Abstract
This paper presents an assessment of observance of the CPMI–IOSCO (Committee on Payments and Market Infrastructures–International Organization for Securities Commissions) principles for financial market infrastructures in Turkey. The electronic funds transfer system in Turkey broadly observes the risk management framework and liquidity risk management, default management, and operational risk management principles. It partially observes the tiered participation principle. The rest are observed or not applicable. The electronic securities transfer system broadly observes the risk management framework, liquidity, default management, and operational risk principles; the rest are observed or not applicable.
I. Introduction
7. The present document is the assessment of select Financial Market Infrastructures (FMI) in Turkey against the Committee for Payments and Market Infrastructures (CPMI) and International Organization of Securities Commission (IOSCO) Principles for Financial Market Infrastructures (PFMIs). The assessment1 was conducted in the context of field missions of the Financial Sector Assessment Program (FSAP) to Turkey in April 2016.
8. This assessment covers the following FMIs: The Electronic Funds Transfer (EFT) system and the Electronic Securities Transfer System (ESTS). These two FMIs form part of an integrated payment and securities settlement system called the “CBRT Payment and Securities Settlement System”. This integrated system also includes the Retail Payment System (RPS) which functions in Real Time Gross Settlement (RTGS) mode for customer initiated inter-bank transactions. The EFT system also functions in the RTGS mode, but is used exclusively for transactions related to participating banks proprietary transactions including for the settlement of primary and secondary market transactions on Government securities and central bank bills. The ESTS functions as a Central Securities Depository (CSD) for Government securities and central bank bills; the ESTS also functions as a Securities Settlement System (SSS) for the primary and OTC secondary market transactions between the banks on these securities.
9. The assessment takes into account the interlinkages of the EFT and ESTS with the other FMIs in Turkey: Takasbank and Merkezi Kayit Kurulusu (MKK). The Takasbank functions as the SSS for the secondary market transactions and repos on Government securities on the Borsa Istanbul (BIST); SSS for equities and corporate bonds traded on the BIST; and, as Central Counterparty (CCP) for the derivatives traded on the BIST. The Takasbank also operates a Securities Lending and Borrowing (SLB) platform; money market with banks and other institutional investors as participants; and a collateralized cash credit facility for banks and other institutional investors. The Takasbank is also the Legal Entity Identifier Operating Unit (LOU) for Turkey. The MKK functions as the CSD for equities and bonds traded in the BIST and for Government securities held by brokers and individual and institutional investors. The MKK holds securities in the name of the beneficial owner. There is a link between the MKK and ESTS to record movement of Government securities from banks to investors and vice versa. The MKK has an account at the ESTS to reflect the consolidated holding of Government securities in the MKK by investors. The MKK has also recently received a license from the CMB to function as a Trade Repository (TR) for OTC derivatives.
10. The information used in the assessment included all relevant laws, rules and procedures governing the systems, material available on these FMIs in the public domain and from the CBRT and the CMB. In addition, extensive discussions were held with the regulators and overseers – CBRT and CMB, the other FMIs – Takasbank and MKK; and commercial banks. In addition, the mission team was provided with:
Self-assessment of the EFT system against the PFMIs.
Self-assessment of the ESTS against the PFMIs.
Self-assessment of the CBRT and CMB on their responsibilities for FMIs against the PFMIs.
Excerpts of the daily, monthly, quarterly and annual reports produced by the CBRT related to the EFT, ESTS and the RPS.
Excerpts of the documents related to the internal policies and procedures and deliberations of relevant working groups and committees.
11. This assessment uses the methodology presented in the CPMI-IOSCO publication – “Assessment Methodology and Disclosure Framework for PFMIS (December, 2012)” and takes into account the considerations related to the FMIs operated by central banks, outlined in the CPMI publication “Application of PFMIs for central bank operated FMIs” (August 2015).
12. The presentation of the assessment takes into account the integrated nature of the EFT and ESTS. These two systems are part of an integrated system and share the operating rules, governance arrangements, risk management framework, access criteria and system interfaces and message formats. The assessment tables for the EFT provide the detailed descriptions for these and these are referenced in the ESTS assessment table instead of repeating the same details again. The principles on credit risk, collateral management and liquidity risk have been assessed for ESTS, to account for the credit extension to participants which happens outside the EFT and ESTS system but it is integral to the functioning of both FMIs. In the summary section and recommendations table, the highlights of the EFT and ESTS assessments and the recommendations are presented together.
II. Overview of the Payment, Clearing and Settlement Landscape
A. Regulation, Supervision and Oversight of Payment and Securities Settlement Systems
Institutional arrangements
13. The Central Bank of the Republic of Turkey (CBRT), the Capital Markets Board (CMB) and the Banking Regulation and Supervisory Authority (BRSA) are the authorities with responsibility for specific elements of the Turkey National Payments System (NPS). The CBRT, is the central bank and has regulatory and oversight responsibility for payment and securities settlement systems. The CMB has responsibility for the safe and efficient functioning of the capital markets and is responsible for the CSDs, CCPs and TRs. The BRSA as part of its banking supervision responsibility is responsible for regulation of payment instruments and also regulation and supervision of non-bank e-money and payment institutions.
14. The CBRT is the regulator, overseer and licensing authority for the payment and securities settlement systems. The CBRT published its objectives and policies as regards payment and securities settlement systems on its website in October 2014. According to this the main objective of the CBRT is to ensure “safe, uninterrupted, efficient and effective functioning of the systems.” The CBRT, is a member of the CPMI. The CBRT is the overseer of the payment and securities settlement systems. The Payment Systems Department (PSD) of the CBRT was established in November 2013 and is responsible for leading all initiatives related to payment and securities settlement systems, operating the core systems, and overseeing all payment and securities settlement systems in Turkey. The PSD is headed by an Executive Director (ED) reporting to one of the four Deputy Governors of the CBRT and executes its functions through four divisions – Payment Systems Operations, Regulation & Oversight, Payment Transactions, and Research & Development; organized as two groups with each group reporting to a Deputy Executive Director (DED). The organization chart of the CBRT and the PSD is presented below.
CBRT Organization Structure
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT Organization Structure
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT Organization Structure
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT Payment Systems Department (PSD)
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT Payment Systems Department (PSD)
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT Payment Systems Department (PSD)
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
15. The CMB is the regulatory and supervisory authority for the capital markets. The Borsa Istanbul (BIST) is the only securities exchange and Merkezi Kayit Kurulusu (MKK) functions as Turkey’s central securities depository (CSD) and registrar of dematerialized corporate securities. Capital market trades conducted over BIST are settled and cleared by the Istanbul Settlement and Custody Bank (Takasbank).2 Takasbank also acts as the central counterparty (CCP) for derivatives transactions undertaken on BIST and at the Securities Lending Market operated by itself. Government bonds, treasury bills, CBRT bills, capital market instruments, share income certificates and international securities are traded on the Borsa Istanbul. The BIST bonds and bills market is the only organized, fully automated market for outright purchases and sales, as well as repurchase (repo) and reverse repurchase (reverse repo) transactions with fixed income securities. Treasury bills and government bonds are the most actively traded instruments. The CMB is a member of IOSCO and is responsible for regulation, supervision and oversight of Turkey’s corporate securities market FMIs (CSD, CCP and TR) and their observance of the PFMIs.
16. The BRSA is the sole authority for banking regulation and supervision.3 The fundamental goal of the BRSA is to ensure confidence and stability in the financial markets, provide effective operation of the credit market, and safeguard the rights and interests of depositors. It was established in 1999 by the Turkish Government to improve the effectiveness of regulation and supervision of the banking industry. BRSA is public legal entity with administrative and financial autonomy. It was established according to Banks Act No. 4389 in June 1999 and began operating in August 2000. According to Banking Law (No. 5411), in order to establish confidence and stability in financial markets, the sound operation of the credit system, foster the development of the financial sector, and protect the rights and interests of depositors, the responsibilities of BRSA are three-fold: (i) Regulate, monitor and supervise banks and financial holding companies, as well as leasing, factoring and financing companies, and ensure the enforcement of their regulations; (ii) Become members of international financial, economic and professional organizations in which domestic and foreign equivalent agencies participate, to sign memorandum of understanding with the authorized bodies of foreign countries regarding the issues that fall under the Agency’s duty field; and (iii) Fulfil other duties assigned by the law. As part of its responsibility for banking supervision, the BRSA also regulates payment instruments and also regulates and supervises non-bank e-money and payment institutions.
Legal and regulatory framework
17. The CBRT derives its authority over the NPS from the Law on the Central Bank of the Republic of Turkey (CBRT Law) – Law no. 1211, which was enacted in 1970 and amended, most recently, in 2011; and the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions No 6493 (PSL) enacted in June 2013. The CBRT law, as amended in 2011, authorizes the CBRT to establish payment, securities transfer and settlement systems, enact regulations to ensure the uninterrupted operation and oversight of existing or future systems, and to determine the methods and instruments, including the electronic environment for payments, that shall be used for payments. The PSL, granted the CBRT broad authorities and responsibilities for the nation’s payment and securities settlement systems. In specific, the law assigned responsibility to CBRT to (i) prepare secondary regulation regarding establishment, operations, acquisition and transfers of shares, and oversight of payment and securities settlement systems within a year (Articles 4.3 and 8.1); (ii) designate payment and securities settlement systems that are subject to the provisions of settlement finality and publish them in the Official Gazette;4 (iii) license payment and securities settlement systems; (iv) monitor licenses and revocation of licenses in certain situations defined by the Law; (v) overseeing all payment and securities settlement systems that operate in Turkey; and (vi) impose administrative fines on the system operators that violate the provisions of Law and secondary regulations.
18. CBRT has issued implementing regulations for the operation and oversight of payment and securities settlement systems since the passage of the Payment Law. CBRT’s ‘Regulation on Operations of the Payment and Securities Settlement Systems’ and ‘Regulation on Oversight of the Payment and Securities Settlement Systems’ were both enacted in June 2014. They set forth the principles and procedures regarding operating licenses, system rules, operating conditions, the risk management framework, collateral, guarantee and credit mechanisms, acquisition and transfers of shares, and oversight. The “Regulation on Operations of the Payment and Securities Settlement Systems” (June 2014) – (ROPSSS) sets forth the principles and procedures regarding operating licenses, system rules, operating conditions, the risk management framework, collateral, guarantee and credit mechanisms, acquisition and transfers of shares. The “Regulation on Oversight of the Payment and Securities Settlement Systems” (June 2014) – (ROSPSSS) forms the basis for CBRT’s oversight activities. The CBRT has also prepared the ‘Communique on Information Systems of Payment and Securities Settlement Systems’. The Communique defines detailed provisions that system operators are expected to take into consideration regarding the management of information systems.
19. Banking Law No 5411 lists payment services as one of the activities banks are allowed to carry out. 5 In specific Article 4 (d) mentions “Carrying out any type of payment and collection transactions, including cash and deposit payment and fund transfer transactions, correspondent bank transactions, or use of check accounts” and Article 4 (g) refers to “Issuing payment instruments such as credit cards, bank cards and travellers checks, and executing relevant activities.”
20. The PSL lists activities, which are considered to be payment services and also covers non-bank e-money providers and payment institutions. Article 12 of the PSL lists the transactions that are to be deemed as “payment services”. Among these activities are all operations required for operating a payment account, payment transactions including transfers of funds on a payment account of the payment service user and direct debits, issuing or acquiring of payment instruments, money remittance and services for mediating invoice payments. The PSL, includes provisions on the establishment, licensing, operating conditions, and oversight of payment services. It is also considered to be a general framework of payment services, and empowers the BRSA to prepare secondary regulations. Article 13 of the Law exhaustively lists the institutions authorized to perform the above listed payment services as: (i) The banks within the scope of the Banking Law; (ii) Electronic Money Institutions or (iii) Payment Institutions. It should also be noted according to Article 5 of the Regulation No. 29043 on Payment Services, Electronic Money Issuance, Payment Institutions and Electronic Money (27 June 2014), the Post Office (PTT) is also authorized to perform such payment services within the scope of the provisions of the Postal Services Law No. 6475.
21. Cheque Law (No 5941), which was enacted in 2009 and amended further in 2012, governs all aspects of cheque payments. It describes and defines the modalities for the issuance, acceptance and payment by cheque. The amendments to the law in 2012 decriminalized the issuance of bad cheques, imposing administrative sanctions in place of the criminal sanctions in the 2009 version of the law. The law enables the establishment and functioning of interbank cheque clearing houses, whose oversight and supervision vests with the CBRT under the CBRT Law and the PSL. The rules and procedures of the Inter-bank Cheque Clearing House (ICH) are governed according to the regulation issued by the CBRT.
22. The Bank Cards and Credit Cards Law (No 5464), which was also enacted prior to the PSL6, serves to ensure efficient and effective functioning of the card payments system by establishing the principles and procedures applicable to the issuance, use, and clearing and settlement of bank cards and credit cards.7 Organizations and entities which establish a card system, issue cards and enter into merchant agreements, as well as merchants and card holders are subject to and governed by the provisions of this law. This law is complemented by secondary regulation of BRSA.
23. On the securities side, the issuance and management of public debt is governed by the Public Finance and Debt Management Law (Law No 4749). The law establishes rules and procedures for the management of domestic and foreign public debt by the central government and other establishments with more than 50% of their capital belonging to the state, state banks, investment and development banks, municipalities, and other local government agencies. The CBRT as an agent of the Undersecretariat of Treasury, is responsible for issuing and settling government bonds and Treasury bills on behalf of the Treasury.
24. The mandate of the Capital Market Law No 6362 (CML) is to “regulate and supervise capital markets to ensure the functioning and development of capital markets in a secure, transparent, efficient, stable, fair and competitive environment and to protect the rights and interests of investors.” To this end, the CML provides for the establishment of the CMB, as the independent regulator and overseer of the capital markets in Turkey. Capital market instruments, their public offering and sale, exchange markets and other markets organized pursuant to the law, capital market activities, capital market institutions, and investor protection are subject to the provisions of the law. Settlement finality and irrevocability with respect to capital market transactions is provided under the law. In addition, the law enables the setting up of market infrastructures such as central securities depositories (CSD), central clearing institutions, central counterparties (CCPs) and trade repositories (TRs) and defines their activities. The law also has provisions for the setting up of the Turkish Capital Markets Association (TCMA) as a self-regulatory professional body for institutions authorized to perform investment activities. The CMB has issued secondary regulations related to CSDs and CCPs and is in the process of issuing the regulations for TRs.
B. Payment, Clearing and Settlement Systems in Turkey
25. The CBRT owns and operates an integrated payment and securities settlement system comprising two payment systems – EFT and RPS, functioning in RTGS mode; and ESTS - a CSD-cum-SSS for Government securities and CBRT bills. The EFT is an RTGS system and is fully integrated with the ESTS. The EFT was launched in April 1992, modernized in 2000, and again, in 2012. The second generation EFT added key functionality to the system, including a central queuing mechanism, funds management facilities, direct debit facilities, and phased closure of operations, as well as an emergency backup center. The third generation split the processing of interbank (time critical banking payments) and retail payments into two separate operations creating the RPS for customer initiated transactions and with the EFT covering inter-bank proprietary transactions. There is no transaction value ceiling or floor for these systems. According to the CBRT, by 2011, the rapid growth in the volume of low value retail payments was creating a significant risk to the settlement of large value and urgent payments, hence in consultation with the banks the RPS that was developed as a system for handling the customer initiated transactions was created. The EFT, RPS and ESTS all use the same inter-bank network and function as an integrated system. Message types are used to direct messages to the appropriate sub-system. The CBRT is the system owner and operator, the operative and administrative responsibility lies with the CBRT’s Payment Systems Operation Division of the PSD and the technical responsibility with the Analytical IT Development Division (Information Technology Department). Any bank operating in accordance with the Banking Law can, with CBRT’s approval, become a direct participant in the EFT, RPS and ESTS. There are a total of 54 participants, with the exception of the MKK all other participants are banks.
26. The participants in the EFT system and RPS are only banks. They have different accounts at the CBRT for the EFT and RPS and support only local currency credit transfers. The systems differ on the SLA for processing time and queue management features. While both components are based on the RTGS-principle, the EFT service level agreement (SLA) limits processing time8 to a maximum of one minute (current average is one second). In contrast, the RPS SLA limits the processing time to no more than 15 minutes (current average is 30 seconds). EFT settles on First-in first-out (FIFO)-basis based on priority and the RPS on By-Pass first-in first-out (By-Pass FIFO) basis; and EFT allows for queue management, whereas RPS does not. The EFT system also has an automated multilateral offsetting generated every minute. Participants have different settlement accounts for EFT and RPS, between which funds can be moved intra-day. Both components support only Turkish Lira (TRY) denominated credit transfers. In 2015, RPS settled 315,243,249 payments with a total value of TRY 9.99 trillion, whereas EFT settled 2,918,019 payments with a total value of TRY 42.73 trillion. The total value processed by the EFT and RPS system in 2015 was around 27.9 times the GDP of Turkey in 2015. The number of transactions processed by the EFT shows a distinct skew to the later part of the operational day – on a typical day around 50% in the last 2.5 hours of operations. In January 2016, around 15.94% of transactions were queued for inadequate balance and remained in the queue for an average of 7 minutes. The maximum queue time9 in January 2016, was around 18 minutes.
Transaction pattern on a typical day in the EFT system
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
Transaction pattern on a typical day in the EFT system
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
Transaction pattern on a typical day in the EFT system
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
27. The ESTS is the CSD for government debt securities and the CBRT bills. It also functions as an SSS for the primary and OTC secondary market operations on these securities, settling in DVP mode using Model 1; the ESTS also supports the use of these securities as collaterals for the CBRT liquidity facilities. The ESTS maintains these securities in dematerialized form and records the securities ownership from their initial issue, transfers arising from secondary market transactions through to their final redemption. The ESTS works in an integrated manner with the EFT to support DvP, using Model 1 – gross settlement of both funds and securities leg. The proprietary securities holdings of banks are held at banks’ own accounts in the ESTS. Retail and institutional investors accounts are held in the MKK at the beneficial owner level. The MKK is also a participant in the ESTS and has an account to reflect the consolidated holdings of these securities held by investors. Banks also have separate collateral accounts, one each for respective CBRT liquidity facilities. The ESTS supports holding of sub-accounts for customers – called the “007” accounts. As a practice banks use this account only for intra-day transactions and at the end of day move all holdings in the “007” accounts to the invetsors account in MKK. The Takasbank, is an exception, and it uses this to also reflect holdings of investor’s assets as parts of its SSS activities. The ESTS also supports various business flows such as Free of Payment (FOP) transfers of securities between participants, repositioning of securities between the accounts of a participant, direct debiting of securities by the CBRT, and the CBRT Portfolio Operations. In 2015, the ESTS processed 302,512 securities transactions, 113,542 were DvP operations, for which the total value of corresponding payment legs settled in EFT was TRY 7.01 trillion; the rest were free of payment transfers.
28. Operating hours of EFT, RPS and ESTS are weekdays (except national holidays) from 8:30 to 17:30. The EFT and RPS settlement accounts are zero balance accounts, at the start of the day EFT and RPS receives the previous day’s closing balances as starting balance from the CBRT. The EFT and RPS receive electronic payment orders sent by the participants on an ongoing basis, debit the sender’s account if its balance suffices, credit the settlement account of the receiving participant, and inform the receiving bank. If funds are insufficient, the messages are queued. At the end of every business day, EFT and RPS send reconciliation reports to the participants and the CBRT.
29. The Participant Interface System (PIS) is the system component used by participants for interfacing with the CBRT Payment Systems. The PIS is essentially a messaging system and is the gateway to the EFT, RPS and the ESTS system. The participants access PIS through a closed private network. The PIS checks the access rights, enforces security measures, verifies digital signatures, manages the encryption and decryption and validates messages. The PIS system is also used for distribution and access to end of day reports and files shared between the participants and the CBRT payment and securities settlement systems. The below figure shows how the various system components interact with each other.
