Republic of Belarus
Financial Sector Assessment Program: Detailed Assessment of Observance of CPSS Core Principles for Systemically Important Payment Systems: Belarus Interbank Settlement System: BISS: RTGS Service

This Detailed Assessment of the Observance of Core Principles for Systemically Important Payment Systems (CPSS), Belarus Interbank Settlement System (BISS): RTGS Service on the Republic of Belarus reviews the core principles for systematically important payment systems. BISS offers the possibility to reserve funds in view of being used for certain specific purposes. Financial market activities in Belarusian rubel are limited, but potentially emerging. Although the Belarus Bankers Association in principle provides a forum for cooperation between banks, in payment system issues, it currently does not play an important role.

Abstract

This Detailed Assessment of the Observance of Core Principles for Systemically Important Payment Systems (CPSS), Belarus Interbank Settlement System (BISS): RTGS Service on the Republic of Belarus reviews the core principles for systematically important payment systems. BISS offers the possibility to reserve funds in view of being used for certain specific purposes. Financial market activities in Belarusian rubel are limited, but potentially emerging. Although the Belarus Bankers Association in principle provides a forum for cooperation between banks, in payment system issues, it currently does not play an important role.

I. BISS—The RTGS Service of the Republic of Belarus

A. General

1. This assessment was undertaken in the context of a World Bank/IMF Financial Sector Assessment Program (FSAP) exercise for the Republic of Belarus in November 2004 which covered, inter alia, the Core Principles for Systemically Important Payment Systems.1 This assessment covers the Belarus Interbank Settlement System (BISS), providing real-time gross settlement facilities for transactions in Belarusian rubel (BYR).

2. The National Bank of the Republic of Belarus (NBRB) has conducted a formal self-assessment of BISS’s observance of the Core Principles. This assessment was made available to the mission, together with a document entitled “Concept Document for the Development of the National Payment System of the Republic of Belarus until 2010 with an Account for Global Trends”. During the mission the NBRB made available further documents (in Russian) and statistics relevant for the assessment. Extensive meetings were held with officials from the NBRB (during which oral information was received on a large range of issues), supplemented by discussions with representatives of three banks participating in BISS.

3. The G-10 Committee on Payment and Settlement Systems’ (CPSS) Report on Core Principles for Systemically Important Payment Systems Part I and II and an IMF guidance note were used when assessing BISS. No obstacles were faced in the work. The authorities and others were fully cooperative.

The payment infrastructure in the Republic of Belarus

4. All interbank transfers of funds in Belarus are settled through payment systems managed by the NBRB, within the framework of the Automated System of Interbank Settlements (hereinafter ASIS). ASIS consists of two components:

  • the Belarus Interbank Settlement System (BISS), providing real-time gross settlement facilities for (credit) transactions in Belarusian rubel. BISS commenced operation in 1998 and is primarily designed for high-value payments, although there is no lower (or upper) limit on the value of individual payments. Thus, it is also used for the processing of time-sensitive payments of any size. There are currently 36 participants in BISS; and

  • the National Bank clearing system, providing for net settlement of large volumes of low-value interbank transactions. Interbank settlements in the clearing system are effected based on payment transfers formed and sent by the participating banks. The system handles both credit and debit transactions. Net balances arising in the clearing systems are settled in BISS. The clearing system has 35 participants.

5. In addition to the two above systems, there are two other clearing systems in Belarus. First, a clearing and settlement system for securities (for securities trades made on the Stock Exchange) operated by the Belarusian Currency and Stock Exchange. Here, final (net) delivery of securities takes place in the NBRB Depository (for government and NBRB securities) and the Republican Depository of Securities (for equities and other corporate papers).2 The latter depository is owned by the Ministry of Finance. The net funds positions of participating banks are calculated in the securities settlement system and then settled in BISS. Securities trades are settled on T+0 (using a procedure replicating DVP Model 3). Second, payments for transactions using plastic cards issued in Belarus under the BelCard scheme are handled within the BelCard scheme (payments for transactions using cards of international systems are processed by the processing centers of those systems). Net interbank balances arising from plastic card transactions are settled in BISS.

6. While ASIS is the overarching name of the NBRB payment system service, its two components, the BISS and the clearing system, are in principle independent systems with separate sets of soft-ware and operational procedures. Nevertheless, a part of the documentation is defined on the level of ASIS, BISS and the clearing system share a common hard-ware platform and both systems are accessed via common communication network arrangements.

7. Besides the NBRB, the following organizations are involved in the operation of the payment infrastructure:

  • the unitary enterprise Belarusian Inter-Bank Settlement Center (BISC) which is a technical operator of ASIS and thereby BISS and the NBRB clearing system. BISC is also responsible for developing the software for the BelCard system and for providing organizational support to the telecommunication network used by BISS and the clearing system. BISC is fully owned by the NBRB;

  • the republican unitary enterprise Center for Banking Technologies (CBT), responsible for development and maintenance of the software of the national payment system. CBT is fully owned by the NBRB;

  • the open joint-stock company Belarusian Currency and Stock Exchange (CSE) which is an operator of the securities clearing and settlement system. The NBRB owns more than 99 percent of the share capital in CSE. The remaining part is owned by banks and “professional participants” as only shareholders can take part in trading;

  • the open joint-stock company National Processing Center (NPC) that provides technical, organizational, and information support to the operation and development of bank cards transactions in Belarus. Belarusbank holds slightly more that 50 percent of the NPC capital. The NBRB has about 38 percent, BISC some 6 percent, while the remaining part is held by some major banks.

