Payment Systems Oversight
The Bank of Zambia is mandated under the National Payment systems Act (NPSA) No. 1 of 2007 to oversee the National Payment system in order to ensure that it is running efficiently and safely and does not introduce systemic risk to the financial system. To ensure that the infrastructure supporting the financial markets is robust and well placed to withstand financial shocks, the Bank of Zambia developed the Payment Systems Oversight framework to guide its oversight activities and in February 2015 adopted the Principles for Financial Market Infrastructures (PFMIs) issued by the Bank for International Settlements (BIS) and International Organization of Securities Commission (IOSCO) as a standard risk management framework for systemically important payment Systems. Systemically Important Payment Systems (SIPS) are payment systems which have the characteristic that a failure of these systems could potentially have an impact on other systems and the economy as a whole.
The principles are aimed at harmonizing and where appropriate, strengthening the existing risk management frameworks for participating in payment systems. The principles will apply to the systemically important Payment systems (SIPS) namely the Zambia Interbank Payment and Settlement System (ZIPSS/RTGS), the Direct Debit and Credit Clearing and the Cheque Image Clearing (CIC) systems, the Central Securities Depository (CSD) for Government Securities and the Lusaka Securities Exchange (LuSe) CSD. In this regard, all systemically important payment systems will periodically be required to conduct self -assessments against the PFMIs. The first reports will be submitted to the Bank of Zambia Oversight function of the Payment System Division in 2017. The assessments are intended to assist operators of the systems to identify any shortcomings in their systems and arrangements surrounding their operations. Where shortcomings are identified, the Bank of Zambia uses the available tools including among others cooperation, moral suasion, financial penalties including suspension and revocation of designation licenses if necessary in order to call for changes intended to ensure the safety and efficiency of the national payment system.
The basic risks in payment and settlement systems besides operational risk include credit, liquidity, and legal risks. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. These risks in the SIPS is managed by institutions both individually and collectively accordance with the PFMIs.
Further, the Bank of Zambia uses a risk based approach to conduct the oversight function of the Widely Important Payment Systems, the (WIPS). The WIPS include card payments (Automated Teller Machines and Point of sale machines), Remittances and Mobile Money payments.
The main responsibilities of the Oversight function include the following:
To ensure effective operations and management of payments systems and to ensure compliance to payment systems rules and regulations, the Oversight function monitors individual payment system players' behaviour including systems availability levels against set policy requirements, rules and standards that have been set so that they do not introduce risk in the national payment system.
- Analysing information for management reports
The Oversight function collects information on operations of the various players on a monthly basis or as and when required.This data is analysed and used to monitor growth trends in values and volumes for particular players and in the production of various economic management reports for decision making. Further, statistics collected are shared with key local and international stakeholders.
- Inducing Change
A key function for the Oversight function is conducting risk based on-Site Inspections at designated payment systems players to review their operations and to ensure that they are adhering to conditions of their designation. Non-Compliance attracts supervisory actions that require a change in behaviour and or their risk management processes.
- Consumer Protection and Competition Law
Another key function of the payment systems oversight function is to ensure that payment system players adhere to regulations and directives issued under the NPSA and BIS. These regulations are aimed at promoting safety, efficiency, competition, fair and open access for participation in the various payment systems. The regulations also promote and inform consumers on their rights and obligations in relation to their usage of the payment systems.