CBRT payment and securities settlement Systems
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT payment and securities settlement Systems
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
CBRT payment and securities settlement Systems
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
30. The banks have access to diversified sources of liquidity for use in the EFT and RPS system. The reserve maintenance period for banks is 14 days, within this period the banks have access to their statutory reserves at the CBRT for use in the EFT and RPS system. The CBRT as part of its monetary policy operations offers collateralized Intra-day Liquidity Facility (ILF), overnight credit, daily repo operations, weekly repo auctions and finally the Lender of Last Resort (LOLR) facilities. These are collectively called CBRT liquidity facilities. The CBRT sets an overall borrowing cap across the standing facilities except the LOLR. The cap is based on the asset size of a bank. The banks in addition have access to: the BIST repo market; the inter-bank money market operated by the Takasbank; the cash credit facility offered by the Takasbank; and, pre-agreed credit lines between banks. The below table summarizes the various sources of liquidity, their operating hours, collaterals accepted, clearing and settlement (C&S) institution and the Average Daily Value (ADV) based on data for March 2016.
Liquidity Facilities available to banks
Liquidity Facilities available to banks
| Market | Operating Hours | Assets Accepted As Collateral | C&S Institution |
|---|---|---|---|
| BIST Debt Securities Market Repo Markets Settles at 16.30 ADV: TRY 55.6 billion | Same Day Value: 09:15 - 14:00 Future date: 09:15-17:00 | Government Securities, Lease Certificates10, CBRT Bills, Corporate Bonds | SSS: Takasbank Securities a/c: G-Secs: Takasbank; Corporate Bonds: MKK Funds a/c: Takasbank |
| Takasbank Money Market Settles at 16:00 ADV: TRY 1.5 billion | 10:00-12:00 13:00-15:30 | Cash & Letters of Guarantee: TRY &Foreign Currencies; Government Securities and CBRT Bills; Euro Bonds; Mutual Funds Participation Certificates. | SSS: Takasbank Securities a/c: Takasbank Funds a/c: Takasbank. |
| Takasbank - Cash Credit Facility Settles at 17:00 ADV: TRY 92 million | 08:45 - 17:00 | Equities; Government Securities and CBRT Bills; mutual funds participation certificate; and Letters of Guarantee. | Works as a bilateral arrangement. |
| CBRT Liquidity Facilities Settles in real-time, DVP mode ADV: TRY 104 billion | ILF: 09:00 - 15:00 For the others: 10:00-12:00 & 13:00-16:00, | Foreign Exchange Deposits, Foreign Exchange Banknotes Deposits, Eurobonds, Lease Certificates issued by the ALCTT (Asset Leasing Company of the Turkish Treasury), Foreign Bonds and Notes, International Islamic Liquidity Management (IILM)11 Issuances, TRY Government Bonds, CBRT Liquidity Bills, | SSS: CBRT Securities A/C: ESTS Funds A/C: EFT |
Liquidity Facilities available to banks
| Market | Operating Hours | Assets Accepted As Collateral | C&S Institution |
|---|---|---|---|
| BIST Debt Securities Market Repo Markets Settles at 16.30 ADV: TRY 55.6 billion | Same Day Value: 09:15 - 14:00 Future date: 09:15-17:00 | Government Securities, Lease Certificates10, CBRT Bills, Corporate Bonds | SSS: Takasbank Securities a/c: G-Secs: Takasbank; Corporate Bonds: MKK Funds a/c: Takasbank |
| Takasbank Money Market Settles at 16:00 ADV: TRY 1.5 billion | 10:00-12:00 13:00-15:30 | Cash & Letters of Guarantee: TRY &Foreign Currencies; Government Securities and CBRT Bills; Euro Bonds; Mutual Funds Participation Certificates. | SSS: Takasbank Securities a/c: Takasbank Funds a/c: Takasbank. |
| Takasbank - Cash Credit Facility Settles at 17:00 ADV: TRY 92 million | 08:45 - 17:00 | Equities; Government Securities and CBRT Bills; mutual funds participation certificate; and Letters of Guarantee. | Works as a bilateral arrangement. |
| CBRT Liquidity Facilities Settles in real-time, DVP mode ADV: TRY 104 billion | ILF: 09:00 - 15:00 For the others: 10:00-12:00 & 13:00-16:00, | Foreign Exchange Deposits, Foreign Exchange Banknotes Deposits, Eurobonds, Lease Certificates issued by the ALCTT (Asset Leasing Company of the Turkish Treasury), Foreign Bonds and Notes, International Islamic Liquidity Management (IILM)11 Issuances, TRY Government Bonds, CBRT Liquidity Bills, | SSS: CBRT Securities A/C: ESTS Funds A/C: EFT |
31. The Takasbank functions as the SSS for the secondary market transactions and repos on Government securities on the Borsa Istanbul (BIST); SSS for equities and corporate bonds traded in the BIST; and, as Central Counterparty (CCP) for the derivatives traded on the BIST. The Takasbank also operates a Securities Lending and Borrowing (SLB) platform and acts as CCP at this platform as well; money market platform for banks and other institutional investors as participants; and a collateralized cash credit facility for banks and other institutional investors. The Takasbank is also the Legal Entity Identifier Operating Unit (LOU) for Turkey. The below charts shows the size of the various markets and the collaterals held by Takasbank for the operations across these markets.
32. The MKK functions as the CSD for equities and corporate bonds traded in the BIST. Government securities held by brokers and individual and institutional investors are also monitored on the MKK system. The MKK holds securities in the name of the beneficial owner. There is a link between the MKK and ESTS to record movement of Government securities from banks to investors and vice versa. The MKK has an account at the ESTS to reflect the consolidated holding of Government securities in the MKK by investors. The MKK has also recently received a license from the CMB to function as a Trade Repository (TR) for OTC derivatives.
Value of trades across markets and collaterals held with Takasbank
(in Billion USD)12
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
Value of trades across markets and collaterals held with Takasbank
(in Billion USD)12
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
Value of trades across markets and collaterals held with Takasbank
(in Billion USD)12
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
33. Foreign exchange transactions are primarily conducted bilaterally between banks and by banks with the CBRT. There is no PVP arrangement for the inter-bank foreign exchange transactions. The banks place their bid and asks for foreign currency at the CBRT’s Reuters page. The CBRT seeks to intervene, processes these and settles the Foreign Currency (FCY) leg in correspondent accounts abroad. The CBRT also operates periodic FCY auctions which also function in the same way. The banks also use OTC trades, again using foreign correspondent bank accounts for the FCY leg. The banks have FCY accounts with the CBRT, but these are only used for reserve maintenance and transactions are not allowed.
34. Interbank cheque transactions are cleared through Interbank cheque Clearing House (ICH)) which is overseen by the CBRT. Cheque clearing activities are executed in Istanbul and Ankara Clearing Houses. Both clearing houses have identical hardware and software, and can serve as a back-up center for each other. ICH functions as a Deferred Net Settlement (DNS) system for cheque transactions clearing and settlement. Transactions are settled, based on multilateral netting on T+2 basis, through the special settlement account of ICH at the CBRT. The ICH notifies its member banks and the CBRT of each bank’s net debit or credit position. After all debit positions have been closed by the debtor banks, the payments are credited to the creditor banks.
35. All domestic payment card transactions are processed through two domestic switches - the Interbank Card Center System (BKM) and Gosas. The BKM is a DNS system for debit card and credit card transactions. All banks in Turkey issuing cards or operating ATM and POS are members of BKM. Payments are settled, based on multilateral netting, on the books of the central bank through the BKM’s special settlement account at the CBRT.13 Net results calculated on T+1 and settlement made on T+2. Credit and debit transactions with non-member banks or with banks outside Turkey are processed outside Turkey by Visa or MasterCard or via correspondent banking arrangements. BKM also offers BKM Express, a digital wallet, which can be accessed via smartphones too and allows, among others, Person-to-Person Transfers. The Gosas system also operates a card switch for its 10 members and processes the transactions between these banks. Gosas settles in DNS mode on T+2 in the books of Garanti Bank. The Gosas system also has an acceptance mark called “Bonus”.
36. The Post and Telegraph (PTT) – the Turkish post operates postal banking services through its department “PTT Bank”. The services provided by PTT Bank include: Postal Cheque Account – a regular checking account with a linked Maestro14 branded debit card (96.72 million); prepaid cards for social protection payments of Government and other international agencies (1.5 million); remittances, collection services, bill payments through its vast network of branches (4,414 – largest in Turkey) for over 359 institutions; operate network of ATMs (2124); and, ecommerce acquiring. The PTT bank also offers a mobile solution for accessing its various services. The PTT bank does not have direct access to the EFT and RPS, it accesses these through other banks. The PTT bank indirectly participates to the BKM.
37. Pursuant to the provisions the PSL, the BRSA has recently commenced the process of licensing e-money issuers and other payment institutions15. The PSL introduced the category of non-bank e-money issuers and other payment institutions and assigned the regulatory and supervision of these institutions to the BRSA. The BRSA issued the implementing regulations related to these in 2014. The BRSA has received 48 applications and is in the process of reviewing them. It has already provided licenses to 5 e-money issuers and 11 payment institutions. The applications of the remaining 32 are under examination. Some of these firms were already operating and applied under the “transition period” allowed under the PSL for institutions in operation prior to the PSL coming into force.
38. The below chart shows the interactions between the various elements of the Turkish NPS.
The Turkey NPS
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
The Turkey NPS
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
The Turkey NPS
Citation: IMF Staff Country Reports 2017, 045; 10.5089/9781475576870.002.A001
C. Planned Reforms
39. The CBRT is in the process of developing an oversight framework which envisages articulating the specific standards to be used for specific types of systems, the data and reporting requirements. As noted earlier the CBRT has issued a general policy statement on payment and securities settlement systems, which makes the PFMIs applicable for all payment and securities settlement systems in Turkey. As part of the new oversight framework the CBRT intends to adapt the PFMIs in terms of specific principles and key considerations which would be applicable for specific retail payment systems.
40. The CBRT in co-ordination with the banks is evaluating inclusion of the TRY in the CLS System.
III. Summary Assessment
Principles: Key Findings and Follow up
General organization (Principles 1 - 3)
41. The legal basis for the EFT and ESTS, are the CBRT law, the PSL and specific regulations pertaining to operations and oversight. The CBRT as the operator has developed detailed operating rules – the Payment Systems Operating Rules (PSOR). The participants are required to sign a participation contract which binds them to the PSOR. The participation contract and the PSOR have a sound legal basis. All material legal aspects are adequately covered in the PSL and the CBRT law. All participants of the EFT system are subject to Turkish laws and regulations; and all operations are also performed in Turkey.
42. The legal certainty for the arrangements with respect to the collateralized liquidity support relating to securities held in ICSDs, should be ascertained. The usage of liquidity support against securities held in the ICSDs are very limited and the securities pledged as collateral are held in the name of CBRT, hence it is not an immediate issue of concern. However as a good measure it would be important to review the legal certainty for these arrangements.
43. There appears to be some ambiguity on the legal basis for the protection of participant securities holdings which are transferred by participants to the account of Takasbank in ESTS.. Banks and individual and institutional investors participating in the Government securities secondary market at the BIST or in the inter-bank money market operated by the Takasbank, transfer securities to the account of Takasbank (in ESTS) for their securities transactions and also to be used as collateral. The specific provisions related to collateral in the PSL and CML are applicable, which protects the securities pledged as collateral, however the protection for securities holdings in the sub-accounts from any insolvency of Takasbank is not clear. The PSOR does not clearly recognize holding of government securities sub-accounts by a participant [Takasbank in this case]. The CML and other provisions related to CSDs do not specifically apply to this arrangement, as the ESTS is outside the scope of the CML. However, articles in CML pertaining to segregation of assets of investors in investor firms (article 46) appears to be applicable to Takasbank. Investor firms as defined in article 3(v) of the CML and investment services as defined in article 37 (g) encompass the activities of Takasbank as a SSS.
44. The objectives and policies of the CBRT regarding Payment and Securities Settlement Systems place a high priority on stability, safety and efficiency. The CBRT has documented governance arrangements for the institution as a whole that define clear and direct lines of responsibility and accountability. The same governance framework has been applied for the EFT system and ESTS as well, as a core responsibility of the PSD. There is a risk management framework for the CBRT operated payment systems. There is an existing process of auditing departmental risk management framework, however the PSD’s risk management framework has not been audited yet. Mechanisms exist for involving stakeholders in decision-making process, and the CBRT effectively communicates with the stakeholders through different channels.
45. The PSD has developed a risk management framework based on the ISO 30001 framework. The risk management framework covers the specific risks outlined in the PFMIs. The framework is reviewed annually and is also subject to audit by the CBRT audit committee. The PSOR provides adequate powers to the CBRT to ensure conformance to the operating and security procedures outlined in the PSOR. The PSD has mechanisms in place for measuring and monitoring specific aspects of liquidity risk and operational reliability of the EFT system.
46. The risk management framework is however internally focused and does not explicitly take into account the dependencies on other FMIs and also internal systems of the CBRT. In particular, the operations of the EFT system has a heavy dependence on the money markets operated by Takasbank and the CBRT markets department, given their role in providing liquidity to participants. The Markets Department is the decision maker on the provision of the CBRT liquidity support facilities and also has its own systems and processes. This risk however is to an extent mitigated as the Takasbank and other FMIs are subject to the oversight of the CBRT and the Markets department also has its own risk management framework and co-ordination framework is in place.
Credit and liquidity risk management (Principles 4 - 7)
47. The credit risk in the EFT and ESTS stems from the CBRT liquidity support operations to the participants. The liquidity support operations are not integrated into the EFT system and as such are handled by the markets department. The credit risk is considered as part of the EFT risk management framework, but the full treatment of the credit risk from liquidity support operations is in the domain of the markets department. The markets department’s credit risk management framework includes instituting overall borrowing limits, requiring all credit facilities to be collateralized with good quality securities, and applying haircuts. The collaterals are re-valued daily and the CBRT has the rights to ask for additional collateral when there is an adverse movement.
48. The collateral management system and processes are external to the EFT and ESTS and are managed by the CBRT markets department. The extension of liquidity support is considered a monetary policy instrument. The choice of securities, haircut rates, valuation practices and operational arrangements are an integral part of the CBRT monetary policy operations framework. The CBRT maintains a list of eligible securities and their haircut rates. The haircut rates depend on the types and maturity of securities. The eligible securities are TRY government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, IILM issuances and foreign exchange deposits and foreign exchange banknotes deposits.
49. The CBRT as the operator of the EFT system and ESTS, by itself is not constrained in TRY liquidity. However the participants could face liquidity shortages. The participants have access to liquidity support from the CBRT and the inter-bank money markets. These liquidity options are collateralized and in the case of the intraday and overnight CBRT liquidity support there is an overall borrowing limit for the participant. However, liquidity support is available without any limit within the framework of LOLR. There is no explicit stress testing mechanism in place, however there is an ongoing review of the policy framework relating to the CBRT intraday liquidity support. There is however no set time-period for this. The transaction pattern in the EFT system shows existence of substantial liquidity risk. The CBRT has studied this and is currently evaluating suitable options.
Settlement (Principles 8 - 10)
50. The EFT functions as a RTGS system with final settlement through the day and settles in central bank money. Settlement finality is protected in the PSL and clearly articulated in the PSOR and as such has a sound legal basis.
51. In ESTS, securities are dematerialised and processed in book entry form. Although it was possible to rematerialize and physically deliver the securities previously, as of November 2012 physical printing of government debt securities has been terminated. With the redemption of latest printed securities, there have been no printed government debt securities since July 2013. Since government debt securities are only in dematerialised form, there is no risk associated with the storage and delivery of physical instruments.
CSD and exchange-of-value settlement systems (Principles 11, 12)
52. The ESTS functions as a CSD-cum-SSS for Government securities and central bank bills. The ESTS system settles the securities transactions in DVP mode using model 1. The funds leg is settled at the EFT system. The CBRT, in the capacity as the agent of the Prime Ministry Undersecretariat of Treasury, carries out the dematerialised issue, custody and redemption of government securities, which are issued by the Prime Ministry Undersecretariat of Treasury, by the CBRT, and by other public institutions. Since the CBRT is the CSD for the securities in ESTS, there is neither custody risk stemming from the insolvency of the CSD nor the risk of the participants’ securities being sequestrated due to the other activities of the system operator. In ESTS, the securities owned by the participants’ customers are segregated from the participants’ own holdings and kept in a special securities account of the MKK. MKK keeps these securities by customer details in its system enabling customers to track their holdings. All the operations by the CBRT in ESTS require dual approval, are logged and, if needed, can be tracked. During the end of day operations of ESTS, participants are notified about their securities account holdings and their daily operations for reconciliation purposes. All the securities held in the ESTS are in dematerialized book entry form, there are no physical securities.
Default management (Principles 13, 14)
53. The PSD has developed a default management procedure recently covering all the payment and securities settlement systems operated by the CBRT. The default procedure is consistent with the provisions in the PSOR and derives its legal basis from the PSL. Given that the procedure was adopted very recently it has not been tested in its entirety. The participants in the system are all banks, except the MKK. Banks are supervised by the BRSA and the MKK by the CMB. These authorities have the sole right related to insolvency or bankruptcy of these participants. There are existing co-ordination and information sharing arrangements between the CBRT, BRSA and the CMB. Hence there is high degree of certainty that the CBRT will have adequate notice to execute its default management process. Nevertheless, any delays in executing the default management process, could escalate the risks in the system.
General business and operational risk management (Principles 15 - 17)
54. The EFT and ESTS are central bank operated FMIs, as such aspects related to liquid assets, wind down plans and viable plan for raising additional capital are not applicable. The pricing policy for the EFT system aims for a full investment and operational expenses recovery. The pricing structure is clear and communicated to the participants. The fees are recovered on a monthly basis and the corresponding information is available to participants. The costs of the EFT system are covered under the general budget of the CBRT and subject to the standard audit process.
55. The CBRT Payment and Securities Settlement Systems have a comprehensive operational risk management Framework spanning people, process and systems. The risk management framework is reviewed once a year. Industry best practices for IT risk management framework – ISO 27001 and ITIL for IT services management, have been used. There are adequate processes and procedures in place to address people aspects and the IT systems and processes have been developed using industry standards and best practices. There are periodic IT security reviews and there are dedicated organizational arrangements in place for monitoring and managing the IT security aspects. The IT infrastructure is built in a way that there is no single point of failure and there is full-fledged backup site which works on a load sharing basis with the main site. In addition there is an application package developed using a completely different hardware and software platform to cover the risk of a simultaneous impact on both the infrastructures, which is a possibility in particular with cyber risk incidents.
56. There is a well-laid out BCP plan with an organized governance arrangement to monitor and review its execution. However the BCP scenarios are focussed on the infrastructure of the CBRT payment and securities settlement systems. Scenarios, either arising within the CBRT payment and securities settlement systems, within the CBRT or externally, which can cause a widespread impact have not been included. The participants are included in the BCP tests and there are plans underway to include complex scenarios to fully cover business continuity risks arising from and posed to other FMIs and participants– in particular Takasbank and MKK.
57. The PSOR covers operational risk management in articles 17-20, however there is no explicit mandate on this and there is no structured process to measure ongoing compliance with these aspects. However, the CBRT recently surveyed the participants to assess their BCP plans and cyber resilience. All the participants reported having BCPs, but there were some gaps in terms of the quality of the BCP and cyber resilience readiness of some participants. The CBRT is already addressing this as part of its revised business continuity guide.
