Page 25 - ITU-T Focus Group Digital Financial Services – Recommendations

ITU-T Focus Group Digital Financial Services
Recommendations

Title of recommendation Interoperability scheme provisions
Working Group Interoperability

Audience for recommendation DFS providers

DFS providers should ensure that their client contracts make the interoperability scheme rules transparent.
Interoperability schemes should specify rules on payment and settlement finality and not put off-net transac-
tions at a disadvantage as compared to on-net transactions.

DFS providers should be transparent in their customer relationship when it comes to interoperability. While
the notion of “seamless” transactions is a key characteristic of the interoperability mission, customers should
be able to take informed decisions when it comes to interoperable DFS and any specific rules that might result
from the interoperability scheme.

A DFS providers participating in interoperable systems should be able to meet in a timely manner all of
its obligations to the other participating entities. Furthermore, a provider’s participation in interoperable
systems should not compromise its ability to meet in a timely manner its obligations toward its own customers.

DFS providers and/or payment infrastructure providers participating in interoperable arrangements might
be exposed to additional credit and liquidity risks and they should have access to all the information
necessary to conduct an assessment of credit and liquidity risks associated with interoperability. A risk can
materialize if a participating entity defaults causing liquidity pressures on other DFS providers and/or payment
infrastructure providers. This risk may increase when a netting process takes place. Also, interoperability causes
an additional exposure if a participating DFS providers and/or payment infrastructure providers temporarily
holds the funds transferred between one retail payment entity and the other in a transitional account.
Moreover, interoperability may create significant credit and liquidity interdependencies between systems.

Interoperability arrangements should specify rules on payment finality. Participating entities should state
in their rulebooks that payments are final once they are confirmed as successful to the remitting entity. In
other words, when the remitting DFS providers receives a positive confirmation from the beneficiary provider
via the inter-provider system, payment finality has been achieved and the payment may not be recalled by
the payer without the consent of the beneficiary. In addition, settlement should be guaranteed to ensure
there is no settlement risk and that settlement is assured in the event of the insolvency and exclusion of an
entity, particularly where settlement is based on a deferred model. The system of guarantees used will require
agreement with the relevant national central bank(s).
Where interoperability involves more than one payment infrastructure, interoperability agreements should
include rules for settlement finality. Guaranteed finality should apply to each step in the chain, i.e., where a
payment flows from one payment infrastructure to another, the payment will be guaranteed in the first system
before being passed to the second system. There are a variety of strategies for guaranteeing settlement. All
such strategies require the remitting provider in some way guaranteeing payment to the beneficiary provider in
a way that would not be affected by insolvency or provider failure. Some of the options are as follows: (i) cash
prefunding (either periodic deferred net settlement or settlement in real time), (ii) pledging non cash collateral
to the central bank, (iii) bilateral guarantees between banks, (iv) loss sharing agreements, or (v) trust lines.

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