Page 74 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

discussion suggests that the interlinking of national PSIs raises additional oversight issues and elevates the
overall complexity of the oversight function. These additional issues and higher complexity change in relation
to the technical nature of the interlinking solutions adopted. Decentralized models raise different issues
than centralized ones: whereas decentralized models require focusing attention on the links connecting the
different PSIs (Box 3) and on how different PSIs interoperate, centralized models require focusing attention on
the shared infrastructures. Solutions under the two types of models not only differ technically, they demand
different governance instruments since links generally fall under the primary responsibility of the national
oversight authorities of the linked PSIs, whereas regional or global infrastructures fall within the purview of
a lead oversight authority, which will coordinate its action with the relevant national authorities involved. All
solutions involve a high degree of cooperation among authorities and between authorities and stakeholders.

Box 3. Links

A link between PSIs is a set of legal and operational arrangements aimed at facilitating the transfer
of funds and fulfillment of payment obligations between entities participating in different PSIs. While
general reference is made in this report to PSIs for the sake of convenience, links can also be between
PSPs, and between PSPs and PSIs.

Links can be established both between PSIs located in the same jurisdiction or between PSIs in
different jurisdictions (i.e., cross-border links). Links can work unilaterally or bilaterally. A link between
two PSIs is unilateral when it is used only for the transfer of funds from one system to another, and
not vice versa. A bilateral link between two PSIs means that a single agreement regulates the transfer
of funds to and from both systems.
Links may take different forms, but the basic types are "direct", "indirect" and "relayed" links. A direct
link is established directly between two PSIs without intermediation by a third entity. An indirect link is
established between two PSIs, whereby a third entity (generally a commercial bank or a central bank)
intermediates between them. In an indirect link, there will be legal and operational arrangements
involving the linked PSIs and an intermediary. Finally, a relayed link involves three (or more) PSIs, in
which at least one PSI intermediates between two other PSIs. A relayed link can be seen as a chain
of two or more direct links.
Links between PSIs provide organized channels for the transfer, clearing, and settlement of payments.
They are essential for the achievement of (national and international) interoperability, given that
linked infrastructures enable payments to be exchanged across systems and jurisdictions, and
facilitate the reachability of participants of different PSIs and their customers. Interoperability, in
fact, requires advanced forms of relationships whereby PSPs agree to work together to establish
solutions for improving their customer services.

Establishing a link allows PSI participants to transfer funds involving multiple instruments, channels,
schemes, systems, and jurisdictions, through a single gateway and can thus reduce costs when
compared with the costs of participating in a multitude of systems, schemes, and jurisdictions and
when using several instruments and channels. Links can reduce the number of parties involved in
the cross-system clearing and settlement of retail payments, which is conducive to mitigating legal
and ITU-T Focus Group Digital Financial Services: Payment System Interoperability and Oversight: The
International Dimension operational risk. However, inefficiently managed links may also increase risks.
The design and potential risks of a link should therefore be carefully analyzed before its establishment.
The type and degree of risk varies according to the design and complexity of the PSIs involved and
the nature of the relationship between them.

33. The cross-border dimension of international interoperability requires adapting the scope of oversight
of the linked or shared PSIs. In the case of solutions based on the decentralized model, as noted, particular
attention should be devoted to links, and the national overseers should be responsible for assessing the

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