Access (Principles 18 - 20)
58. Criteria and requirements for participation are clearly stated in the PSOR and are disclosed to related parties. Only banks and the MKK, which is a special participant of ESTS for the implementation of safekeeping of the securities in the name of customers, are accepted as participants in the CBRT payment and securities settlement systems. Only banks are participants in the EFT system. The policy decision on only allowing access to banks has been taken based on considerations of liquidity risk management. The CBRT does not allow access to specific components of the CBRT payment and securities settlement systems, all participants have access to the EFT, RPS and ESTS system. The MKK is the only exception. The CBRT monitors compliance to operational aspects of the participation criteria and is guided by the BRSA for the continued qualification of the participant to function as a bank. Suspension and orderly exit rules are stated in the PSOR and disclosed to participants.
59. The PSOR acknowledges and regulates only the direct participants in the CBRT payment and securities settlement systems and there is no definition or rules set for indirect participation; however the EFT system in practice does have tiered arrangements. Entities that are not eligible for participation can perform operations through the participants, but are treated as customers of participants, rather than indirect participants. One bank and one entity carrying out electronic payment services, are accessing the EFT system through other banks. Other market intermediaries and non-bank financial entities also access the services of the EFT and also likely other elements of the CBRT payment and securities settlement systems. The usage of TETS by brokers and other market intermediaries is also an example of a tiered participation arrangement for the EFT system. The ESTS system however by design does not have tiered participation. The CBRT has developed capability to track the details of the initiator, recipient and purpose of transactions, based on specialized fields in the message formats. These tools can be used to develop a comprehensive monitoring framework for tiered participation arrangements.
60. The ESTS and the MKK system have an issuer CSD-investor CSD link. The risk management framework however does not explicitly acknowledge this arrangement as a link. However the MKK is overseen by the CBRT for its SSS functions and hence also has a full integrated view of the risks arising from the ESTS-MKK link.
Efficiency (Principles 21, 22)
61. Message exchange of the CBRT Payment and Securities Settlement System is managed via secure services using industry standard technologies and using XML based proprietary message formats. It is possible to easily convert XML messages used in the CBRT payment and securities settlement systems into other message formats. The PIS used to interface with the CBRT payment and securities settlement systems offers adequate tools to allow STP mode.
62. The process for secondary market transactions on Government securities varies based on the nature of counterparty, creating inefficiencies for the participants. The processes related to settlement of the securities and funds leg vary based on whether the counterparty of a transaction for a bank is another bank, a custodian, individual investor or other institutional investor. Addressing this will require some changes in ESTS and introducing new interfaces between the MKK, ESTS and Takasbank.
Transparency (Principles 23, 24)
63. Rules and procedures for the CBRT Payment and Settlement Systems are defined clearly and shared with participants. System descriptions, system rules, general structure and workflows, summary statistics and pricing policy are disclosed to the public through the CBRT web page and the CBRT Payment Systems User Group web site. Pricing tariff is defined yearly based on pricing policy and disclosed to participants and to the public at least one month before its entry into force. The CBRT is committed to publish the details of the assessment of the EFT system and ESTS in line with the requirements of this principle.
Ratings Summary for the EFT system
Ratings Summary for the EFT system
| Table: Ratings Summary of the Principles | |
|---|---|
| Assessment category | Principle |
| Observed | Principles 1,2,4,5,8,9,15,16,18,21,22,23 |
| Broadly observed | Principles 3,7,13,17 |
| Partly observed | Principles 19 |
| Not observed | |
| Not applicable | Principles 6,10,11,12,14,20,24 |
Ratings Summary for the EFT system
| Table: Ratings Summary of the Principles | |
|---|---|
| Assessment category | Principle |
| Observed | Principles 1,2,4,5,8,9,15,16,18,21,22,23 |
| Broadly observed | Principles 3,7,13,17 |
| Partly observed | Principles 19 |
| Not observed | |
| Not applicable | Principles 6,10,11,12,14,20,24 |
Ratings Summary for the ESTS
Ratings Summary for the ESTS
| Table: Ratings Summary of the Principles | |
|---|---|
| Assessment category | Principle |
| Observed | Principles 1,2,4,5,8,9,11,15,16,18,19,20,21,22,23 |
| Broadly observed | Principles 3,7,13,17 |
| Partly observed | |
| Not observed | |
| Not applicable | Principles 6,10,12,14,24 |
Ratings Summary for the ESTS
| Table: Ratings Summary of the Principles | |
|---|---|
| Assessment category | Principle |
| Observed | Principles 1,2,4,5,8,9,11,15,16,18,19,20,21,22,23 |
| Broadly observed | Principles 3,7,13,17 |
| Partly observed | |
| Not observed | |
| Not applicable | Principles 6,10,12,14,24 |
Recommendations for EFT system and ESTS16
List of prioritized recommendations for the EFT system and ESTS
List of prioritized recommendations for the EFT system and ESTS
| List of Prioritized Recommendations for Principles | ||||
|---|---|---|---|---|
| Principle | Issues of Concern and Other Gaps or Shortcomings | Recommended Action | Relevant Parties | Comments and Priority |
| 1 | Conflict of law with respect to collateral holdings in ICSDs | The CBRT could consider seeking an external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the certainty of legal basis with respect to the securities held in the ICSDs. | CBRT | Low |
| 1 | Protection of securities holdings in Takasbank. | The CBRT should review the legal and regulatory framework for the protection of customer assets held by Takasbank and implement specific amendments if any gaps are identified. | CBRT, CMB | High |
| 2 | Lack of explicit performance indicators for system as a whole. | The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. | CBRT | Medium |
| 3 | Risk management framework is internally focused. | The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. | CBRT | High |
| 4 | The credit risk management framework is not fully integrated into the CBRT payment and securities settlement system credit risk management. | The credit risk management framework of the Markets department of the CBRT should be more fully integrated in to the risk management framework of the EFT system. | CBRT | Medium |
| 7 | Gaps in liquidity risk management. | The risk management framework of the EFT system could consider daily and periodic analysis of the liquidity risk jointly by the PSD and Markets departments of the CBRT. There could be additional indicators like estimate of participants available both from the CBRT and also the inter-bank money markets. This could build on the framework being established by the BRSA on liquidity risk. The CBRT could consider encouraging earlier settlements in the interbank money markets to allow for more liquidity to flow into the EFT system earlier. Regulating and structuring money markets other than the CBRT money market is not the responsibility of the CBRT. The CBRT as part of the ongoing review of its current policy on liquidity risk, analyze options to make intra-day liquidity support by the CBRT more attractive to the participants and implement suitable options. The CBRT could evaluate if pricing policies could incentivize earlier settlement perhaps as part of overall throughput guidelines. | CBRT | High |
| 13 | Default management | The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise. This could be integrated with the BCP or conducted as a standalone exercise at least once a year. As part of the publication of the disclosure framework or separately the CBRT should publically disclose key elements of the default and operationsl rules of the EFT and ESTS system. | CBRT | Low |
| 17 | Gaps in Business Continuity Plans | The CBRT could build on the specific provisions in the PSOR to include explicit mandates with respect to operational risk management for its participants and have a mechanism to assess compliance to those on an ongoing basis. The CBRT could consider including more stringent operational risk management measures for the participants with a large share of transactions, based on the monthly network analysis being carried out. The CBRT could also consider incorporating a more structured assessment of the operational risks it can pose to other FMIs and the risks it could be exposed from them. This assessment could become the basis for the more detailed and complex scenarios being proposed for inclusion in the revised business continuity plans. | CBRT | High |
| 19 | No monitoring of Tiered participation | The CBRT should consider instituting mechanisms to collect information, about the non-bank financial companies that access the services of the EFT through participants. Information like the terms of the service between the participant and the non-bank financial entity, the typical transaction volume and value, and any credit extension and liquidity facilities offered. The CBRT should then assess any risks arising from these tiered arrangements. | CBRT | Medium |
| 21 | Lack of efficiency in Government securities secondary Market | Currently the process varies by counterpart. Addressing this will require some changes in ESTS and introducing new interfaces between the MKK, ESTS and Takasbank. | CBRT | Medium |
| 23 | Operating rules and procedures are not publically disclosed | The CBRT as part of the publication of the disclosure framework or separately should include details of the key elements of the operating rules and procedures. | CBRT | Medium |
List of prioritized recommendations for the EFT system and ESTS
| List of Prioritized Recommendations for Principles | ||||
|---|---|---|---|---|
| Principle | Issues of Concern and Other Gaps or Shortcomings | Recommended Action | Relevant Parties | Comments and Priority |
| 1 | Conflict of law with respect to collateral holdings in ICSDs | The CBRT could consider seeking an external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the certainty of legal basis with respect to the securities held in the ICSDs. | CBRT | Low |
| 1 | Protection of securities holdings in Takasbank. | The CBRT should review the legal and regulatory framework for the protection of customer assets held by Takasbank and implement specific amendments if any gaps are identified. | CBRT, CMB | High |
| 2 | Lack of explicit performance indicators for system as a whole. | The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. | CBRT | Medium |
| 3 | Risk management framework is internally focused. | The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. | CBRT | High |
| 4 | The credit risk management framework is not fully integrated into the CBRT payment and securities settlement system credit risk management. | The credit risk management framework of the Markets department of the CBRT should be more fully integrated in to the risk management framework of the EFT system. | CBRT | Medium |
| 7 | Gaps in liquidity risk management. | The risk management framework of the EFT system could consider daily and periodic analysis of the liquidity risk jointly by the PSD and Markets departments of the CBRT. There could be additional indicators like estimate of participants available both from the CBRT and also the inter-bank money markets. This could build on the framework being established by the BRSA on liquidity risk. The CBRT could consider encouraging earlier settlements in the interbank money markets to allow for more liquidity to flow into the EFT system earlier. Regulating and structuring money markets other than the CBRT money market is not the responsibility of the CBRT. The CBRT as part of the ongoing review of its current policy on liquidity risk, analyze options to make intra-day liquidity support by the CBRT more attractive to the participants and implement suitable options. The CBRT could evaluate if pricing policies could incentivize earlier settlement perhaps as part of overall throughput guidelines. | CBRT | High |
| 13 | Default management | The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise. This could be integrated with the BCP or conducted as a standalone exercise at least once a year. As part of the publication of the disclosure framework or separately the CBRT should publically disclose key elements of the default and operationsl rules of the EFT and ESTS system. | CBRT | Low |
| 17 | Gaps in Business Continuity Plans | The CBRT could build on the specific provisions in the PSOR to include explicit mandates with respect to operational risk management for its participants and have a mechanism to assess compliance to those on an ongoing basis. The CBRT could consider including more stringent operational risk management measures for the participants with a large share of transactions, based on the monthly network analysis being carried out. The CBRT could also consider incorporating a more structured assessment of the operational risks it can pose to other FMIs and the risks it could be exposed from them. This assessment could become the basis for the more detailed and complex scenarios being proposed for inclusion in the revised business continuity plans. | CBRT | High |
| 19 | No monitoring of Tiered participation | The CBRT should consider instituting mechanisms to collect information, about the non-bank financial companies that access the services of the EFT through participants. Information like the terms of the service between the participant and the non-bank financial entity, the typical transaction volume and value, and any credit extension and liquidity facilities offered. The CBRT should then assess any risks arising from these tiered arrangements. | CBRT | Medium |
| 21 | Lack of efficiency in Government securities secondary Market | Currently the process varies by counterpart. Addressing this will require some changes in ESTS and introducing new interfaces between the MKK, ESTS and Takasbank. | CBRT | Medium |
| 23 | Operating rules and procedures are not publically disclosed | The CBRT as part of the publication of the disclosure framework or separately should include details of the key elements of the operating rules and procedures. | CBRT | Medium |
IV. Summary Assessment
Responsibilities: Key Findings and Follow up
64. The CBRT law, the PSL and the CML clearly layout the specific payment and market infrastructures that are subject to regulation, supervision and oversight of the authorities. These laws put together, assign the responsibility for regulating, supervising and overseeing payment systems and SSS with the CBRT; and CCPs, CSDs and TRs with the CML. The authorities have further publically announced their adoption of the CPMI-IOSCO PFMIs. The CMB has specifically stated that the PFMIs would be applicable for the MKK and Takasbank. The CBRT in its public statement on its objectives for payment and securities settlement systems has articulated that it will apply the PFMIs to all the payment and securities settlement systems under its oversight. The CBRT has further issued the ROPSS, which articulates its powers to regulate and oversee the payment and securities settlement systems. The CMB has issued specific regulations/communiques for the CSDs and CCPs, however it has not yet issued regulations for TRs. The powers of the CMB with respect over TRs is however clear and derives from the CML. Also, while the CMB has licensed the MKK as a TR, it has not yet commenced operations and the CMB as part of its approval to MKK to commence operations as a TR intended to issue a regulation/communique to fully articulate its regulatory and oversight actions and powers related to TRs.
65. The CBRT and the CMB have the relevant powers to obtain information and induce change to carry out their oversight activities. These powers have been explicitly articulated in secondary regulations with respect to the payment systems and SSS, by the CBRT. The CMB has articulated its powers with respect to the CCPs and SSS. However its powers with respect to the TRs have not been explicitly articulated yet. At this point, however there are no TRs in Turkey. The CMB has licensed the MKK to function as a TR. However prior to its becoming operational, the CMB intends to issue specific regulations.
66. The CBRT and the CMB has adequate resources and qualified staff to carry out its oversight and regulatory responsibilities with respect to the FMIs in its oversight. The CBRT has specific designated staff for carrying out the oversight activities. The CMB’s oversight activities are housed in a department which also includes regulation and supervision of brokers and also the BIST. The CMB has however not allocated dedicated resources for the oversight of FMIs under its purview.
67. The CBRT and the CMB have articulated their policies with respect to FMIs through a policy statement publsihed on their respective websites. The policy statement is consistent with the respect legal powers and regulations issued by these authorities. The CBRT and the CMB have issued policy statements articulating their adoption of the PFMIs. In the case of the CBRT it has required all the payment and securities settlement systems in its purview to adopt the PFMIs and has already completed the self-assessment against the PFMIs for the FMIs operated by it. The CBRT in addition has asked the Takasbank and the MKK, to complete self-assessments as SSS. The CMB has asked the Takasbank and the MKK to complete self-assessments as CCP and CSD respectively. The legal and regulatory measures governing the functioning of the CBRT and the CMB allow data sharing amongst them and with other related authorities, in particular the BRSA which regulates the Takasbank as a banking institution. The FSC provides the structured mechanism for sharing, analyzing and resolving any issues related to the financial sector that may impact financial stability. This mechanism is also used for FMI related discussions. There are also other ad-hoc mechanisms in place to share and seek information and collaborate on an as needed basis.
