Page 43 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

Oversight instruments

24. Payment system oversight is essentially about controlling risks in payment systems and promoting
payment infrastructure and service development. Oversight instruments, therefore, should enable the
overseer to be satisfied that critical payment system infrastructures have robust processes in place for
identifying, prioritizing, sourcing, monitoring, and managing risks, and that these processes are improved
continuously in a fast-changing business environment. Also, the use of oversight instruments should be
proportionate to the nature, scale, and complexity of the risks inherent in the business of payment service
provision, and the intensity and consequences of their use should be commensurate with the objectives of
oversight. Finally, the oversight authorities need instruments to promote the modernization of payment system
infrastructures and to foster the development of the market for the provision of payment services.

25. The oversight policy framework typically includes the following instruments:

Licensing & identification

26. The central bank should have the power to license any entity that intends to operate a payment
system or to provide payment services after submission of appropriate documents and information, as
prescribed by regulation. Licensing should be granted based on the fulfillment by the applicants of the
regulatory requirements. The objective of licensing is to bring payment system operators and PSPs within
the regulatory jurisdiction of the central bank. Prior to issuing a license, the central bank should be satisfied
that the operator or PSP is capable of managing effectively the risks associated to their activity. The central
bank should require information and documentation, which allows it to decide whether that system may be
operated or the service provided in such a manner as not to pose excessive risks.
27. Through identification, the central bank recognizes the systems that will be subjected to its oversight.
The central bank should identify systems that it deems to be systemically important and those it considers to
be critical for public confidence. The level of criticality of a payment system should be determined based on
a set of objective and transparent criteria. Identified systems should be assessed against selected oversight
standards.

Monitoring, analysis & compliance
28. The central bank monitors payment system functioning on a continuous basis. It controls system
operation through access to real-time systems and through regular information and data collection. The central
bank analyzes payment system incidents and risks, and identifies weaknesses and needs for improvement or
change. The central bank assesses the performance of payment systems, and, in particular, their robustness
against risks. The central bank assesses the compliance of systems and providers with given rules and standards.
Rules & standards

29. The central bank issues regulations and adopts standards to induce payment system operators and
PSPs to operate safely and efficiently. Regulations should be based on functions rather than institutions, and
should be proportional to the risk profile of the regulated entities. Regulations should set rules, inter alia, for
licensing PSPs, the operation of systems and the provision of services, the issuance of payment instruments,
the use agents, the outsourcing of services, and the protection of user rights. In cases of non-compliance with
existing laws and regulations, the central bank should administer appropriate sanctions. Regulations should
support competition and a level playing field for participants. To induce payment system operators and PSPs
to have robust procedures in place to handle risks effectively, the central bank should promote the adoption
of best practices in line with internationally accepted principles and oversight standards.

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