B. The Functioning of the BISS

8. In BISS, payments are processed as follows: a payment message (employing formats very similar to SWIFT message formats MT100, MT202 or MT204) is submitted to ASIS via one of the six alternative telecommunication networks available. Only a limited number of persons at participating banks have the authority to initiate payments. Each of them has a personal key (as part of a public key management scheme in ASIS), a digital signature is attached to each payment and payment messages are subject to encryption. Once received by ASIS, the system will check whether the message relates to a large-value (all payments exceeding the value threshold of BYR 5 million are considered large-value) or a time-sensitive payment (of any value), in which case it is routed to the BISS - or, if it is a nonurgent low-value payment, in which case it is routed to the clearing system. At this stage, all payment messages also pass through a validation process, for example to check for duplicate messages.

9. Once a valid payment request is submitted to BISS, the system will check whether sufficient funds are available in the correspondent (settlement) account of the ordering bank. If yes, funds are debited in the account of the ordering bank and credited to the account of the receiving bank (as from this moment, the payment is final). The payment message is then automatically released to the receiving participant.3 Confirmations of a debit (credit) of funds are forwarded to the ordering bank and receiving bank for an interbank remittance. If the payment could not be settled due to a lack of funds, it will be put in a waiting queue. Once funds become available, queued payments are processed first by priority, then by time of input to the queue.

10. Payment requests can be allocated a ‘Priority’ number within the range of 1-999 with Priority 1 being the highest. The Priority levels 1-499 are reserved for time-sensitive payments, the Priority levels 500-999 for large-value ones. The Priority level is assigned by the originating bank. If no Priority is allocated, the system allocates a default Priority, which is 250 for time-sensitive payments and 750 for large-value payments. The ordering bank can change the Priority of a payment request at any time provided it has not settled. Changing a Priority has the effect of moving the item in the queue.

11. BISS offers the possibility to reserve funds in view of being used for certain specific purposes. Participants are required to reserve funds for the settlement of net debit positions potentially arising in the NBRB clearing system and the securities clearing and settlement system. Reserved funds are “blocked” and cannot be used for the settlement of any other kind of transactions than those they are reserved for.

12. A real-time information management system allows participants, inter alia, to continuously monitor their account balance, payments queued (both their own outgoing payments and incoming payments from other participants), to change the priority of queued payments and to request funds to be reserved for different purposes.

Statistical information regarding volumes and values of transactions

13. In 2003, some 92 percent of all interbank payments, in value terms, were settled in BISS. However, in terms of volume, only some 8 percent of the total traffic was settled through BISS. Thus, while 92 percent of the traffic volume is handled in the clearing systems, this represents in value terms only 8 percent. This division of volume and value between the RTGS system and the net settlement system is in line with the situation in other countries. Detailed information regarding volumes and values processed in the years 2001 to 2003 are provided in Tables 1 to 3 below:4

Table 1.

Payments Handled in NBRB Systems in 2001

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Table 2.

Payments Handled in NBRB Systems in 2002

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Table 3.

Payments Handled in NBRB Systems in 2003

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14. Payments in BISS are classified in two categories: large-value payments (any payment equal to or greater than BYR 5 million), and time-sensitive payments (payments of any value can be “flagged” as time-sensitive). Time-sensitive payments represent up to 15 percent of the payments volume, but in value terms only some one percent.

15. The intraday pattern of payment flows is currently very unbalanced. Only some 50 percent of the payments value is processed by 4 p.m. (representing 60-70 percent in terms of volume). A peak in payments input can be observed between 4:00 p.m. and 5:00 p.m. The last (queued) payments are settled close to the closing time at 7:30 p.m.

16. The share of annulled (non-executed) payments in total payments traffic represents 0.10 percent in terms of volume and 0.16 percent in terms of value.

17. The last three peak volume and value days for BISS are set out in the table below.

Three peak days within last year, volumes (000’s) and values (BYR billions):

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18. With regard to payments processed in BISS, payment flows are fairly concentrated, with the 6 biggest banks accounting for some 80 percent of both value and volume.

General preconditions for effective payment systems

19. Belarus has had a fairly stable macroeconomic development in recent years, albeit influenced by a substantial but decreasing inflation. Financial market activities in Belarusian rubel are still very limited, but potentially emerging. Some 82 percent of the banking capital is controlled by the public sector.

20. While the Belarus Bankers Association in principle provides a forum for co-operation between banks, in payment systems issues it currently does not play an important role.

21. Regular meetings are held between the management of the NBRB and executives of banks. Meetings are held on a quarterly basis. Discussions cover a wide range of issues, including payment systems related ones. NBRB from time to time also holds meetings with payment systems experts of banks.