Ratings Summary for the Responsibilities
Ratings Summary for the Responsibilities
| Table: Ratings Summary for the Responsibilities | |
|---|---|
| Assessment category | Responsibility |
| Observed | Responsibility C,D and E |
| Broadly observed | Responsibility A, B |
| Partly observed | − |
| Not observed | − |
| Not applicable | − |
Ratings Summary for the Responsibilities
| Table: Ratings Summary for the Responsibilities | |
|---|---|
| Assessment category | Responsibility |
| Observed | Responsibility C,D and E |
| Broadly observed | Responsibility A, B |
| Partly observed | − |
| Not observed | − |
| Not applicable | − |
List of prioritized recommendations for responsibilities
List of prioritized recommendations for responsibilities
| List of Prioritized Recommendations for Responsibilities | ||||
|---|---|---|---|---|
| Responsibility | Issues of Concern and Other Gaps or Shortcomings | Recommended Action | Relevant Parties | Comments and Priority |
| A | Lack of regulatory framework for TRs | The CMB should ensure that it issues a regulation/communique on TRs, before it accords approval to the MKK to commence its operations as a TR. | CMB | Medium |
| B | Oversight resources | The CMB could consider assigning specific responsibilities to staff with respect to the FMIs in its scope. The CMB should issue the regulations related to TRs ahead of MKK commencing its operations. | CMB | Medium |
List of prioritized recommendations for responsibilities
| List of Prioritized Recommendations for Responsibilities | ||||
|---|---|---|---|---|
| Responsibility | Issues of Concern and Other Gaps or Shortcomings | Recommended Action | Relevant Parties | Comments and Priority |
| A | Lack of regulatory framework for TRs | The CMB should ensure that it issues a regulation/communique on TRs, before it accords approval to the MKK to commence its operations as a TR. | CMB | Medium |
| B | Oversight resources | The CMB could consider assigning specific responsibilities to staff with respect to the FMIs in its scope. The CMB should issue the regulations related to TRs ahead of MKK commencing its operations. | CMB | Medium |
V. Detailed Assessment Report – EFT System
| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions. | |
| Key consideration 1 | The legal basis should provide a high degree of certainty for each material aspect of an FMI’s activities in all relevant jurisdictions. |
| The main legal and regulatory measures related to payment and settlement systems are listed below. The detailed discussions on these measures are in paragraphs 17-24. CBRT Law: This law covers the institutional arrangements and powers of the CBRT, inter alia this includes powers of oversight over payment and settlement systems and rights to operate payment and settlement systems. PSL: This is a specialized law covering payment and settlement systems and establishes the legal basis for finality, netting and protection of collateral rights. This law also establishes the regulatory and oversight powers of the CBRT over payment and settlement systems. The CBRT has issued regulations detailing the regulatory framework for operation and licensing of payment and settlement systems and the oversight arrangements for these. CML: This law covers the institutional arrangements and powers of the CMB and assigns regulatory and oversight powers over CSDs, CCPs and TRs to the CMB. This law also covers finality, netting and protection of collateral rights for the FMIs in the purview of the CMB. The CMB has issued specific regulations and communiques on CCPs, CSDs and other aspects. In addition the CBRT as the operator of the EFT and ESTS has also established operating rules – the PSOR, as required under the PSL. Material aspects and relevant jurisdictions The EFT system is operated by the CBRT and functions as a RTGS system with periodic multilateral offsetting. All the system participants are banks licensed for operations in Turkey by the BRSA and fully subject to the laws of Turkey, including for its participation in the EFT system. The EFT system by itself does not offer any liquidity support, however all participants except the MKK, can avail the liquidity support from the CBRT, the inter-bank money market, Takasbank cash credit facility and credit lines amongst banks. The CBRT liquidity supports are: intra-day credit, overnight credit; 1-week repos; and, under the LOLR facility. The liquidity support offered by the CBRT are all collateralized. The accepted collaterals are Turkish government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, International Islamic Liquidity Management (IILM)17 issuances, foreign exchange deposits and foreign exchange banknotes deposits. The inter-bank money markets are also collateralized and accepted collaterals include the ones used for the CBRT liquidity support and in addition corporate bonds, foreign currency and gold. The material aspects for the EFT system that require legal certainty are:
Relevant jurisdictions The relevant jurisdiction for the functioning of the CBRT payment and settlement systems is Turkey. Legal basis for each material aspect Right of the CBRT to operate payment systems The article 4(f) of the CBRT Law lists establishment and operation of payment, securities and settlement systems, as part of the fundamental duties and powers of the CBRT. The same article vests oversight powers with the CBRT over all payments, securities transfer and settlement systems. This article was amended as part of the PSL and as such needs to be read together. These terms are defined in the PSL (art 3). Rights and interests of parties The rights and responsibilities of the CBRT and system participants are defined clearly in the Payment Systems Operating Rules (PSOR) - sections 3, 4 and 5. Article 4(2) of the PSL establishes that rights and responsibilities of the operator and participants would be as per the contract between the operator and participants and the system rules established by the operator. The PSOR constitute the system rules of the EFT system and all participants of the EFT execute a “Participation Contract” with the CBRT as the operator of the EFT system. The PSOR, means of initiating transactions, message structure and associated aspects are includes as the annexes of the “Participation Contract”. The article 3 of the “Participation Contract”, make the annexes to the contract an integral part of the contract and are as such considered binding. Settlement Finality The Article 10 of the PSL establishes settlement finality and irrevocability for systems designated by the CBRT (Art 11). The CBRT has designated the EFT, RPS and the ESTS in the official gazette and accordingly the provisions of article 10 of the PSL covers the EFT system. Article 10(1) of the PSL requires the following to be defined in the operating rules of the system: the point of time when a transaction become irrevocable and the time of entry and time when a settlement of a transfer order is final. Article 10(3) of the PSL further elaborates that any decisions, including those relating to insolvency and bankruptcy, taken under any other law regarding any transfer orders, would be valid only for those that enter the system after the system operator has been notified. Article 10 (4) of the PSL covers systems using netting process and makes the provisions of article 10 (3) applicable to them. In particular, allowing transfer orders that entered the system before the system operator was notified of any legal decision, to be included in the netting process. The PSOR has defined irrevocability as the time when the settlement accounts have been debited or credited (art 8) and this is also considered the time when the settlement is final. Article 7(3) of the PSOR further defines that the “server time” recorded in relevant timestamps as the time that will be used for recording time of entry, irrevocability and finality. The term “transfer order” as defined in the PSL encompasses securities transfer and hence the provisions also apply to the DVP settlements involving the securities settlements in the EFT system. The Article 9.1.b of the PSOR specifies that under DVP settlement the securities transfer and the funds transfer for a securities settlement transaction would be carried out simultaneously. Collateral rights Article 10 (7) of the PSL preserves the right of the collateral holder (participant and operator) in a payment system to use the collateral to fulfill the obligations of the owner to the system, in the event of any notifications relating to any transactions issued under any other law (as covered in article 10(3)); article 10(5) of the PSL also specifies that any balances in fund and securities accounts of any participant impacted by the notifications, would be used primarily for settling obligations to the system. This provision ensures that the collateral placed by a participant is bankruptcy and insolvency remote. Netting Netting is defined in article 3(o) of the PSL. As noted earlier the provision of settlement finality also applies to systems using netting, ensuring enforceability of netting arrangements even in the event of bankruptcy or insolvency of any participant Electronic means of initiating transactions The PSOR, means of initiating transactions, message structure and associated aspects are elaborated in the annexes of the “Participation Contract”. These clearly describe the process of initiating and receiving a transaction. Hence the electronic means of initiating the transaction are hence considered binding. Although the CBRT is not a Certification Authority (CA) defined in the Electronic Signature Law 5070, based on its duties regarding the payment systems assigned by the CBRT Law, the CBRT issues and uses the digital certificates compliant with the Electronic Signature Law, limited to the CBRT services such as the CBRT Payment Systems and the Electronic Data Transfer System. | |
| Key consideration 2 | An FMI should have rules, procedures, and contracts that are clear, understandable, and consistent with relevant laws and regulations. |
| Description | The PSOR constitutes the rules and procedures of the EFT system. The PSOR and detailed description of the process and technical aspects are presented as annexes to the participation contract signed by all participants. As noted earlier the article 3 of the participation contract makes the annexes an integral part of the contract. Copies of the participation contract and the PSOR are delivered to the participants at their application. The CBRT has the authority to make additional regulations on operational details (PSOR, Art 13). As per the internal procedures of the CBRT, the CBRT Executive Committee approves changes to the Rule Book. All changes are announced to all participants in advance. The Article 3 of the PSOR lays out the legal basis for the PSOR as deriving from article 4 of the CBRT law and article 4 and 7 of the PSL. The PSOR provisions are consistent with these provisions and further are consistent with the Article 7 of the ROPSSS. This consistency is also assessed through the payment systems oversight activities of the CBRT. |
| Key consideration 3 | An FMI should be able to articulate the legal basis for its activities to relevant authorities, participants, and, where relevant, participants’ customers, in a clear and understandable way. |
| Description | The Article 3 of the PSOR lays out the legal basis for the PSOR as deriving from article 4 of the CBRT law and article 4 and 7 of the PSL. |
| Key consideration 4 | An FMI should have rules, procedures, and contracts that are enforceable in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the FMI under such rules and procedures will not be voided, reversed, or subject to stays. |
| Description | Enforceability of rules, procedures and contracts The PSOR derives its legal basis from the PSL and CBRT Law. The PSL clearly acknowledges the role of operating rules of a system. The CBRT as the operator the EFT system has an internal legal team that prepared the PSOR and vets all procedures and contracts and this is then further approved by the executive committee of the CBRT. Degree of certainty for rules and procedures Given the clear and well-founded legal basis for the PSOR and the participation contract, there is high degree of legal certainty for the rules and procedures. Until now there have been no adverse court rulings related to the enforceability of the operating rules and procedures of any payment and securities settlement systems. |
| Key consideration 5 | An FMI conducting business in multiple jurisdictions should identify and mitigate the risks arising from any potential conflict of laws across jurisdictions. |
| Description | All the participants in the EFT system are subject to Turkish laws and regulations. The collaterals accepted for the liquidity support operations include some securities held in ICSDs – notably Eurobonds in Euroclear and some IILM issuances in a Malaysian CSD. The process of providing liquidity support involving these foreign securities, requires the collateral securities to be transferred to the account of the CBRT in the respective ICSDs. These transfers could be subject to conflict of law. |
| Key conclusions | The EFT functions as a RTGS system with periodic multilateral offsetting. The liquidity support provision to participants is outside of the EFT system, but is integral to the functioning of the EFT system. The legal basis for the EFT comprises the CBRT law, the PSL and specific regulations pertaining to operations and oversight. CBRT as the operator the PSL has developed detailed operating and procedures – the PSOR. The participants are required to sign a participation contract which binds them to the PSOR. The participation contract and the PSOR have a sound legal basis. All material legal aspects are adequately covered in the PSL and the CBRT law. All participants of the EFT system are subject to Turkish laws and regulations; and all operations are also performed in Turkey. The PSOR and participation contract and other related contractual aspects are vetted by the CBRT legal department and by the executive committee. There could be some conflict of law issues with respect to the collateralized liquidity support relating to securities held in ICSDs. The risk arises from any ruling in the jurisdiction on the ICSD having an impact on CBRT’s holdings, for example if the jurisdiction does not support finality or protection of customer assets, there would be impact on CBRT. Their usage is however very limited and the securities pledged as collateral are held in the name of the CBRT, hence it is not an immediate issue of concern. |
| Assessment of Principle 1 | Observed. |
| Recommendations and comments | The CBRT could consider seeking external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the conflict of law with respect to the securities held in the ICSDs. |
An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions. | |
| Key consideration 1 | The legal basis should provide a high degree of certainty for each material aspect of an FMI’s activities in all relevant jurisdictions. |
| The main legal and regulatory measures related to payment and settlement systems are listed below. The detailed discussions on these measures are in paragraphs 17-24. CBRT Law: This law covers the institutional arrangements and powers of the CBRT, inter alia this includes powers of oversight over payment and settlement systems and rights to operate payment and settlement systems. PSL: This is a specialized law covering payment and settlement systems and establishes the legal basis for finality, netting and protection of collateral rights. This law also establishes the regulatory and oversight powers of the CBRT over payment and settlement systems. The CBRT has issued regulations detailing the regulatory framework for operation and licensing of payment and settlement systems and the oversight arrangements for these. CML: This law covers the institutional arrangements and powers of the CMB and assigns regulatory and oversight powers over CSDs, CCPs and TRs to the CMB. This law also covers finality, netting and protection of collateral rights for the FMIs in the purview of the CMB. The CMB has issued specific regulations and communiques on CCPs, CSDs and other aspects. In addition the CBRT as the operator of the EFT and ESTS has also established operating rules – the PSOR, as required under the PSL. Material aspects and relevant jurisdictions The EFT system is operated by the CBRT and functions as a RTGS system with periodic multilateral offsetting. All the system participants are banks licensed for operations in Turkey by the BRSA and fully subject to the laws of Turkey, including for its participation in the EFT system. The EFT system by itself does not offer any liquidity support, however all participants except the MKK, can avail the liquidity support from the CBRT, the inter-bank money market, Takasbank cash credit facility and credit lines amongst banks. The CBRT liquidity supports are: intra-day credit, overnight credit; 1-week repos; and, under the LOLR facility. The liquidity support offered by the CBRT are all collateralized. The accepted collaterals are Turkish government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, International Islamic Liquidity Management (IILM)17 issuances, foreign exchange deposits and foreign exchange banknotes deposits. The inter-bank money markets are also collateralized and accepted collaterals include the ones used for the CBRT liquidity support and in addition corporate bonds, foreign currency and gold. The material aspects for the EFT system that require legal certainty are:
Relevant jurisdictions The relevant jurisdiction for the functioning of the CBRT payment and settlement systems is Turkey. Legal basis for each material aspect Right of the CBRT to operate payment systems The article 4(f) of the CBRT Law lists establishment and operation of payment, securities and settlement systems, as part of the fundamental duties and powers of the CBRT. The same article vests oversight powers with the CBRT over all payments, securities transfer and settlement systems. This article was amended as part of the PSL and as such needs to be read together. These terms are defined in the PSL (art 3). Rights and interests of parties The rights and responsibilities of the CBRT and system participants are defined clearly in the Payment Systems Operating Rules (PSOR) - sections 3, 4 and 5. Article 4(2) of the PSL establishes that rights and responsibilities of the operator and participants would be as per the contract between the operator and participants and the system rules established by the operator. The PSOR constitute the system rules of the EFT system and all participants of the EFT execute a “Participation Contract” with the CBRT as the operator of the EFT system. The PSOR, means of initiating transactions, message structure and associated aspects are includes as the annexes of the “Participation Contract”. The article 3 of the “Participation Contract”, make the annexes to the contract an integral part of the contract and are as such considered binding. Settlement Finality The Article 10 of the PSL establishes settlement finality and irrevocability for systems designated by the CBRT (Art 11). The CBRT has designated the EFT, RPS and the ESTS in the official gazette and accordingly the provisions of article 10 of the PSL covers the EFT system. Article 10(1) of the PSL requires the following to be defined in the operating rules of the system: the point of time when a transaction become irrevocable and the time of entry and time when a settlement of a transfer order is final. Article 10(3) of the PSL further elaborates that any decisions, including those relating to insolvency and bankruptcy, taken under any other law regarding any transfer orders, would be valid only for those that enter the system after the system operator has been notified. Article 10 (4) of the PSL covers systems using netting process and makes the provisions of article 10 (3) applicable to them. In particular, allowing transfer orders that entered the system before the system operator was notified of any legal decision, to be included in the netting process. The PSOR has defined irrevocability as the time when the settlement accounts have been debited or credited (art 8) and this is also considered the time when the settlement is final. Article 7(3) of the PSOR further defines that the “server time” recorded in relevant timestamps as the time that will be used for recording time of entry, irrevocability and finality. The term “transfer order” as defined in the PSL encompasses securities transfer and hence the provisions also apply to the DVP settlements involving the securities settlements in the EFT system. The Article 9.1.b of the PSOR specifies that under DVP settlement the securities transfer and the funds transfer for a securities settlement transaction would be carried out simultaneously. Collateral rights Article 10 (7) of the PSL preserves the right of the collateral holder (participant and operator) in a payment system to use the collateral to fulfill the obligations of the owner to the system, in the event of any notifications relating to any transactions issued under any other law (as covered in article 10(3)); article 10(5) of the PSL also specifies that any balances in fund and securities accounts of any participant impacted by the notifications, would be used primarily for settling obligations to the system. This provision ensures that the collateral placed by a participant is bankruptcy and insolvency remote. Netting Netting is defined in article 3(o) of the PSL. As noted earlier the provision of settlement finality also applies to systems using netting, ensuring enforceability of netting arrangements even in the event of bankruptcy or insolvency of any participant Electronic means of initiating transactions The PSOR, means of initiating transactions, message structure and associated aspects are elaborated in the annexes of the “Participation Contract”. These clearly describe the process of initiating and receiving a transaction. Hence the electronic means of initiating the transaction are hence considered binding. Although the CBRT is not a Certification Authority (CA) defined in the Electronic Signature Law 5070, based on its duties regarding the payment systems assigned by the CBRT Law, the CBRT issues and uses the digital certificates compliant with the Electronic Signature Law, limited to the CBRT services such as the CBRT Payment Systems and the Electronic Data Transfer System. | |
| Key consideration 2 | An FMI should have rules, procedures, and contracts that are clear, understandable, and consistent with relevant laws and regulations. |
| Description | The PSOR constitutes the rules and procedures of the EFT system. The PSOR and detailed description of the process and technical aspects are presented as annexes to the participation contract signed by all participants. As noted earlier the article 3 of the participation contract makes the annexes an integral part of the contract. Copies of the participation contract and the PSOR are delivered to the participants at their application. The CBRT has the authority to make additional regulations on operational details (PSOR, Art 13). As per the internal procedures of the CBRT, the CBRT Executive Committee approves changes to the Rule Book. All changes are announced to all participants in advance. The Article 3 of the PSOR lays out the legal basis for the PSOR as deriving from article 4 of the CBRT law and article 4 and 7 of the PSL. The PSOR provisions are consistent with these provisions and further are consistent with the Article 7 of the ROPSSS. This consistency is also assessed through the payment systems oversight activities of the CBRT. |
| Key consideration 3 | An FMI should be able to articulate the legal basis for its activities to relevant authorities, participants, and, where relevant, participants’ customers, in a clear and understandable way. |
| Description | The Article 3 of the PSOR lays out the legal basis for the PSOR as deriving from article 4 of the CBRT law and article 4 and 7 of the PSL. |
| Key consideration 4 | An FMI should have rules, procedures, and contracts that are enforceable in all relevant jurisdictions. There should be a high degree of certainty that actions taken by the FMI under such rules and procedures will not be voided, reversed, or subject to stays. |
| Description | Enforceability of rules, procedures and contracts The PSOR derives its legal basis from the PSL and CBRT Law. The PSL clearly acknowledges the role of operating rules of a system. The CBRT as the operator the EFT system has an internal legal team that prepared the PSOR and vets all procedures and contracts and this is then further approved by the executive committee of the CBRT. Degree of certainty for rules and procedures Given the clear and well-founded legal basis for the PSOR and the participation contract, there is high degree of legal certainty for the rules and procedures. Until now there have been no adverse court rulings related to the enforceability of the operating rules and procedures of any payment and securities settlement systems. |
| Key consideration 5 | An FMI conducting business in multiple jurisdictions should identify and mitigate the risks arising from any potential conflict of laws across jurisdictions. |
| Description | All the participants in the EFT system are subject to Turkish laws and regulations. The collaterals accepted for the liquidity support operations include some securities held in ICSDs – notably Eurobonds in Euroclear and some IILM issuances in a Malaysian CSD. The process of providing liquidity support involving these foreign securities, requires the collateral securities to be transferred to the account of the CBRT in the respective ICSDs. These transfers could be subject to conflict of law. |
| Key conclusions | The EFT functions as a RTGS system with periodic multilateral offsetting. The liquidity support provision to participants is outside of the EFT system, but is integral to the functioning of the EFT system. The legal basis for the EFT comprises the CBRT law, the PSL and specific regulations pertaining to operations and oversight. CBRT as the operator the PSL has developed detailed operating and procedures – the PSOR. The participants are required to sign a participation contract which binds them to the PSOR. The participation contract and the PSOR have a sound legal basis. All material legal aspects are adequately covered in the PSL and the CBRT law. All participants of the EFT system are subject to Turkish laws and regulations; and all operations are also performed in Turkey. The PSOR and participation contract and other related contractual aspects are vetted by the CBRT legal department and by the executive committee. There could be some conflict of law issues with respect to the collateralized liquidity support relating to securities held in ICSDs. The risk arises from any ruling in the jurisdiction on the ICSD having an impact on CBRT’s holdings, for example if the jurisdiction does not support finality or protection of customer assets, there would be impact on CBRT. Their usage is however very limited and the securities pledged as collateral are held in the name of the CBRT, hence it is not an immediate issue of concern. |
| Assessment of Principle 1 | Observed. |
| Recommendations and comments | The CBRT could consider seeking external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the conflict of law with respect to the securities held in the ICSDs. |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial system, other relevant public interest considerations, and the objectives of relevant stakeholders. | |
| Key consideration 1 | An FMI should have objectives that place a high priority on the safety and efficiency of the FMI and explicitly support financial stability and other relevant public interest considerations |
