The Bank for International Settlements (BIS) has published a self-assessment report for central banks to encourage the direct participation of payment firms in central bank payment systems. In a separate report, the organisation also calls for a global settlement window to increase the speed of cross-border payments.
The reports, both published on May 12, form part of the efforts of the G20 economies to make cross-border payments faster, cheaper, more transparent and more inclusive.
They follow an October 2020 roadmap, developed jointly by the BIS and the Financial Stability Board (FSB), which set out 19 building blocks to tackle existing challenges in cross-border payments.
Cross-border efficiency could improve with direct access
In one report, the BIS lays down “best practices” for jurisdictions and payment system operators to conduct a self-assessment of expanding direct access to key payment systems.
Currently, only a minority of payment systems provide direct access to entities other than domestic banks.
The UK opened up its central infrastructure to payment firms in 2018, while Lithuania made a similar move that played a significant role in the ability of the small Baltic country to become the European fintech hub for electronic money institutions (EMIs) and payment service providers (PSPs) after Brexit.
Only a few days ago, Bangladesh became the latest country to announce that it will enable non-bank financial institutions to join its real-time gross settlement (RTGS) system from June onwards.
Such a move not only increases the attractiveness of a country for fintech firms, but the BIS says it is also critical in providing cross-border payment services safely and efficiently.
It could help reduce long transaction chains, make funding costs cheaper for payment firms, improve competition and contribute to a shift from legacy platforms to the growing use of new technology in cross-border payments.
There is “scope for jurisdictions to consider improving access to [RTGS] systems and other key payment systems that settle in central bank money”, the report finds.
It advises authorities and operators to weigh these benefits against the potential barriers and risks.
The self-assessment framework is intended to serve as a tool to help authorities and payment system operators holistically evaluate the benefits, risks and barriers of expanding direct access.
The report sets out four steps for the assessment, each of which is guided by a number of questions that authorities should consider during their exercise.
According to the roadmap, the next step of this building block will see national authorities and operators that consider expanding access, to self-assess, identify necessary changes and develop action plans.
The report notes that the benefits of expanding access “could be amplified if developments occur in multiple jurisdictions and in a coordinated manner. Thus, collaboration and coordination of jurisdictions will be important for the successful implementation.”
Countries should align RTGS to 'global settlement window'
In another report, the BIS is looking at the operating hours of RTGS systems, and how their expansion and alignment could enhance cross-border payments.
According to the BIS, the operating hours vary significantly across RTGS systems in different jurisdictions and there are sizeable gaps.
Although extending the operating hours of RTGS systems cannot, by itself, address slow speed or other challenges of cross-border payments, the BIS says it could prevent additional delays, improve liquidity management, reduce settlement risk and enhance the performance of ancillary payment systems.
To help increase overlap, the BIS lays out three potential scenarios for extending RTGS system operating hours.
These range from an incremental increase in operating hours on current operating days (typically working days) to non-operating days, such as weekends and holidays, with the aim of eventually reaching full 24/7 capabilities.
The report also notes that, currently, the largest number of RTGS systems are typically operating simultaneously from 6am to 11am GMT on working days.
It proposes that this “global settlement window” should be a key consideration for central banks assessing potential scenarios for their RTGS operating hours.
The report concludes the second step of building block 12 of the G20 roadmap, which tasked the organisation with setting out potential targets, identifying risks and issuing potential mitigation measures.
According to the roadmap, in the next half a year, the BIS will develop guidance for each target, after which central banks and operators wishing to align their operating hours can consider these targets and agree with system participants on the way forward.