22. Banks are informed in advance on upcoming changes to the system. The “Concept Document for the Development of the National Payment System of the Republic of Belarus until 2010 with an Account for Global Trends” was submitted to banks (and some authorities) for comments before final approval by the NBRB. In general, banks are normally consulted before the adoption of new documentation on technical and operational issues.

23. Within the NBRB, payment systems issues are regularly discussed by the Committee on Banking and Payment Transactions. It is chaired by the NBRB Governor and meets weekly.

Changes and reforms in process

24. In May 2004 the Board of the NBRB approved by way of a Resolution the “Concept Document for the Development of the National Payment System of the Republic of Belarus until 2010 with an Account for Global Trends”. It sets forth a large number of proposals for the further development of the payment infrastructure in Belarus.

25. The “concept document” identifies development opportunities in the payment system in general. Individual development initiatives, when addressed, are elaborated in more detail in separate documentation.

26. The most important project under way is the implementation of a new upgraded BISS system, expected to start live operations as from April 2005. In the new version of BISS, the payment flow will be divided in into two: one for large value and/or time sensitive and the other (new) for non-time sensitive payments. A mutual offset mechanism will be applied for the non-time sensitive payments queue. To facilitate the flow of payments, the system will attempt to settle queued payments by means of a frequently applied (automated) queue optimization procedure.5

27. In conjunction with the start of live operation by the new BISS system, as from February 1, 2006, the operational regime of the clearing system for other payments will be changed. Instead of having four daily clearing sessions (as is the case now), there will be only one single clearing session.

28. It is envisaged that, after some one year of parallel operation of the new BISS system and the NBRB clearing system, the latter would cease operation. This will, however, depend on whether the new BISS system will prove capable to process a substantially higher payments volume than the current BISS system.

C. Main Findings—Summary

29. The mission has found that BISS observes three Core Principles and one Central Bank Responsibility. The mission’s assessment therefore points to opportunities for further improvements with respect to the understanding and management of risks, security and operational reliability and contingency procedures, efficiency and practicality of the system, fair and open access, governance and three central banks responsibilities to ensure full adherence to the Core Principles. In addition, there are some other, more technical refinements at the margin in a few areas that the mission recommends be pursued (see paragraph 31).

Table 4.

Detailed Assessment of Observance of CPSS Core Principles for SIPS and Central Bank Responsibilities in Applying the CPs—BISS

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Table 5.

Summary Observance of CPSS Core Principles and Central Bank Responsibilities in Applying the CPs—BISS

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D. Recommended Actions and Authorities’ Response to the Assessment

Recommended actions

30. The mission conducted an assessment of BISS relative to the Core Principles for Systemically Important Payments Systems and confirmed observance of three principles and one central bank responsibility. The mission’s assessment points to opportunities for further improvements in the understanding and management of risks, security and operational reliability and contingency procedures, efficiency and practicality of the system, fair and open access, governance and three central banks responsibilities to ensure full adherence to the Core Principles.

Table 6.

Recommended Actions to Improve Observance of CPSS Core Principles and Central Bank Responsibilities in applying the CPs—BISS

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31. In addition to the above recommendations, there are a few other, more technical, refinements that the mission believes would desirably still be pursued, to further improve existing arrangements:

  • To ensure clarity and understanding, a simplification of the legal, technical, operational and organizational documentation would be welcome. This could be achieved by consolidating the documentation or, at a minimum, by establishing a comprehensive list on all relevant documents;

  • The NBRB is encouraged to continue its efforts to collect and study material published on payment systems related issues, in particular, information available on the internet. As there are currently limited opportunities for close co-operation with central banks and authorities in many countries, continued activities with Russia and other CIS countries will likely prove being most helpful, and;

  • Oversight relations with the Committee of Securities could usefully be progressively developed.

E. Authorities’ Response

32. The authorities generally agree with the assessment. At the same time it should be noted that even though the National Bank does not have a formally defined task to supervise payment systems, it does engage in a broad set of measures associated with the fulfillment of that function.

1

Prepared by Tom Kokkola (European Central Bank).

2

Settlements for operations with securities in the OTC market are effected by means of sending a payment order for monetary transfer to BISS (if there is a need to make an interbank settlement) and an order to transfer securities to the depository where they are kept.

3

If the receiving bank is unable to apply the funds received to an account (e.g. because of an error in the bank account indicated in the message), the settlement finality of that payment still holds, but the bank would initiate a separate “return payment”.

4

In Tables 1 to 3, value data for the years 2001 to 2003 have been converted into US$ using the official exchange rate between the Belarus rubel and US$ as at 1 January 2002, 2003, and 2004 respectively.

5

In normal circumstances a queued payment (the first in the queue) is only settled once sufficient funds become available in the settlement account. In the optimization procedure, the system will search the queues for “offsetting” outgoing and incoming payments (on a bilateral or multilateral basis), i.e. whether there are payments the net value of which could be settled with the funds available. If yes, such payments will be settled as “a block”.

Republic of Belarus: Financial Sector Assessment Program: Detailed Assessment of Observance of CPSS Core Principles for Systemically Important Payment Systems: Belarus Interbank Settlement System: BISS: RTGS Service
Author: International Monetary Fund