| Description | The EFT system is operated by the CBRT. The general objectives and duties of the CBRT which is also as an overseer of the NPS, covers the EFT system. According to the article 4.I (f) of the CBRT Law, the fundamental duties and powers of the CBRT related with payment systems are defined as “establishing securities transfer and settlement systems, oversight and regulation of the systems that are founded or to be founded to ensure smooth operation of the systems, establishing procedures and tools to be used for payments including electronic payments.” The article 4.I (g) of the CBRT further assigns financial stability as a responsibility to the CBRT. The PSL, article 9.1 (h) also recognizes implications of payment systems on financial stability and empowers the CBRT to take necessary actions to address any adverse impact. The Objectives and Policies of the CBRT Regarding Payment and Securities Settlement Systems have been defined in accordance with the CBRT Law and the CBRT’s Strategic Plan and has been disclosed to the public on the CBRT web site18. The CBRT’s Strategic Plan for 2014-201819, under the heading of 2.1.1. Public Area of the Main Policies Section, also explicitly recognizes the objective of the CBRT to ensure efficient, secure and effective functioning of payment systems it operates and also the overall NPS. The strategic plan is available to all the participants and the public at large, as it is published on the CBRT website. The CBRT carries out the following core policies and activities:
A division of the PSD of the CBRT is responsible for the operations of the EFT (as a part of the CBRT payment and securities settlement systems) and a separate division for its oversight. As part of the CBRT’s strategic planning and reporting procedure, each CBRT department annually establishes a performance program in order to support the aims and objectives defined in the CBRT’s strategic plan. The performance program is evaluated annually, and reported and presented to the CBRT Board. In addition, national and international developments and standards and participants’ requests and public opinion are taken into consideration while defining the objectives concerning the CBRT Payment Systems. |
| Key consideration 2 | An FMI should have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements should be disclosed to owners, relevant authorities, participants, and, at a more general level, the public. |
| Description | Governance arrangements The CBRT’s governance structure and role and responsibilities of the bodies are determined by the CBRT Law. The law and other regulations related with governance are publicly disclosed on the CBRT web site20. The CBRT Law defines the CBRT Board as the highest decision making body. The CBRT Board accordingly (art 22 (e)) has the authority to make the strategic decisions for payment systems, to approve the relevant directives, to define the roles of the departments and to approve the budgets needed for investment and operation. The CBRT law, article 30, establishes the role of the Executive Committee in the general governance of the central bank, accordingly the CBRT Executive Committee has an important role on the governance of the EFT system. Issues to be raised for decision to the CBRT Board are first evaluated by the Executive Committee. Notably, the amendments to the PSOR are approved by the Executive Committee. The PSD of the CBRT is responsible for establishing the CBRT Payment and Securities Settlement Systems, to operate them effectively and efficiently, to enhance them according to the predefined policies and to oversee them. These duties and responsibilities are explicitly mentioned in the Regulation on Organization and Duties of the CBRT. The PSD is headed by an executive Director. The Operation and oversight functions of the CBRT Payment Systems are assigned to units in two separate divisions, each of the divisions is reporting to different Deputy Executive Directors. In January 1991, with the approval of the Governor, the Committee on Legal, Administrative and Operational Issues of the CBRT Payment Systems (HITI Committee) was founded for the studies that the CBRT carries out in the field of payment systems. In December 2013, with the decision of the Executive Committee, the HITI Committee was restructured, in which the EDs of Banking and Financial Institutions Department, Legal Department, Information Technology Department, Audit Department, Issue Department, Accounting Department, Markets Department, Payment Systems Department convene under the chairmanship of a vice governor (responsible for PSD) so that related departments views and perspectives are taken in to account for strategic decisions. All departments account for their duties to the Executive Committee and the CBRT Board. The General Assembly reviews the annual reports presented by the CBRT Board and the Auditing Committee, and approves the financial reports. The PSD prepares a Payment Systems Monthly Report and this is presented to the members of the CBRT Board, the Auditing Committee and the Executive Committee. In addition to that, a quarterly review of the systems is presented to the Executive Committee. These reports have detailed information on the functioning of the system, data on volume and value of payments, network analysis based on the transaction patterns, any exceptions like system downtime and any new developments. Moreover, in order to review and evaluate the CBRT Payment and Securities Settlement Systems in the light of enhancements both in payment systems and in technology and to bring forward proposals for improvement, the CBRT Payment Systems are annually evaluated against a specific theme. The outcome of this study, including findings and suggestions for improvements, is presented to the CBRT senior management in the Periodic Evaluation Report of the CBRT Payment and Securities Settlement Systems. The last two annual reports covered business continuity planning and liquidity. These reports provide a very detailed analysis of the specific theme, study the international experience and best practices, and identify areas for improvement. Various channels and platforms have been established to support the information exchange and cooperation between the CBRT and participants. The User Group Meetings, are held at least once a year, for a period of 1-2 days. During these meetings, the opinions of the participants on system operations and possible enhancements are taken, and information on projects and studies are shared. The working groups within the Banks Association of Turkey (BAT) also play an important role. In addition to a permanent working group within the BAT for the CBRT Payment and Securities Settlement Systems, specific working groups are formed on project basis. These working groups support the cooperation between the participants and the CBRT. Disclosure of governance arrangements Duties and powers of the management bodies (e.g., the CBRT Board, the Executive Committee) are defined by the CBRT Law in detail. The CBRT Law, which is the principal law in terms of governance, is publicly available21. The Regulation on Organization and Duties of the CBRT clearly defines the duties and powers of the CBRT departments including their roles related with the CBRT Payment Systems. A detailed summary of duties of the governor and the departments, which also covers the CBRT organization chart and the Regulation on Organization and Duties of the CBRT items, is publicly available on the CBRT web site22. In addition, the PSOR, which defines the roles, authorities and responsibilities related with the CBRT Payment Systems as well as rights and duties of the parties of the system, is available to all system participants. |
| Key consideration 3 | The roles and responsibilities of an FMI’s board of directors (or equivalent) should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address, and manage member conflicts of interest. The board should review both its overall performance and the performance of its individual board members regularly. |
| Description | Roles and responsibilities of the board The powers and duties of the CBRT Board are defined in Article 22 of the CBRT Law. Apart from its other powers and duties, the CBRT Board is also empowered to take decisions related to the payment and securities settlement systems operated by the CBRT and also the NPS. The composition of the CBRT Board, its working methods and the required qualifications for its members are defined by Articles 19, 20 and 21 of the CBRT Law. The decision mechanism in the case of a dispute is defined by Articles 22 and 26 of the law. There exist various committees like the Data Security Committee and the Business Continuity Committee that have been established based on the approved arrangements of the CBRT Board, however the CBRT Board Members do not participate in them. As noted earlier, the HITI Committee, ensures coordination among CBRT departments on aspects related to payment systems. Review of performance The CBRT is established as a joint stock company and is subject to the provisions of private law in cases where the CBRT Law is not explicit. Therefore, as a joint stock company, the provisions of the Turkish Commercial Code (Law No.6102) shall also apply to CBRT. The Article 15 of the CBRT Law empowers the General Assembly to review and evaluate the performance of the CBRT Board and the provisions of the Turkish Commercial Code define the procedures for the review and evaluation of the performance of the CBRT Board. Business Continuity Committees and Information Security Committee report annually to the Executive Committee and the Board of the CBRT. The HITI Committee, on the other hand, is not a performing body, but rather a collaborative forum. |
| Key consideration 4 | The board should contain suitable members with the appropriate skills and incentives to fulfill its multiple roles. This typically requires the inclusion of non-executive board member(s). |
| Description | The EFT system (as part of the CBRT payment and securities settlement systems) is owned and operated by the CBRT, the qualifications for the CBRT Board Members are determined considering all the duties and responsibilities of the CBRT. The CBRT Board Members are chosen by the General Assembly of the CBRT. The article 19 of the CBRT Law requires the CBRT Board Members to have a university degree and to have knowledge and experience in banking, economics and finance. The Governor, who also chairs the CBRT Board, should also have the same qualifications according to article 25. The CBRT Board Members other than the Governor do not have a direct role on the daily management of the CBRT. In this respect, those members are non-executive board members. |
| Key consideration 5 | The roles and responsibilities of management should be clearly specified. An FMI’s management should have the appropriate experience, a mix of skills, and the integrity necessary to discharge their responsibilities for the operation and risk management of the FMI. |
| Description | Roles and responsibilities of management The PSD of the CBRT is responsible for the operations and management of the EFT, under the supervision of the Executive Committee. The Executive Committee is composed of the Governor and four Vice Governors and is chaired by the Governor. Vice governors are appointed by a joint decree for a period of five years on the recommendation of the Governor. Vice governors may be reappointed upon the expiration of this term. The duties of the Executive Committee are defined by the Article 30 of the CBRT Law, and include, inter alia, ensuring coordination in the operations of the CBRT. The PSD is responsible for the daily operation of the CBRT Payment Systems. Oversight of the systems is carried out by a division of the PSD that is not responsible for the operations. Hence, operation and oversight responsibilities are segregated at the Deputy Executive Director level. The Regulation on the Organization and Duties of the CBRT clearly defines the roles, powers and responsibilities of CBRT departments and their executive directors. Accordingly, each executive director has duties and responsibilities to plan, to determine procedures, to organise the work, to coordinate the subsidiary divisions, to train and educate the staff and in general ensure that the activities are accomplished in a manner that is accurate, complete, on-time and in compliance with all internal rules and procedures and applicable laws and regulations. The CBRT departments prepare their annual performance programs, which include work plans, performance objectives and performance indicators, within the framework of their duties and responsibilities, in order to achieve the objectives that take place in the CBRT’s Strategic Plan. The annual performance programs are subject to the approval of the CBRT Board before implementation. The performance of the departments is annually presented to the CBRT Board through performance reports. Objectives and performance indicators for the CBRT Payment Systems are included in the performance program of the CBRT Payment Systems Department and these are monitored by the CBRT Board. The objectives of the PSD for 2016 are inter alia:
The performance indicators of the PSD for 2016 are inter alia:
Experience, skills and integrity The qualifications required for the Governor and the vice governors are defined by the Articles 25 and 29 of the CBRT Law. Executive directors of departments and directors of divisions reporting to them are appointed by the CBRT Board. Executive directors, deputy executive directors and directors are required to have at least a university degree. The experience required for the executive director and other positions is defined in the CBRT’s Regulation on Promotion and Title Change. Governors and vice governors may be excused from duty through the same procedure applied for his/her appointment, only when the prohibitions stated in Article 27 of the Central Bank Law are violated and there is no longer any possibility for him/her to perform the duties entrusted by this Law. Executive directors and directors may be excused from duty by the CBRT Board. |
| Key consideration 6 | The board should establish a clear, documented risk-management framework) that includes the FMI’s risk-tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision making in crises and emergencies. Governance arrangements should ensure that the risk-management and internal control functions have sufficient authority, independence, resources, and access to the board. |
| Description | Risk management framework There is no institutional risk management framework at the overall CBRT level. However, the PSD has developed a risk management framework in 2014 with the approval of the CBRT Executive Committee, and this is being applied for the functioning of the EFT system. The risk management framework has also been placed to the Board as part of the annual performance program and reporting process. Risk Management Framework of the CBRT Payment Systems consists of an application process as well as a risk management policy document that defines principles, aim, scope, roles and responsibilities regarding risk management. In line with this policy, the implementation results are presented to the CBRT Executive Committee annually. The implementation results are also presented to the Board through annual performance program and reporting process. This risk management framework is elaborated in the section on Principle 3. Authority and independence of risk management and audit functions In line with the CBRT Audit Regulation, the Audit Department performs audit activities, in order to determine and evaluate the risks that may occur during the processes run by the CBRT, and to suggest risk management measures. After getting the views of the audited departments, the Audit Reports are presented to the Governor. The audits are carried out annually for a set of departments and functions. As part of this the CBRT Payment Systems Risk Management Framework and its application are also subject to audit. However there has been no audit till date of the PSD and its risk management framework, as it was developed only in 2014. |
| Key consideration 7 | The board should ensure that the FMI’s design, rules, overall strategy, and major decisions reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders. Major decisions should be clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public. |
| Description | Identification and consideration of stakeholder interests There are several channels and platforms where system participants discuss technical and operational issues among themselves, or when necessary with the CBRT, and bring technical and operational issues to the attention of the CBRT. The CBRT Payment Systems Working Group within the BAT play an important role related to seeking the opinions of the participants. This group is permanent and it allows participants to discuss, evaluate and agree upon various issues among themselves. In addition to this group, specific working groups are formed within the BAT about the CBRT Payment Systems on project basis. When needed, the CBRT may participate in the BAT working groups. The results and proposals of the working groups are evaluated within the CBRT governance framework, and those that have been approved are put into practice. In addition, during User Group Meetings, which are held at least once a year, plans related with the systems are revised, current practices and changing business requirements are discussed and participant views and needs are collected. Disclosure The CBRT discloses the principle decisions about the payment systems to the participants via following channels:
In addition there is a the private chatroom for the EFT system, which is used at times for addressing any specific clarifications from participants related to day-to-day operations. |
| Key conclusions | This principle is assessed taking into account the considerations for FMIs operated by central banks as stated both in the PFMIs and in Application of the Principles for financial market infrastructures to central bank FMIs.23 The objectives and policies of the CBRT regarding Payment and Securities Settlement Systems place a high priority on stability, safety and efficiency. The CBRT has documented governance arrangements for the institution as a whole that define clear and direct lines of responsibility and accountability. The same governance framework has been applied for the EFT system as well, as a core responsibility of the PSD. There is a risk management framework for the CBRT operated payment systems. There is an existing process of periodic auditing of departmental risk management framework, however the PSD’s risk management framework has not been audited yet. The plans for the first audit of the PSD’s risk management framework are being drawn up and is expected to be completed in the coming months. Mechanisms exist for involving stakeholders in decision-making process, and the CBRT effectively communicates with the stakeholders through different channels. |
| Assessment of Principle 2 | Observed |
| Recommendations and comments | The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. These indicators could include:
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An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial system, other relevant public interest considerations, and the objectives of relevant stakeholders. | |
| Key consideration 1 | An FMI should have objectives that place a high priority on the safety and efficiency of the FMI and explicitly support financial stability and other relevant public interest considerations |
| Description | The EFT system is operated by the CBRT. The general objectives and duties of the CBRT which is also as an overseer of the NPS, covers the EFT system. According to the article 4.I (f) of the CBRT Law, the fundamental duties and powers of the CBRT related with payment systems are defined as “establishing securities transfer and settlement systems, oversight and regulation of the systems that are founded or to be founded to ensure smooth operation of the systems, establishing procedures and tools to be used for payments including electronic payments.” The article 4.I (g) of the CBRT further assigns financial stability as a responsibility to the CBRT. The PSL, article 9.1 (h) also recognizes implications of payment systems on financial stability and empowers the CBRT to take necessary actions to address any adverse impact. The Objectives and Policies of the CBRT Regarding Payment and Securities Settlement Systems have been defined in accordance with the CBRT Law and the CBRT’s Strategic Plan and has been disclosed to the public on the CBRT web site18. The CBRT’s Strategic Plan for 2014-201819, under the heading of 2.1.1. Public Area of the Main Policies Section, also explicitly recognizes the objective of the CBRT to ensure efficient, secure and effective functioning of payment systems it operates and also the overall NPS. The strategic plan is available to all the participants and the public at large, as it is published on the CBRT website. The CBRT carries out the following core policies and activities:
A division of the PSD of the CBRT is responsible for the operations of the EFT (as a part of the CBRT payment and securities settlement systems) and a separate division for its oversight. As part of the CBRT’s strategic planning and reporting procedure, each CBRT department annually establishes a performance program in order to support the aims and objectives defined in the CBRT’s strategic plan. The performance program is evaluated annually, and reported and presented to the CBRT Board. In addition, national and international developments and standards and participants’ requests and public opinion are taken into consideration while defining the objectives concerning the CBRT Payment Systems. |
| Key consideration 2 | An FMI should have documented governance arrangements that provide clear and direct lines of responsibility and accountability. These arrangements should be disclosed to owners, relevant authorities, participants, and, at a more general level, the public. |
| Description | Governance arrangements The CBRT’s governance structure and role and responsibilities of the bodies are determined by the CBRT Law. The law and other regulations related with governance are publicly disclosed on the CBRT web site20. The CBRT Law defines the CBRT Board as the highest decision making body. The CBRT Board accordingly (art 22 (e)) has the authority to make the strategic decisions for payment systems, to approve the relevant directives, to define the roles of the departments and to approve the budgets needed for investment and operation. The CBRT law, article 30, establishes the role of the Executive Committee in the general governance of the central bank, accordingly the CBRT Executive Committee has an important role on the governance of the EFT system. Issues to be raised for decision to the CBRT Board are first evaluated by the Executive Committee. Notably, the amendments to the PSOR are approved by the Executive Committee. The PSD of the CBRT is responsible for establishing the CBRT Payment and Securities Settlement Systems, to operate them effectively and efficiently, to enhance them according to the predefined policies and to oversee them. These duties and responsibilities are explicitly mentioned in the Regulation on Organization and Duties of the CBRT. The PSD is headed by an executive Director. The Operation and oversight functions of the CBRT Payment Systems are assigned to units in two separate divisions, each of the divisions is reporting to different Deputy Executive Directors. In January 1991, with the approval of the Governor, the Committee on Legal, Administrative and Operational Issues of the CBRT Payment Systems (HITI Committee) was founded for the studies that the CBRT carries out in the field of payment systems. In December 2013, with the decision of the Executive Committee, the HITI Committee was restructured, in which the EDs of Banking and Financial Institutions Department, Legal Department, Information Technology Department, Audit Department, Issue Department, Accounting Department, Markets Department, Payment Systems Department convene under the chairmanship of a vice governor (responsible for PSD) so that related departments views and perspectives are taken in to account for strategic decisions. All departments account for their duties to the Executive Committee and the CBRT Board. The General Assembly reviews the annual reports presented by the CBRT Board and the Auditing Committee, and approves the financial reports. The PSD prepares a Payment Systems Monthly Report and this is presented to the members of the CBRT Board, the Auditing Committee and the Executive Committee. In addition to that, a quarterly review of the systems is presented to the Executive Committee. These reports have detailed information on the functioning of the system, data on volume and value of payments, network analysis based on the transaction patterns, any exceptions like system downtime and any new developments. Moreover, in order to review and evaluate the CBRT Payment and Securities Settlement Systems in the light of enhancements both in payment systems and in technology and to bring forward proposals for improvement, the CBRT Payment Systems are annually evaluated against a specific theme. The outcome of this study, including findings and suggestions for improvements, is presented to the CBRT senior management in the Periodic Evaluation Report of the CBRT Payment and Securities Settlement Systems. The last two annual reports covered business continuity planning and liquidity. These reports provide a very detailed analysis of the specific theme, study the international experience and best practices, and identify areas for improvement. Various channels and platforms have been established to support the information exchange and cooperation between the CBRT and participants. The User Group Meetings, are held at least once a year, for a period of 1-2 days. During these meetings, the opinions of the participants on system operations and possible enhancements are taken, and information on projects and studies are shared. The working groups within the Banks Association of Turkey (BAT) also play an important role. In addition to a permanent working group within the BAT for the CBRT Payment and Securities Settlement Systems, specific working groups are formed on project basis. These working groups support the cooperation between the participants and the CBRT. Disclosure of governance arrangements Duties and powers of the management bodies (e.g., the CBRT Board, the Executive Committee) are defined by the CBRT Law in detail. The CBRT Law, which is the principal law in terms of governance, is publicly available21. The Regulation on Organization and Duties of the CBRT clearly defines the duties and powers of the CBRT departments including their roles related with the CBRT Payment Systems. A detailed summary of duties of the governor and the departments, which also covers the CBRT organization chart and the Regulation on Organization and Duties of the CBRT items, is publicly available on the CBRT web site22. In addition, the PSOR, which defines the roles, authorities and responsibilities related with the CBRT Payment Systems as well as rights and duties of the parties of the system, is available to all system participants. |
| Key consideration 3 | The roles and responsibilities of an FMI’s board of directors (or equivalent) should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address, and manage member conflicts of interest. The board should review both its overall performance and the performance of its individual board members regularly. |
| Description | Roles and responsibilities of the board The powers and duties of the CBRT Board are defined in Article 22 of the CBRT Law. Apart from its other powers and duties, the CBRT Board is also empowered to take decisions related to the payment and securities settlement systems operated by the CBRT and also the NPS. The composition of the CBRT Board, its working methods and the required qualifications for its members are defined by Articles 19, 20 and 21 of the CBRT Law. The decision mechanism in the case of a dispute is defined by Articles 22 and 26 of the law. There exist various committees like the Data Security Committee and the Business Continuity Committee that have been established based on the approved arrangements of the CBRT Board, however the CBRT Board Members do not participate in them. As noted earlier, the HITI Committee, ensures coordination among CBRT departments on aspects related to payment systems. Review of performance The CBRT is established as a joint stock company and is subject to the provisions of private law in cases where the CBRT Law is not explicit. Therefore, as a joint stock company, the provisions of the Turkish Commercial Code (Law No.6102) shall also apply to CBRT. The Article 15 of the CBRT Law empowers the General Assembly to review and evaluate the performance of the CBRT Board and the provisions of the Turkish Commercial Code define the procedures for the review and evaluation of the performance of the CBRT Board. Business Continuity Committees and Information Security Committee report annually to the Executive Committee and the Board of the CBRT. The HITI Committee, on the other hand, is not a performing body, but rather a collaborative forum. |
