KATHMANDU, Sept 3: Amid expanding use of digital payment platforms across the country, Nepal Rastra Bank (NRB) has issued the framework for ‘Systemically Important Payment Systems (SIPS)’ targeting to minimize the risks associated with the online payment systems.
The SIPS are critical components of the financial system, handling large-value and time-critical transactions. Any disruption in such a platform can lead to systemic shocks with extensive consequences for financial stability.
According to the NRB, the newly introduced framework has set standards for assessing and identifying systemically important payment systems across the country. The framework aims to bring the payment platforms under the purview of appropriate oversight and regulation, thereby mitigating the risk of systemic disruptions to the financial system.
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The framework maintains four main objectives that include identifying payment systems that are at risk of disruption in the financial system and ensuring that they remain operational during financial crises or technical disruptions, identifying the various types of risks in payment systems and enhancing monitoring of how these risks arise and propagate within the system. Likewise, the framework also facilitates assessment of payment system risks, while it also develops appropriate mechanisms for their effective monitoring, management and control.
The NRB has so far licensed a total of nine payment system operators. Through the framework, the central bank has aimed for listing of such operators through assessment to find out which of these are systemically important.
The central bank has maintained a number of standards to incorporate digital payments under the SIPS. These include handling time-critical and large-value payments specified by the Real Time Gross Settlement (RTGS).
A payment system with one-third of the number of transactions or more than two-thirds of the transaction amount in the retail market share, and the platform with high interconnection with other payment systems, among others, will be undertaken by the SIPS under its jurisdiction. In addition, the framework has made provision for systems with a high level of interconnectedness with other payment systems to be included in the systemically important list.
The framework also mandates the payment platforms to abide by strong legal bases, annual stress tests to manage credit, liquidity, operational and business risks for such payment systems. It also requires service providers to provide timely settlement, effective governance and notification of significant changes to the bank.
Payment systems provide the infrastructure for transferring funds between individuals, businesses, and financial institutions, supporting economic activities and financial intermediation. They enable processing, clearing, recording and settlement of payments, ensuring smooth monetary transactions and fostering trust among participants.
The framework requires payment platforms to conduct annual self-assessments to ensure compliance with international standards and to share the results. It also requires disclosure of governance and risk policies for transparency and the establishment of crisis management protocols to maintain financial stability.
Besides, the Payment Systems Department of the NRB conducts annual assessments of these systems. The framework is expected to be revised every two years or as needed to address new risks and technologies.
