf of clients? Multilateral netting and legal compensation Lack of bilateralism and mutuality Solution: netting by novation

10. 10 Some legal barriers: netting by novation and central counterparty Central counterparty liable towards each party instead of counterparty? Central counterparty a b c d e f g g

11. 11 Some legal barriers: finality of settlement, the «zero hour» and effects of bankruptcy Retroactivity of bankruptcy effects Par condicio of creditors

12. 12 Some legal barriers: the transfer of ownership of securities by book-entry Need for transfer of paper-based document? The question of centralized immobilization UNIDROIT draft Convention on securities held with an intermediary (latest May 2007)

13. 13 «The Payments System» as a regulatory concept Bank (?) A Bank (?) B Bank (?) C Clearing Final settlement by Central Bank Insolvency risk Credit risk Liquidity risk Systemic risk

14. 14 supervisionoversight On the single operator to guarantee individual stability On the system as such to guarantee global stability Central banks Supervisory authorities Central banks Financial markets regulatory authorities

15. 15 Tools for oversight RegulationMoral suasion/ soft law Cooperation Self- regulation

16. 16 Some regulatory issues: how to organize oversight? Banking or non-banking activity? Institutional or functional approach? Regulation of remittances market? CPSS general principles January 2007

17. 17 E-money according to EC Directive Stored on an electronic device issued in receipt of funds of an amount not less in value than the monetary value issued accepted as a means of payment by undertakings other than the issuer EC E-Money Directive currently under review

18. 18 Some regulatory issues: Consolidation or Competition? Cost-effectiveness Choice of providers Centralised risk management Reduction of systemic risk Leave the market free to consolidate, but: Fair and open access Sufficient pressure for innovation

19. 19 Sectors for legal and regulatory intervention Recognition of fiduciary money Regulation of specific instruments of payment according to specificities E-money Regulation of payment services (clearing/netting; settlement finality; zero hour) Regulation: supervision and oversight Consolidation and competition Rules on conflict of laws

20. 20 For tailor-made solutions according to country legal environment.. Order of priorities in legal and regulatory reform With a global understanding of laws on property, contracts, corporate action, negotiable instruments, fiduciary relationships, financial institutions…

21. 21..with an eye to openess to foreign investments and inter-operability Restrictions on the location Barriers related to taxation Rules on conflict of laws