| Key consideration 4 | The board should contain suitable members with the appropriate skills and incentives to fulfill its multiple roles. This typically requires the inclusion of non-executive board member(s). |
| Description | The EFT system (as part of the CBRT payment and securities settlement systems) is owned and operated by the CBRT, the qualifications for the CBRT Board Members are determined considering all the duties and responsibilities of the CBRT. The CBRT Board Members are chosen by the General Assembly of the CBRT. The article 19 of the CBRT Law requires the CBRT Board Members to have a university degree and to have knowledge and experience in banking, economics and finance. The Governor, who also chairs the CBRT Board, should also have the same qualifications according to article 25. The CBRT Board Members other than the Governor do not have a direct role on the daily management of the CBRT. In this respect, those members are non-executive board members. |
| Key consideration 5 | The roles and responsibilities of management should be clearly specified. An FMI’s management should have the appropriate experience, a mix of skills, and the integrity necessary to discharge their responsibilities for the operation and risk management of the FMI. |
| Description | Roles and responsibilities of management The PSD of the CBRT is responsible for the operations and management of the EFT, under the supervision of the Executive Committee. The Executive Committee is composed of the Governor and four Vice Governors and is chaired by the Governor. Vice governors are appointed by a joint decree for a period of five years on the recommendation of the Governor. Vice governors may be reappointed upon the expiration of this term. The duties of the Executive Committee are defined by the Article 30 of the CBRT Law, and include, inter alia, ensuring coordination in the operations of the CBRT. The PSD is responsible for the daily operation of the CBRT Payment Systems. Oversight of the systems is carried out by a division of the PSD that is not responsible for the operations. Hence, operation and oversight responsibilities are segregated at the Deputy Executive Director level. The Regulation on the Organization and Duties of the CBRT clearly defines the roles, powers and responsibilities of CBRT departments and their executive directors. Accordingly, each executive director has duties and responsibilities to plan, to determine procedures, to organise the work, to coordinate the subsidiary divisions, to train and educate the staff and in general ensure that the activities are accomplished in a manner that is accurate, complete, on-time and in compliance with all internal rules and procedures and applicable laws and regulations. The CBRT departments prepare their annual performance programs, which include work plans, performance objectives and performance indicators, within the framework of their duties and responsibilities, in order to achieve the objectives that take place in the CBRT’s Strategic Plan. The annual performance programs are subject to the approval of the CBRT Board before implementation. The performance of the departments is annually presented to the CBRT Board through performance reports. Objectives and performance indicators for the CBRT Payment Systems are included in the performance program of the CBRT Payment Systems Department and these are monitored by the CBRT Board. The objectives of the PSD for 2016 are inter alia:
The performance indicators of the PSD for 2016 are inter alia:
Experience, skills and integrity The qualifications required for the Governor and the vice governors are defined by the Articles 25 and 29 of the CBRT Law. Executive directors of departments and directors of divisions reporting to them are appointed by the CBRT Board. Executive directors, deputy executive directors and directors are required to have at least a university degree. The experience required for the executive director and other positions is defined in the CBRT’s Regulation on Promotion and Title Change. Governors and vice governors may be excused from duty through the same procedure applied for his/her appointment, only when the prohibitions stated in Article 27 of the Central Bank Law are violated and there is no longer any possibility for him/her to perform the duties entrusted by this Law. Executive directors and directors may be excused from duty by the CBRT Board. |
| Key consideration 6 | The board should establish a clear, documented risk-management framework) that includes the FMI’s risk-tolerance policy, assigns responsibilities and accountability for risk decisions, and addresses decision making in crises and emergencies. Governance arrangements should ensure that the risk-management and internal control functions have sufficient authority, independence, resources, and access to the board. |
| Description | Risk management framework There is no institutional risk management framework at the overall CBRT level. However, the PSD has developed a risk management framework in 2014 with the approval of the CBRT Executive Committee, and this is being applied for the functioning of the EFT system. The risk management framework has also been placed to the Board as part of the annual performance program and reporting process. Risk Management Framework of the CBRT Payment Systems consists of an application process as well as a risk management policy document that defines principles, aim, scope, roles and responsibilities regarding risk management. In line with this policy, the implementation results are presented to the CBRT Executive Committee annually. The implementation results are also presented to the Board through annual performance program and reporting process. This risk management framework is elaborated in the section on Principle 3. Authority and independence of risk management and audit functions In line with the CBRT Audit Regulation, the Audit Department performs audit activities, in order to determine and evaluate the risks that may occur during the processes run by the CBRT, and to suggest risk management measures. After getting the views of the audited departments, the Audit Reports are presented to the Governor. The audits are carried out annually for a set of departments and functions. As part of this the CBRT Payment Systems Risk Management Framework and its application are also subject to audit. However there has been no audit till date of the PSD and its risk management framework, as it was developed only in 2014. |
| Key consideration 7 | The board should ensure that the FMI’s design, rules, overall strategy, and major decisions reflect appropriately the legitimate interests of its direct and indirect participants and other relevant stakeholders. Major decisions should be clearly disclosed to relevant stakeholders and, where there is a broad market impact, the public. |
| Description | Identification and consideration of stakeholder interests There are several channels and platforms where system participants discuss technical and operational issues among themselves, or when necessary with the CBRT, and bring technical and operational issues to the attention of the CBRT. The CBRT Payment Systems Working Group within the BAT play an important role related to seeking the opinions of the participants. This group is permanent and it allows participants to discuss, evaluate and agree upon various issues among themselves. In addition to this group, specific working groups are formed within the BAT about the CBRT Payment Systems on project basis. When needed, the CBRT may participate in the BAT working groups. The results and proposals of the working groups are evaluated within the CBRT governance framework, and those that have been approved are put into practice. In addition, during User Group Meetings, which are held at least once a year, plans related with the systems are revised, current practices and changing business requirements are discussed and participant views and needs are collected. Disclosure The CBRT discloses the principle decisions about the payment systems to the participants via following channels:
In addition there is a the private chatroom for the EFT system, which is used at times for addressing any specific clarifications from participants related to day-to-day operations. |
| Key conclusions | This principle is assessed taking into account the considerations for FMIs operated by central banks as stated both in the PFMIs and in Application of the Principles for financial market infrastructures to central bank FMIs.23 The objectives and policies of the CBRT regarding Payment and Securities Settlement Systems place a high priority on stability, safety and efficiency. The CBRT has documented governance arrangements for the institution as a whole that define clear and direct lines of responsibility and accountability. The same governance framework has been applied for the EFT system as well, as a core responsibility of the PSD. There is a risk management framework for the CBRT operated payment systems. There is an existing process of periodic auditing of departmental risk management framework, however the PSD’s risk management framework has not been audited yet. The plans for the first audit of the PSD’s risk management framework are being drawn up and is expected to be completed in the coming months. Mechanisms exist for involving stakeholders in decision-making process, and the CBRT effectively communicates with the stakeholders through different channels. |
| Assessment of Principle 2 | Observed |
| Recommendations and comments | The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. These indicators could include:
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| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • | • |
An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks. | |
| Key consideration 1 | An FMI should have risk-management policies, procedures, and systems that enable it to identify, measure, monitor, and manage the range of risks that arise in or are borne by the FMI. Risk-management frameworks should be subject to periodic review. |
| Description | Risks that arise in or are borne by the FMI The EFT system functions as a RTGS system. The liquidity support for the EFT system is external to the EFT system and seen by the CBRT as part of the monetary policy instruments of the CBRT. For the purposes of this assessment, the risks associated with the intra-day liquidity support provision of the CBRT are also being considered. The risks that the EFT system is exposed to and could pose to its participants and other FMIs are:
The EFT system as the core large value payments system in Turkey is critical to contain and limit systemic risk. As the EFT system is operated by the CBRT, the general business risks are not considered as a material risk. Risk management policies, procedures and systems The CBRT PSD has developed a risk management framework based on the ISO 31000 standard. The risk management framework was adopted in adopted October 2014. The Framework comprises of an application process as well as a risk management policy document. The policy defines principles, aim, scope, roles and responsibilities regarding risk management. The application process, defines the risk management process and activities, including inputs, outputs, triggers and actions. The Risk Management Framework also includes “Risk Criteria” that define impact and probability rates and acceptable risk level. The Risk Management Framework is executed by the PSD. There are three roles in the framework, namely (i) Departmental Risk Management Group (DRMG), (ii) Risk Working Group (RWG) and (iii) Department Staff Assigned to Risk Management Application. The DRMG is comprised of the ED of the PSD, DEDs of the PSD responsible for the operations division and Directors of the Research and Business Development and Operations. The DRMG is responsible for providing the vision and objectives and make necessary assignments and supervises the conformance to the risk management framework. The RWG is responsible for the annual review of the framework, to keep the framework updated, and guiding and coordinating the application. Staffs are assigned from the operations division for applying the risk management framework. Other CBRT departments, system participants and service providers are also involved in the risk management process when needed. In order to eliminate legal risks, the CBRT regulations related to the CBRT Payment and Securities Settlement Systems are issued after internal review by the legal department to ensure that it has a sound legal basis. The EFT system works in the RTGS mode and hence there is no credit risk between participants. However as an operator the CBRT is exposed to the default of a participant in repaying the intra-day credit. This risk is contained by requiring the credit be fully collateralized with good quality collaterals with appropriate valuation and haircut practices. In order to manage the liquidity risk, several functionalities are provided in the EFT such as queue management and full access to the account balances. Multilateral offsetting is also used in the EFT, with the offsetting algorithm running every minute, with an additional option to manually trigger offsetting if needed. Additionally, the liquidity in the EFT system and in the market is monitored. The CBRT may provide intraday and overnight credit against collateral in order to prevent temporary liquidity shortfalls in situations that may affect the efficiency of the financial markets and also as part of its LOLR operations. The participants can instantly monitor their balances and queued payments using the online-inquiry services. The settlement statuses and the closing times of the systems and any changes in operational aspects of participants are notified to all participants automatically by the System. The CBRT has formed a Business Continuity Committee to carry out the activities for ensuring the continuity of key processes of the CBRT in any circumstance and for developing, testing and regularly reviewing the Business Continuity Plan (BCP) of the CBRT. The CBRT Payment Systems Business Continuity Application Plan has been developed as a part of the CBRT BCP. This also covers the EFT system. Within the CBRT Payment Systems Business Continuity Application Plan, operational risks for critical business processes have been addressed by the CBRT Payment Systems Risk Management Framework, the controls have been defined with respect to identified risks and the operational and technical procedures and documents have been prepared for recovery and resumption in case of adverse scenarios. The collateral collected by the CBRT for liquidity support operations are held in its name in the ESTS for Turkish government securities and in ICSDs for specific securities - Turkish Government Eurobonds or IILM issuances. The CBRT does not reuse or on-lend these collaterals. Review of risk management policies, procedures and systems Efficiency and effectiveness of the risk management framework are reviewed periodically and results are reported. Additionally, events that may cause deviation from standards and goals are monitored by the RWG. The risk management framework is required to be reviewed every year in February. The first review of the risk management framework was conducted in February 2016. In this process international standards and best practices, feedback from stakeholders, requests received from participants as part of daily operations, information requests, user satisfaction surveys and results of research studies are taken into consideration. The policies, procedures and systems used to identify and manage risks regarding the CBRT Payment Systems are also the subject to PSD’s oversight activities. Moreover, like all other activities of the CBRT, they are subject to audit by the CBRT Audit Department. |
| Key consideration 2 | An FMI should provide incentives to participants and, where relevant, their customers to manage and contain the risks they pose to the FMI. |
| Description | The PSOR article 13(4) authorises the CBRT to impose sanctions on participants that fail to fulfil their obligations. Further the PSOR, section V, as part of the participant’s responsibilities outlines in detail the participants obligation to secure its systems, use appropriate internal arrangements, conform to the PSOR and have an effective business continuity plan. In order to eliminate risk arising from delayed payments, the CBRT is very strict with respect to the systems’ official closing times and if the working hours are extended, payments after the official closing time are charged 10 times the regular price. In 2015, there were a total of 9 extensions for a total period of 245 minutes. During these extensions, there were a total of 2,408 transactions amounting to around TRY 560 million, covering both the RPS and EFT system. Five of these extensions were made by the CBRT for money market operations, the remaining 4 were at the request of participants. The approval authority for extension requests varies based on the duration – for 15 minutes it is the operations director, beyond that and up to 1 hour it is the PSD ED and beyond that it is the Deputy Governor. Participants are required to inform the CBRT about problems in their systems that can affect the CBRT Payment and Securities Settlement Systems (including the EFT) as promptly as possible. Real time information sharing utilities provides participants with necessary and simultaneous information in order to help them identify and manage their risks. In addition, the CBRT discusses problems concerning the operations of the system with participants, shares plans on technical and operational updates, and takes opinions and change requests of the participants in User Group Meetings and working group meetings. Regarding the liquidity support, an unpaid intraday liquidity support is rolled over as an overnight credit which attracts interest. In addition, there is an overall borrowing limit for liquidity support facilities except the LOLR, hence limiting the borrowers’ access to other CBRT liquidity facilities. Real time information sharing utilities provides participants with necessary and simultaneous information in order to help them identify and manage their risks. All notifications for participants are sent automatically as part of the service management utilities in the EFT system. In this context, system statistics and details on payments are also reported to participants at the end of the day. In case of problems, the CBRT and participants actively use predefined chat-rooms and e-mail groups to communicate with each other. |
| Key consideration 3 | An FMI should regularly review the material risks it bears from and poses to other entities (such as other FMIs, settlement banks, liquidity providers, and service providers) as a result of interdependencies and develop appropriate risk-management tools to address these risks. |
| Description | Material risks The CBRT PSD risk management framework has used the PFMIs to identify material risks and includes the following risks:
The CBRT PSD considers the operational risk to be the most material risk for the EFT. The risk management framework and the annual review is outlined in the KC 1 of this principle is used to monitor and mitigate the risks. The indicators for system up time and the performance of the IT systems are collected and reported on a daily, monthly, quarterly and annual basis to the Executive Committee and the annual report is also placed to the board as part of the annual performance review of the PSD. The system up-time is also included explicitly as a performance indicator for the PSD. The “Sink-Rank” methodology is used for assessing the concentration and network analysis of the transaction patterns. This in particular provides a view on the liquidity risk for participants. This analysis and the analysis of effectiveness of the offsetting algorithms is included in the monthly, quarterly and annual reports. Risk management tools The CBRT PSD as part of the CBRT business continuity plan, has a very well-defined business continuity and operational risk management plan. This is the main tool used for the management of operational risk of the EFT system. The PSD has also instituted a survey of its participant’s BCP processes, as part of its annual thematic review report in 2014. Based on the findings of this review the PSD is now preparing complex scenarios of use in its BCP testing. |
| Key consideration 4 | An FMI should identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down. An FMI should prepare appropriate plans for its recovery or orderly wind-down based on the results of that assessment. Where applicable, an FMI should also provide relevant authorities with the information needed for purposes of resolution planning. |
| Description | Scenarios that may prevent an FMI from providing critical operations and services The PSD uses the risk management framework outlined in the KC 1 of this principles. It identified operational risk as the most material risk. Specific scenarios that may prevent it from providing critical operations and services are identified as part of the BCP process. Scenarios that covers all resources, physical infrastructure, labour force, information systems and communication infrastructure handles failure cases of various system components by taking into consideration the predefined business priorities. Please see Principle 17 (Operational Risk) for detailed discussion on this. Recovery or orderly wind-down plans The EFT is operated by the CBRT, given this the recovery and wind-down plans are not applicable, as noted in the PFMIs and the CPMI-IOSCO publication on application of PFMIs to central bank operated FMIs. |
| Key conclusions | The PSD has developed a risk management framework based on the ISO 31000 framework. The risk management framework covers the specific risks outlined in the PFMIs. The framework is reviewed annually and is also subject to audit by the CBRT audit committee. The PSOR provides adequate powers to the CBRT to ensure conformance to the operating and security procedures outlined in the PSOR. The PSD has mechanisms in place for measuring and monitoring specific aspects of liquidity risk and operational reliability of the EFT system. The risk management framework is however internally focused and does not explicitly take into account the dependencies on other FMIs and also internal systems of the CBRT. In particular, the operations of the EFT system has a heavy dependence on the Takasbank and the CBRT markets department, given their role in providing liquidity to participants. Takasbank is the SSS for the inter-bank markets which is a major source of the liquidity used in the EFT system. The Markets Department is the decision maker on the provision of the CBRT liquidity support facilities and also has its own systems and processes. This risk however is to an extent mitigated as the Takasbank and other FMIs are subject to the oversight of the CBRT and the Markets department also has its own risk management framework and there is co-ordination at the HITI committee. |
| Assessment of Principle 3 | Broadly Observed. |
| Recommendations and comments | The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. |
An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks. | |
| Key consideration 1 | An FMI should have risk-management policies, procedures, and systems that enable it to identify, measure, monitor, and manage the range of risks that arise in or are borne by the FMI. Risk-management frameworks should be subject to periodic review. |
| Description | Risks that arise in or are borne by the FMI The EFT system functions as a RTGS system. The liquidity support for the EFT system is external to the EFT system and seen by the CBRT as part of the monetary policy instruments of the CBRT. For the purposes of this assessment, the risks associated with the intra-day liquidity support provision of the CBRT are also being considered. The risks that the EFT system is exposed to and could pose to its participants and other FMIs are:
The EFT system as the core large value payments system in Turkey is critical to contain and limit systemic risk. As the EFT system is operated by the CBRT, the general business risks are not considered as a material risk. Risk management policies, procedures and systems The CBRT PSD has developed a risk management framework based on the ISO 31000 standard. The risk management framework was adopted in adopted October 2014. The Framework comprises of an application process as well as a risk management policy document. The policy defines principles, aim, scope, roles and responsibilities regarding risk management. The application process, defines the risk management process and activities, including inputs, outputs, triggers and actions. The Risk Management Framework also includes “Risk Criteria” that define impact and probability rates and acceptable risk level. The Risk Management Framework is executed by the PSD. There are three roles in the framework, namely (i) Departmental Risk Management Group (DRMG), (ii) Risk Working Group (RWG) and (iii) Department Staff Assigned to Risk Management Application. The DRMG is comprised of the ED of the PSD, DEDs of the PSD responsible for the operations division and Directors of the Research and Business Development and Operations. The DRMG is responsible for providing the vision and objectives and make necessary assignments and supervises the conformance to the risk management framework. The RWG is responsible for the annual review of the framework, to keep the framework updated, and guiding and coordinating the application. Staffs are assigned from the operations division for applying the risk management framework. Other CBRT departments, system participants and service providers are also involved in the risk management process when needed. In order to eliminate legal risks, the CBRT regulations related to the CBRT Payment and Securities Settlement Systems are issued after internal review by the legal department to ensure that it has a sound legal basis. The EFT system works in the RTGS mode and hence there is no credit risk between participants. However as an operator the CBRT is exposed to the default of a participant in repaying the intra-day credit. This risk is contained by requiring the credit be fully collateralized with good quality collaterals with appropriate valuation and haircut practices. In order to manage the liquidity risk, several functionalities are provided in the EFT such as queue management and full access to the account balances. Multilateral offsetting is also used in the EFT, with the offsetting algorithm running every minute, with an additional option to manually trigger offsetting if needed. Additionally, the liquidity in the EFT system and in the market is monitored. The CBRT may provide intraday and overnight credit against collateral in order to prevent temporary liquidity shortfalls in situations that may affect the efficiency of the financial markets and also as part of its LOLR operations. The participants can instantly monitor their balances and queued payments using the online-inquiry services. The settlement statuses and the closing times of the systems and any changes in operational aspects of participants are notified to all participants automatically by the System. The CBRT has formed a Business Continuity Committee to carry out the activities for ensuring the continuity of key processes of the CBRT in any circumstance and for developing, testing and regularly reviewing the Business Continuity Plan (BCP) of the CBRT. The CBRT Payment Systems Business Continuity Application Plan has been developed as a part of the CBRT BCP. This also covers the EFT system. Within the CBRT Payment Systems Business Continuity Application Plan, operational risks for critical business processes have been addressed by the CBRT Payment Systems Risk Management Framework, the controls have been defined with respect to identified risks and the operational and technical procedures and documents have been prepared for recovery and resumption in case of adverse scenarios. The collateral collected by the CBRT for liquidity support operations are held in its name in the ESTS for Turkish government securities and in ICSDs for specific securities - Turkish Government Eurobonds or IILM issuances. The CBRT does not reuse or on-lend these collaterals. Review of risk management policies, procedures and systems Efficiency and effectiveness of the risk management framework are reviewed periodically and results are reported. Additionally, events that may cause deviation from standards and goals are monitored by the RWG. The risk management framework is required to be reviewed every year in February. The first review of the risk management framework was conducted in February 2016. In this process international standards and best practices, feedback from stakeholders, requests received from participants as part of daily operations, information requests, user satisfaction surveys and results of research studies are taken into consideration. The policies, procedures and systems used to identify and manage risks regarding the CBRT Payment Systems are also the subject to PSD’s oversight activities. Moreover, like all other activities of the CBRT, they are subject to audit by the CBRT Audit Department. |
