Payment Settlement Risks Pose Systemic Threat, Says Central Bank

Introduction

The National Bank of Rwanda (BNR) has launched a new oversight policy framework aimed at mitigating payment settlement risks in the country’s financial markets.

Systemic Importance Classification

To prevent systemic failure, the BNR has established a classification system for retail payment systems. The categories are:

• Systemically Important Payments Systems (SIPS): Large-value transactions that pose substantial risk in the event of settlement or operational failure.
• Systemically Important Retail Payment Systems (SIRPS): Process large-amount transactions that could have significant impacts on financial markets if they fail.
• Prominently Important Retail Payment Systems: Have a significant impact on specific industries or sectors, but not necessarily system-wide.
• Other Systems: Less critical payment systems.

The BNR will accord priority oversight attention to SIPS and SIRPS, which pose the greatest risk to the financial system.

Oversight Activities

The BNR’s oversight activities will include:

• Licensing: Granting licenses to Financial Market Infrastructures (FMIs) that operate in Rwanda.
• Monitoring: Regularly monitoring FMIs’ compliance with risk management standards and identifying potential risks.
• Assessment: Conducting on-site and off-site assessments of FMIs’ operations, systems, and controls.
• Inducing Change: Encouraging FMIs to implement changes to mitigate risks in payment and securities settlement systems.

The BNR will use a range of tools and techniques to assess FMIs’ compliance with risk management standards, including:

• Off-site monitoring
• On-site assessments
• Reviews of FMIs’ policies and procedures

Cooperative Oversight

The BNR recognizes the importance of cooperation between regulators domestically and internationally to ensure effective oversight. To achieve this, the bank will engage in cooperative oversight with other regulatory authorities, regional central banks, and international organizations.

Targets of Oversight

The BNR’s oversight function aims to:

• Ensure Access Control: Protect systems and participants from institutions that might expose them to risk.
• Promote Effective Risk Management Practices: Encourage FMIs to adopt effective risk management practices to mitigate payment settlement risks.
• Prevent Systemic Failure: Prevent systemic failure by ensuring that FMIs operate in a way that minimizes the risk of disruption to financial markets.

By implementing this new oversight policy framework, the BNR aims to reduce the risk of payment settlement failures and promote a stable and secure financial system in Rwanda.