| Key consideration 2 | An FMI should provide incentives to participants and, where relevant, their customers to manage and contain the risks they pose to the FMI. |
| Description | The PSOR article 13(4) authorises the CBRT to impose sanctions on participants that fail to fulfil their obligations. Further the PSOR, section V, as part of the participant’s responsibilities outlines in detail the participants obligation to secure its systems, use appropriate internal arrangements, conform to the PSOR and have an effective business continuity plan. In order to eliminate risk arising from delayed payments, the CBRT is very strict with respect to the systems’ official closing times and if the working hours are extended, payments after the official closing time are charged 10 times the regular price. In 2015, there were a total of 9 extensions for a total period of 245 minutes. During these extensions, there were a total of 2,408 transactions amounting to around TRY 560 million, covering both the RPS and EFT system. Five of these extensions were made by the CBRT for money market operations, the remaining 4 were at the request of participants. The approval authority for extension requests varies based on the duration – for 15 minutes it is the operations director, beyond that and up to 1 hour it is the PSD ED and beyond that it is the Deputy Governor. Participants are required to inform the CBRT about problems in their systems that can affect the CBRT Payment and Securities Settlement Systems (including the EFT) as promptly as possible. Real time information sharing utilities provides participants with necessary and simultaneous information in order to help them identify and manage their risks. In addition, the CBRT discusses problems concerning the operations of the system with participants, shares plans on technical and operational updates, and takes opinions and change requests of the participants in User Group Meetings and working group meetings. Regarding the liquidity support, an unpaid intraday liquidity support is rolled over as an overnight credit which attracts interest. In addition, there is an overall borrowing limit for liquidity support facilities except the LOLR, hence limiting the borrowers’ access to other CBRT liquidity facilities. Real time information sharing utilities provides participants with necessary and simultaneous information in order to help them identify and manage their risks. All notifications for participants are sent automatically as part of the service management utilities in the EFT system. In this context, system statistics and details on payments are also reported to participants at the end of the day. In case of problems, the CBRT and participants actively use predefined chat-rooms and e-mail groups to communicate with each other. |
| Key consideration 3 | An FMI should regularly review the material risks it bears from and poses to other entities (such as other FMIs, settlement banks, liquidity providers, and service providers) as a result of interdependencies and develop appropriate risk-management tools to address these risks. |
| Description | Material risks The CBRT PSD risk management framework has used the PFMIs to identify material risks and includes the following risks:
The CBRT PSD considers the operational risk to be the most material risk for the EFT. The risk management framework and the annual review is outlined in the KC 1 of this principle is used to monitor and mitigate the risks. The indicators for system up time and the performance of the IT systems are collected and reported on a daily, monthly, quarterly and annual basis to the Executive Committee and the annual report is also placed to the board as part of the annual performance review of the PSD. The system up-time is also included explicitly as a performance indicator for the PSD. The “Sink-Rank” methodology is used for assessing the concentration and network analysis of the transaction patterns. This in particular provides a view on the liquidity risk for participants. This analysis and the analysis of effectiveness of the offsetting algorithms is included in the monthly, quarterly and annual reports. Risk management tools The CBRT PSD as part of the CBRT business continuity plan, has a very well-defined business continuity and operational risk management plan. This is the main tool used for the management of operational risk of the EFT system. The PSD has also instituted a survey of its participant’s BCP processes, as part of its annual thematic review report in 2014. Based on the findings of this review the PSD is now preparing complex scenarios of use in its BCP testing. |
| Key consideration 4 | An FMI should identify scenarios that may potentially prevent it from being able to provide its critical operations and services as a going concern and assess the effectiveness of a full range of options for recovery or orderly wind-down. An FMI should prepare appropriate plans for its recovery or orderly wind-down based on the results of that assessment. Where applicable, an FMI should also provide relevant authorities with the information needed for purposes of resolution planning. |
| Description | Scenarios that may prevent an FMI from providing critical operations and services The PSD uses the risk management framework outlined in the KC 1 of this principles. It identified operational risk as the most material risk. Specific scenarios that may prevent it from providing critical operations and services are identified as part of the BCP process. Scenarios that covers all resources, physical infrastructure, labour force, information systems and communication infrastructure handles failure cases of various system components by taking into consideration the predefined business priorities. Please see Principle 17 (Operational Risk) for detailed discussion on this. Recovery or orderly wind-down plans The EFT is operated by the CBRT, given this the recovery and wind-down plans are not applicable, as noted in the PFMIs and the CPMI-IOSCO publication on application of PFMIs to central bank operated FMIs. |
| Key conclusions | The PSD has developed a risk management framework based on the ISO 31000 framework. The risk management framework covers the specific risks outlined in the PFMIs. The framework is reviewed annually and is also subject to audit by the CBRT audit committee. The PSOR provides adequate powers to the CBRT to ensure conformance to the operating and security procedures outlined in the PSOR. The PSD has mechanisms in place for measuring and monitoring specific aspects of liquidity risk and operational reliability of the EFT system. The risk management framework is however internally focused and does not explicitly take into account the dependencies on other FMIs and also internal systems of the CBRT. In particular, the operations of the EFT system has a heavy dependence on the Takasbank and the CBRT markets department, given their role in providing liquidity to participants. Takasbank is the SSS for the inter-bank markets which is a major source of the liquidity used in the EFT system. The Markets Department is the decision maker on the provision of the CBRT liquidity support facilities and also has its own systems and processes. This risk however is to an extent mitigated as the Takasbank and other FMIs are subject to the oversight of the CBRT and the Markets department also has its own risk management framework and there is co-ordination at the HITI committee. |
| Assessment of Principle 3 | Broadly Observed. |
| Recommendations and comments | The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI should effectively measure, monitor, and manage its credit exposure to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two largest participants and their affiliates that would potentially cause the largest aggregate credit exposures to the CCP in extreme but plausible market conditions. All other CCPs should maintain, at a minimum, total financial resources sufficient to cover the default of the one participant and its affiliates that would potentially cause the largest aggregate credit exposures to the CCP in extreme but plausible market conditions. | ||||||||||||
| Key consideration 1 |
An FMI should establish a robust framework to manage its credit exposures to its participants and the credit risks arising from its payment, clearing, and settlement processes. Credit exposure may arise from current exposures, potential future exposures, or both. | |||||||||||
| Description | The EFT system functions as a RTGS system. There is no liquidity support mechanisms within the EFT system. Participants can seek liquidity support from the CBRT, subject to an overall “borrowing limit” against collaterals and from the inter-bank money markets. The liquidity support offered by the CBRT is structured as monetary policy instruments and is managed by the Markets department of the CBRT. The markets department’s risk management framework for managing the credit risk includes establishing an overall borrowing limit based on the asset size of the participant; requiring good quality collateral; and, applying haircuts. There is no set frequency for these reviews. The last review was carried out in September 2015. Credit risk is also acknowledged in the PSD’s risk management framework. In addition, securities transactions (both primary and secondary market) which settle in the EFT system are performed with the DvP settlement mechanism to eliminate principal risk. On the other side, in accordance with the Article 40.I (a) of the CBRT Law, the CBRT may provide intraday and overnight liquidity against collateral in order to prevent temporary liquidity shortfalls and technical payment problems that may affect the efficiency of the financial markets. In this context, the CBRT performs following Money Market Operations:
There is a separate collateral account in the ESTS for each of these facilities. There is a project underway to have one common pool of collaterals. The intra-day liquidity support facility is not charged, but there is a commission of TRY 10 per million. The rest of the facilities are interest bearing. There is a consolidated borrowing limit for these and these are fully collateralized. The accepted collaterals are:
The participants can move collateral in and out, only with the approval of the CBRT Markets Department. Haircuts are applied to all the collateral and the haircut varies by securities and maturity of the security. | |||||||||||
| Key consideration 2 | An FMI should identify sources of credit risk, routinely measure and monitor credit exposures, and use appropriate risk-management tools to control these risks. | |||||||||||
| Description |
Credit risk management framework is implemented by the CBRT markets department. The framework has identified the following sources of credit risk:
The risk management tools include:
The credit facilities extended are monitored daily and the valuation of collaterals held are validated on a daily basis. | |||||||||||
| Key consideration 3 |
A payment system or SSS should cover its current and, where they exist, potential future exposures to each participant fully with a high degree of confidence using collateral and other equivalent financial resources (see Principle 5 on collateral). In the case of a DNS payment system or DNS sss in which there is no settlement guarantee but where its participants face credit exposures arising from its payment, clearing, and settlement processes, such an FMI should maintain, at a minimum, sufficient resources to cover the exposures of the two participants and their affiliates that would create the largest aggregate credit exposure in the system. | |||||||||||
| Description | Coverage of exposures to each participant Since the EFT system functions as a RTGS system and uses DvP principle, the participants do not face any credit exposure. In addition, the CBRT Payment Systems are subject to the Article 10 of the Payment Systems Law. Since settlement finality is guaranteed by the law, there is no credit risk for participants that may arise from legal issues. For DNS payment systems and DNS SSSs in which there is no settlement guarantee The EFT system functions as a RTGS system, this issue is not applicable. | |||||||||||
| Key consideration 4 |
A CCP should cover its current and potential future exposures to each participant fully with a high degree of confidence using margin and other prefunded financial resources (see Principle 5 on collateral and Principle 6 on margin). In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions. In all cases, a CCP should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount of total financial resources it maintains. | |||||||||||
| Description | Coverage of current and potential future exposures to each participant Not applicable as EFT is a payment system. Risk profile and systemic importance in multiple jurisdictions Not applicable as EFT is a payment system. Additional financial resources Not applicable as EFT is a payment system. Supporting rationale and governance arrangements Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 5 |
A CCP should determine the amount and regularly test the sufficiency of its total financial resources available in the event of a default or multiple defaults in extreme but plausible market conditions through rigorous stress testing. A CCP should have clear procedures to report the results of its stress tests to appropriate decision makers at the CCP and to use these results to evaluate the adequacy of and adjust its total financial resources. Stress tests should be performed daily using standard and predetermined parameters and assumptions. On at least a monthly basis, a CCP should perform a comprehensive and thorough analysis of stress testing scenarios, models, and underlying parameters and assumptions used to ensure they are appropriate for determining the CCP’s required level of default protection in light of current and evolving market conditions. A CCP should perform this analysis of stress testing more frequently when the products cleared or markets served display high volatility, become less liquid, or when the size or concentration of positions held by a CCP’s participants increases significantly. A full validation of a CCP’s risk-management model should be performed at least annually. | |||||||||||
| Description | Stress testing Not applicable as EFT is a payment system. Review and validation Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 6 |
In conducting stress testing, a CCP should consider the effect of a wide range of relevant stress scenarios in terms of both defaulters’ positions and possible price changes in liquidation periods. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. | |||||||||||
| Description | Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 7 |
An FMI should establish explicit rules and procedures that address fully any credit losses it may face as a result of any individual or combined default among its participants with respect to any of their obligations to the FMI. These rules and procedures should address how potentially uncovered credit losses would be allocated, including the repayment of any funds an FMI may borrow from liquidity providers. These rules and procedures should also indicate the FMI’s process to replenish any financial resources that the FMI may employ during a stress event, so that the FMI can continue to operate in a safe and sound manner. | |||||||||||
| Description | Allocation of credit losses As noted in the KC 4.1, 4.2 and 4.2 the credit extended to the participants by the CBRT is fully collateralized. In the event of any participant default the collateral rights could be enforced. As the EFT system is structured as a RTGS system, there is no credit risk between participants. Any loss that may stem from credit given to a participant is not shared with other participants. Any loss is covered by high quality collateral and failing bank’s other possessions held with the CBRT. Rules and procedures to be applied in the case of a default of a participant are described in the discussion on Principle 13. No liquidity provider is needed since the transactions are all in TRY and the operator of the EFT system is the CBRT. Replenishment of financial resources As the central bank of issue, the CBRT always has access to necessary liquidity in TRY. | |||||||||||
| Key conclusions | The EFT system functions as a RTGS system it does not create credit exposures arising from its payment, clearing, and settlement processes. The credit risk related to the operation of the EFT stems from the CBRT liquidity support operations to the participants. The liquidity support operations are not integrated into the EFT system and as such are handled by the markets department. The credit risk is considered as part of the EFT risk management framework, but the full treatment of the credit risk from liquidity support operations is in the domain of the markets department. The markets department’s credit risk management framework includes instituting overall borrowing limits, requiring all credit facilities to be collateralized with good quality securities, and applying conservative haircuts. The collaterals are re-valued daily and the CBRT has the rights to ask for additional collateral when there is an adverse movement. | |||||||||||
| Assessment of Principle 4 | Observed. | |||||||||||
| Recommendations and comments | The credit risk management framework of the Markets department of the CBRT should be more fully integrated in to the risk management framework of the EFT system. | |||||||||||
An FMI should effectively measure, monitor, and manage its credit exposure to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two largest participants and their affiliates that would potentially cause the largest aggregate credit exposures to the CCP in extreme but plausible market conditions. All other CCPs should maintain, at a minimum, total financial resources sufficient to cover the default of the one participant and its affiliates that would potentially cause the largest aggregate credit exposures to the CCP in extreme but plausible market conditions. | ||||||||||||
| Key consideration 1 |
An FMI should establish a robust framework to manage its credit exposures to its participants and the credit risks arising from its payment, clearing, and settlement processes. Credit exposure may arise from current exposures, potential future exposures, or both. | |||||||||||
| Description | The EFT system functions as a RTGS system. There is no liquidity support mechanisms within the EFT system. Participants can seek liquidity support from the CBRT, subject to an overall “borrowing limit” against collaterals and from the inter-bank money markets. The liquidity support offered by the CBRT is structured as monetary policy instruments and is managed by the Markets department of the CBRT. The markets department’s risk management framework for managing the credit risk includes establishing an overall borrowing limit based on the asset size of the participant; requiring good quality collateral; and, applying haircuts. There is no set frequency for these reviews. The last review was carried out in September 2015. Credit risk is also acknowledged in the PSD’s risk management framework. In addition, securities transactions (both primary and secondary market) which settle in the EFT system are performed with the DvP settlement mechanism to eliminate principal risk. On the other side, in accordance with the Article 40.I (a) of the CBRT Law, the CBRT may provide intraday and overnight liquidity against collateral in order to prevent temporary liquidity shortfalls and technical payment problems that may affect the efficiency of the financial markets. In this context, the CBRT performs following Money Market Operations:
There is a separate collateral account in the ESTS for each of these facilities. There is a project underway to have one common pool of collaterals. The intra-day liquidity support facility is not charged, but there is a commission of TRY 10 per million. The rest of the facilities are interest bearing. There is a consolidated borrowing limit for these and these are fully collateralized. The accepted collaterals are:
The participants can move collateral in and out, only with the approval of the CBRT Markets Department. Haircuts are applied to all the collateral and the haircut varies by securities and maturity of the security. | |||||||||||
| Key consideration 2 | An FMI should identify sources of credit risk, routinely measure and monitor credit exposures, and use appropriate risk-management tools to control these risks. | |||||||||||
| Description |
Credit risk management framework is implemented by the CBRT markets department. The framework has identified the following sources of credit risk:
The risk management tools include:
The credit facilities extended are monitored daily and the valuation of collaterals held are validated on a daily basis. | |||||||||||
| Key consideration 3 |
A payment system or SSS should cover its current and, where they exist, potential future exposures to each participant fully with a high degree of confidence using collateral and other equivalent financial resources (see Principle 5 on collateral). In the case of a DNS payment system or DNS sss in which there is no settlement guarantee but where its participants face credit exposures arising from its payment, clearing, and settlement processes, such an FMI should maintain, at a minimum, sufficient resources to cover the exposures of the two participants and their affiliates that would create the largest aggregate credit exposure in the system. | |||||||||||
| Description | Coverage of exposures to each participant Since the EFT system functions as a RTGS system and uses DvP principle, the participants do not face any credit exposure. In addition, the CBRT Payment Systems are subject to the Article 10 of the Payment Systems Law. Since settlement finality is guaranteed by the law, there is no credit risk for participants that may arise from legal issues. For DNS payment systems and DNS SSSs in which there is no settlement guarantee The EFT system functions as a RTGS system, this issue is not applicable. | |||||||||||
| Key consideration 4 |
A CCP should cover its current and potential future exposures to each participant fully with a high degree of confidence using margin and other prefunded financial resources (see Principle 5 on collateral and Principle 6 on margin). In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure for the CCP in extreme but plausible market conditions. In all cases, a CCP should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount of total financial resources it maintains. | |||||||||||
| Description | Coverage of current and potential future exposures to each participant Not applicable as EFT is a payment system. Risk profile and systemic importance in multiple jurisdictions Not applicable as EFT is a payment system. Additional financial resources Not applicable as EFT is a payment system. Supporting rationale and governance arrangements Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 5 |
A CCP should determine the amount and regularly test the sufficiency of its total financial resources available in the event of a default or multiple defaults in extreme but plausible market conditions through rigorous stress testing. A CCP should have clear procedures to report the results of its stress tests to appropriate decision makers at the CCP and to use these results to evaluate the adequacy of and adjust its total financial resources. Stress tests should be performed daily using standard and predetermined parameters and assumptions. On at least a monthly basis, a CCP should perform a comprehensive and thorough analysis of stress testing scenarios, models, and underlying parameters and assumptions used to ensure they are appropriate for determining the CCP’s required level of default protection in light of current and evolving market conditions. A CCP should perform this analysis of stress testing more frequently when the products cleared or markets served display high volatility, become less liquid, or when the size or concentration of positions held by a CCP’s participants increases significantly. A full validation of a CCP’s risk-management model should be performed at least annually. | |||||||||||
| Description | Stress testing Not applicable as EFT is a payment system. Review and validation Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 6 |
In conducting stress testing, a CCP should consider the effect of a wide range of relevant stress scenarios in terms of both defaulters’ positions and possible price changes in liquidation periods. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. | |||||||||||
| Description | Not applicable as EFT is a payment system. | |||||||||||
| Key consideration 7 |
An FMI should establish explicit rules and procedures that address fully any credit losses it may face as a result of any individual or combined default among its participants with respect to any of their obligations to the FMI. These rules and procedures should address how potentially uncovered credit losses would be allocated, including the repayment of any funds an FMI may borrow from liquidity providers. These rules and procedures should also indicate the FMI’s process to replenish any financial resources that the FMI may employ during a stress event, so that the FMI can continue to operate in a safe and sound manner. | |||||||||||
| Description | Allocation of credit losses As noted in the KC 4.1, 4.2 and 4.2 the credit extended to the participants by the CBRT is fully collateralized. In the event of any participant default the collateral rights could be enforced. As the EFT system is structured as a RTGS system, there is no credit risk between participants. Any loss that may stem from credit given to a participant is not shared with other participants. Any loss is covered by high quality collateral and failing bank’s other possessions held with the CBRT. Rules and procedures to be applied in the case of a default of a participant are described in the discussion on Principle 13. No liquidity provider is needed since the transactions are all in TRY and the operator of the EFT system is the CBRT. Replenishment of financial resources As the central bank of issue, the CBRT always has access to necessary liquidity in TRY. | |||||||||||
| Key conclusions | The EFT system functions as a RTGS system it does not create credit exposures arising from its payment, clearing, and settlement processes. The credit risk related to the operation of the EFT stems from the CBRT liquidity support operations to the participants. The liquidity support operations are not integrated into the EFT system and as such are handled by the markets department. The credit risk is considered as part of the EFT risk management framework, but the full treatment of the credit risk from liquidity support operations is in the domain of the markets department. The markets department’s credit risk management framework includes instituting overall borrowing limits, requiring all credit facilities to be collateralized with good quality securities, and applying conservative haircuts. The collaterals are re-valued daily and the CBRT has the rights to ask for additional collateral when there is an adverse movement. | |||||||||||
| Assessment of Principle 4 | Observed. | |||||||||||
| Recommendations and comments | The credit risk management framework of the Markets department of the CBRT should be more fully integrated in to the risk management framework of the EFT system. | |||||||||||
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits. | |
| Key consideration 1 | An FMI should generally limit the assets it (routinely) accepts as collateral to those with low credit, liquidity, and market risks. |
| Description | The rules pertaining to the assets that can be used as collateral are determined and related activities are carried out by the Markets Department of the CBRT. These assets currently are limited to:
|
| Key consideration 2 | An FMI should establish prudent valuation practices and develop haircuts that are regularly tested and take into account stressed market conditions. |
| Description | Valuation practices The rules for the valuation of assets that are eligible as collateral and the haircut rates are determined and applied by the CBRT Markets Department. Valuation process is repeated on a daily basis and current values are published. Haircutting practices Haircut is determined for each securities type. Haircut rates are determined according to the type and remaining term to maturity of the securities. Remaining terms shorter than one year are assessed as low risk and lower haircut rates are applied, while higher haircut rates are applied for longer remaining terms. |
| Key consideration 3 | In order to reduce the need for pro-cyclical adjustments, an FMI should establish stable and conservative haircuts that are calibrated to include periods of stressed market conditions, to the extent practicable and prudent. |
| Description | The earmarked collateral in CBRT standing facility operations is revalued on daily basis to ensure sufficient coverage. While applying haircut, CBRT lends an amount less than the market value of the collateral. The haircuts are designed to protect the CBRT against possible further falls in the value of collateral. CBRT applies different hair cuts for different asset classes of securities, reflecting their different risk charasteristics and publishes them. CBRT may also apply haircut add-ons for a specific counterparty depending on its risk exposure. CBRT adopts “granular approach” that takes into consideration various characteristics of assets such as their types, maturities, liquidity conditions, currencies and their performance through the cycle and particularly in stressed market conditions. In this context, the haircut schedule reflects the information gained about the performance of different asset classes over time and particularly in stressed conditions observed during the crises. It is also important to note that the authority to determine the haircut ratios and to apply haircut add-ons spesific to a particular counterparty was delegated to Governor by the Board in order to accelerate the decision process when it is needed. There is no established schedule for review of haircut related policies; the last review was in September 2015. |
| Key consideration 4 | An FMI should avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects. |
| Description | The rules for the prevention of collateral concentration on certain assets are determined and applied by the CBRT Markets Department. At least 30% of the securities by value held as collateral must be government debt securities. |
| Key consideration 5 | An FMI that accepts cross-border collateral should mitigate the risks associated with its use and ensure that the collateral can be used in a timely manner. |
| Description | The CBRT Markets Department accepts Turkish Government issued securities denominated in foreign currency – Eurobonds and sukuk. The CBRT Markets Department after detailed analysis accepts some foreign government securities. Participants are required to transfer securities of these types to the CBRTs account in the foreign ICSD – currently only Euroclear. This ensures that the CBRT is fully in possession of the collateral and can use them in a timely manner to cover any default. The EFT system supports only transactions in TRY. The CBRT as a central bank of issue, is not constrained in TRY liquidity and hence need not necessarily liquidate the collateral right away. |
| Key consideration 6 | An FMI should use a collateral management system that is well-designed and operationally flexible. |
| Description | Collateral management system design The CBRT uses a collateral management system focused on the type of the asset and the maturity of the asset. The credit amount that a bank can receive from all of the CBRT’s market operations is limited by an overall borrowing limit that is determined by the size of its assets. The discount rate are determined by asset’s type and maturity date. List of eligible securities can be updated if it is needed. Operational flexibility The participants can move in collateral to the collateral account and move out collateral at any time, subject to CBRT approval. The process is automated however there is a manual approval process. The CBRT markets department is appropriately staffed to allow for a quick turnaround for the approvals during the operating hours of the EFT system. |
| Key conclusions | The collateral management system and processes are external to the EFT system and are managed by the CBRT markets department. The extension of liquidity support is considered a monetary policy instrument. The choice of securities, haircut rates, valuation practices and operational arrangements are an integral part of the CBRT monetary policy operations. The CBRT maintains a list of eligible securities and their haircut rates. The haircut rates depend on the type and the maturity of the securities. The eligible securities are TRY government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, IILM issuances and foreign exchange deposits and foreign exchange banknotes deposits. There is no scheduled calendar for review of haircut rates. The policy for haircut rates takes into account measures to avoid procyclical adjustments. Also, as a central bank of issue, the CBRT has ability to smooth any changes required in haircut rates. The participants can move collateral in and out efficiently but needs an approval of the CBRT. The CBRT has ensured that it is resourced appropriately to accord necessary approval in a timely manner. |
| Assessment of Principle 5 | Observed. |
| Recommendations and comments | The CBRT should establish a schedule for ongoing review of haircut rates. |
An FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits. | |
| Key consideration 1 | An FMI should generally limit the assets it (routinely) accepts as collateral to those with low credit, liquidity, and market risks. |
| Description | The rules pertaining to the assets that can be used as collateral are determined and related activities are carried out by the Markets Department of the CBRT. These assets currently are limited to:
|
| Key consideration 2 | An FMI should establish prudent valuation practices and develop haircuts that are regularly tested and take into account stressed market conditions. |
| Description | Valuation practices The rules for the valuation of assets that are eligible as collateral and the haircut rates are determined and applied by the CBRT Markets Department. Valuation process is repeated on a daily basis and current values are published. Haircutting practices Haircut is determined for each securities type. Haircut rates are determined according to the type and remaining term to maturity of the securities. Remaining terms shorter than one year are assessed as low risk and lower haircut rates are applied, while higher haircut rates are applied for longer remaining terms. |
| Key consideration 3 | In order to reduce the need for pro-cyclical adjustments, an FMI should establish stable and conservative haircuts that are calibrated to include periods of stressed market conditions, to the extent practicable and prudent. |
| Description | The earmarked collateral in CBRT standing facility operations is revalued on daily basis to ensure sufficient coverage. While applying haircut, CBRT lends an amount less than the market value of the collateral. The haircuts are designed to protect the CBRT against possible further falls in the value of collateral. CBRT applies different hair cuts for different asset classes of securities, reflecting their different risk charasteristics and publishes them. CBRT may also apply haircut add-ons for a specific counterparty depending on its risk exposure. CBRT adopts “granular approach” that takes into consideration various characteristics of assets such as their types, maturities, liquidity conditions, currencies and their performance through the cycle and particularly in stressed market conditions. In this context, the haircut schedule reflects the information gained about the performance of different asset classes over time and particularly in stressed conditions observed during the crises. It is also important to note that the authority to determine the haircut ratios and to apply haircut add-ons spesific to a particular counterparty was delegated to Governor by the Board in order to accelerate the decision process when it is needed. There is no established schedule for review of haircut related policies; the last review was in September 2015. |
| Key consideration 4 | An FMI should avoid concentrated holdings of certain assets where this would significantly impair the ability to liquidate such assets quickly without significant adverse price effects. |
| Description | The rules for the prevention of collateral concentration on certain assets are determined and applied by the CBRT Markets Department. At least 30% of the securities by value held as collateral must be government debt securities. |
| Key consideration 5 | An FMI that accepts cross-border collateral should mitigate the risks associated with its use and ensure that the collateral can be used in a timely manner. |
| Description | The CBRT Markets Department accepts Turkish Government issued securities denominated in foreign currency – Eurobonds and sukuk. The CBRT Markets Department after detailed analysis accepts some foreign government securities. Participants are required to transfer securities of these types to the CBRTs account in the foreign ICSD – currently only Euroclear. This ensures that the CBRT is fully in possession of the collateral and can use them in a timely manner to cover any default. The EFT system supports only transactions in TRY. The CBRT as a central bank of issue, is not constrained in TRY liquidity and hence need not necessarily liquidate the collateral right away. |
| Key consideration 6 | An FMI should use a collateral management system that is well-designed and operationally flexible. |
| Description | Collateral management system design The CBRT uses a collateral management system focused on the type of the asset and the maturity of the asset. The credit amount that a bank can receive from all of the CBRT’s market operations is limited by an overall borrowing limit that is determined by the size of its assets. The discount rate are determined by asset’s type and maturity date. List of eligible securities can be updated if it is needed. Operational flexibility The participants can move in collateral to the collateral account and move out collateral at any time, subject to CBRT approval. The process is automated however there is a manual approval process. The CBRT markets department is appropriately staffed to allow for a quick turnaround for the approvals during the operating hours of the EFT system. |
| Key conclusions | The collateral management system and processes are external to the EFT system and are managed by the CBRT markets department. The extension of liquidity support is considered a monetary policy instrument. The choice of securities, haircut rates, valuation practices and operational arrangements are an integral part of the CBRT monetary policy operations. The CBRT maintains a list of eligible securities and their haircut rates. The haircut rates depend on the type and the maturity of the securities. The eligible securities are TRY government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, IILM issuances and foreign exchange deposits and foreign exchange banknotes deposits. There is no scheduled calendar for review of haircut rates. The policy for haircut rates takes into account measures to avoid procyclical adjustments. Also, as a central bank of issue, the CBRT has ability to smooth any changes required in haircut rates. The participants can move collateral in and out efficiently but needs an approval of the CBRT. The CBRT has ensured that it is resourced appropriately to accord necessary approval in a timely manner. |
| Assessment of Principle 5 | Observed. |
| Recommendations and comments | The CBRT should establish a schedule for ongoing review of haircut rates. |
| PS | CSD | SSS | CCP | TR |
| • |
| PS | CSD | SSS | CCP | TR |
| • |
A CCP should cover its exposure to its participants for all products through an effective margin system that is risk-based and regularly reviewed. | |
| Key consideration 1 | A CCP should have a margin system that establishes margin levels commensurate with the risks and particular attributes of each product, portfolio, and market it serves. |
| Description | Description of margin methodology The EFT system is a payment system and this KC and principle are not applicable. Credit exposures The EFT system is a payment system and this KC and principle are not applicable. Operational components The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 2 | A CCP should have a reliable source of timely price data for its margin system. A CCP should also have procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable. |
| Description | Sources of price data The EFT system is a payment system and this KC and principle are not applicable. Estimation of prices The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 3 | A CCP should adopt initial margin models and parameters that are risk-based and generate margin requirements sufficient to cover its potential future exposure to participants in the interval between the last margin collection and the close out of positions following a participant default. Initial margin should meet an established single-tailed confidence level of at least 99 percent with respect to the estimated distribution of future exposure. For a CCP that calculates margin at the portfolio level, this requirement applies to each portfolio’s distribution of future exposure. For a CCP that calculates margin at more-granular levels, such as at the sub-portfolio level or by product, the requirement must be met for the corresponding distributions of future exposure. The model should (a) use a conservative estimate of the time horizons for the effective hedging or close out of the particular types of products cleared by the CCP (including in stressed market conditions), (b) have an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products, and (c) to the extent practicable and prudent, limit the need for destabilising, procyclical changes. |
| Description | Initial margin model The EFT system is a payment system and this KC and principle are not applicable. Closeout and sample periods The EFT system is a payment system and this KC and principle are not applicable. Procyclicality and specific wrong-way risk The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 4 | A CCP should mark participant positions to market and collect variation margin at least daily to limit the build-up of current exposures. A CCP should have the authority and operational capacity to make intraday margin calls and payments, both scheduled and unscheduled, to participants. |
| Description | The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 5 | In calculating margin requirements, a CCP may allow offsets or reductions in required margin across products that it clears or between products that it and another CCP clear, if the risk of one product is significantly and reliably correlated with the risk of the other product. Where two or more CCPs are authorised to offer cross-margining, they must have appropriate safeguards and harmonised overall risk-management systems. |
| Description | Portfolio margining The EFT system is a payment system and this KC and principle are not applicable. Cross-margining The EFT system is a payment system and this KC and principle are not applicable. Robustness of methodologies The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 6 | A CCP should analyse and monitor its model performance and overall margin coverage by conducting rigorous daily backtesting – and at least monthly, and more-frequent where appropriate, sensitivity analysis. A CCP should regularly conduct an assessment of the theoretical and empirical properties of its margin model for all products it clears. In conducting sensitivity analysis of the model’s coverage, a CCP should take into account a wide range of parameters and assumptions that reflect possible market conditions, including the most-volatile periods that have been experienced by the markets it serves and extreme changes in the correlations between prices. |
| Description | Backtesting and sensitivity analysis The EFT system is a payment system and this KC and principle are not applicable. Margin model performance The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 7 | A CCP should regularly review and validate its margin system. |
| Description | The EFT system is a payment system and this KC and principle are not applicable. |
| Key conclusions | The EFT system is a payment system and this KC and principle are not applicable. |
| Assessment of Principle 6 | Not Applicable |
| Recommendations and comments | |
A CCP should cover its exposure to its participants for all products through an effective margin system that is risk-based and regularly reviewed. | |
| Key consideration 1 | A CCP should have a margin system that establishes margin levels commensurate with the risks and particular attributes of each product, portfolio, and market it serves. |
| Description | Description of margin methodology The EFT system is a payment system and this KC and principle are not applicable. Credit exposures The EFT system is a payment system and this KC and principle are not applicable. Operational components The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 2 | A CCP should have a reliable source of timely price data for its margin system. A CCP should also have procedures and sound valuation models for addressing circumstances in which pricing data are not readily available or reliable. |
| Description | Sources of price data The EFT system is a payment system and this KC and principle are not applicable. Estimation of prices The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 3 | A CCP should adopt initial margin models and parameters that are risk-based and generate margin requirements sufficient to cover its potential future exposure to participants in the interval between the last margin collection and the close out of positions following a participant default. Initial margin should meet an established single-tailed confidence level of at least 99 percent with respect to the estimated distribution of future exposure. For a CCP that calculates margin at the portfolio level, this requirement applies to each portfolio’s distribution of future exposure. For a CCP that calculates margin at more-granular levels, such as at the sub-portfolio level or by product, the requirement must be met for the corresponding distributions of future exposure. The model should (a) use a conservative estimate of the time horizons for the effective hedging or close out of the particular types of products cleared by the CCP (including in stressed market conditions), (b) have an appropriate method for measuring credit exposure that accounts for relevant product risk factors and portfolio effects across products, and (c) to the extent practicable and prudent, limit the need for destabilising, procyclical changes. |
| Description | Initial margin model The EFT system is a payment system and this KC and principle are not applicable. Closeout and sample periods The EFT system is a payment system and this KC and principle are not applicable. Procyclicality and specific wrong-way risk The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 4 | A CCP should mark participant positions to market and collect variation margin at least daily to limit the build-up of current exposures. A CCP should have the authority and operational capacity to make intraday margin calls and payments, both scheduled and unscheduled, to participants. |
| Description | The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 5 | In calculating margin requirements, a CCP may allow offsets or reductions in required margin across products that it clears or between products that it and another CCP clear, if the risk of one product is significantly and reliably correlated with the risk of the other product. Where two or more CCPs are authorised to offer cross-margining, they must have appropriate safeguards and harmonised overall risk-management systems. |
| Description | Portfolio margining The EFT system is a payment system and this KC and principle are not applicable. Cross-margining The EFT system is a payment system and this KC and principle are not applicable. Robustness of methodologies The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 6 | A CCP should analyse and monitor its model performance and overall margin coverage by conducting rigorous daily backtesting – and at least monthly, and more-frequent where appropriate, sensitivity analysis. A CCP should regularly conduct an assessment of the theoretical and empirical properties of its margin model for all products it clears. In conducting sensitivity analysis of the model’s coverage, a CCP should take into account a wide range of parameters and assumptions that reflect possible market conditions, including the most-volatile periods that have been experienced by the markets it serves and extreme changes in the correlations between prices. |
| Description | Backtesting and sensitivity analysis The EFT system is a payment system and this KC and principle are not applicable. Margin model performance The EFT system is a payment system and this KC and principle are not applicable. |
| Key consideration 7 | A CCP should regularly review and validate its margin system. |
| Description | The EFT system is a payment system and this KC and principle are not applicable. |
| Key conclusions | The EFT system is a payment system and this KC and principle are not applicable. |
| Assessment of Principle 6 | Not Applicable |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should maintain sufficient liquid resources in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation for the FMI in extreme but plausible market conditions. | |||||||||||
| Key consideration 1 |
An FMI should have a robust framework to manage its liquidity risks from its participants, settlement banks, nostro agents, custodian banks, liquidity providers, and other entities. | ||||||||||
| Description | The CBRT as the operator of the EFT system itself is not exposed to any liquidity risk as the EFT is structured as a RTGS system and there are no overdrafts allowed. The CBRT liquidity support to the participants is in TRY and the central bank of issue, it is not constrained in access to TRY liquidity. The EFT participants have full access to their queue and can set priority for transfer orders and change them as needed for queued transactions. There is a multilateral offsetting in the EFT system every minute. The participants are able to use the reserves held with the CBRT for meeting liquidity needs in the EFT system. The reserve maintenance period is 14 days. There are no specific minimum balances required at the end of a day, the only requirement is to ensure that the average balance across the 14 day period is met. The CBRT as the operator provides liquidity support as part of its monetary policy operations and these could be used by the participants for meeting its liquidity needs in the EFT system. The participants also can secure liquidity in the inter-bank money markets operated by the Borsa Istanbul (BIST) and Takasbank. The CBRT is an active participant and quotes its lending and borrowing rate at the BIST inter-bank money market to maintain the interest rates in a pre-defined corridor. These markets settle in the Takasbank at 4.30 PM. The participants can bring this liquidity into the EFT system quickly as the Takasbank is also a participant in the EFT system. In addition the participants have access to the Takasbank cash credit facility and also any credit lines agreed with other participants. The transaction pattern in the EFT system shows a marked skew towards transactions settling post 3 PM, with around 60% of transactions being settled post 3 PM and around 35% post 4 PM. There is a marked trend of settlements being bunched closer to the end of the day, with over 60% of the transactions settling post 2 PM and 35% post 4 PM. The CBRT has studied this topic as part of its 2015 annual review and is currently evaluating potential options. The analysis had concluded that there are a few structural reasons for the concentration of payments towards the closing period: large in flow of settlements of the TRY leg of correspondent banking transactions and that the ILF is unattractive hence the reliance on using the inter-bank money markets which settle at 4 PM. | ||||||||||
| Key consideration 2 |
An FMI should have effective operational and analytical tools to identify, measure, and monitor its settlement and funding flows on an ongoing and timely basis, including its use of intraday liquidity. | ||||||||||
| Description | The participants have access to queue management tools, access to account balances all through the day and liquidity support tools provided by the CBRT and also those available in the interbank money markets. The CBRT in addition monitors and produces daily reports on the liquidity position in the EFT system covering the source of liquidity, the amount of liquidity available in the system, and the distribution of the liquidity among participants hour by hour. The BRSA, is establishing a framework for monitoring liquidity of banks in accordance with the BIS publication - “Monitoring metrics for intraday liquidity risk management”. Once this framework has been adopted the liquidity related analysis are also intended to be shared with the Markets Department of the CBRT. | ||||||||||
| Key consideration 3 |
A payment system or SSS, including one employing a DNS mechanism, should maintain sufficient liquid resources in all relevant currencies to effect same-day settlement, and where appropriate intraday or multiday settlement, of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate payment obligation in extreme but plausible market conditions. | ||||||||||
| Description | The EFT system functions as a RTGS system and no overdrafts are allowed. The CBRT as the central bank provides liquidity support tools for participants in the EFT system. As the CBRT is the central bank of issue it is not constrained in TRY liquidity. As a policy the CBRT has established an overall borrowing limit for each participant and the liquidity support is collateralized. The participants also have access to liquidity through the inter-bank money markets which again are collateralized. Thus the participant’s access to liquidity, except for any credit lines with other participants, is capped at the amount of collateral they can bring and with respect to the CBRT liquidity support also by the overall borrowing limit. | ||||||||||
| Key consideration 4 |
A CCP should maintain sufficient liquid resources in all relevant currencies to settle securities-related payments, make required variation margin payments, and meet other payment obligations on time with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate payment obligation to the CCP in extreme but plausible market conditions. In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should consider maintaining additional liquidity resources sufficient to cover a wider range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would generate the largest aggregate payment obligation to the CCP in extreme but plausible market conditions. | ||||||||||
| Description | Sufficient liquid resources The EFT is a payment system and hence this KC is not applicable. Risk profile and systemic importance in multiple jurisdictions The EFT is a payment system and hence this KC is not applicable. | ||||||||||
| Key consideration 5 |
For the purpose of meeting its minimum liquid resource requirement, an FMI’s qualifying liquid resources in each currency include cash at the central bank of issue and at creditworthy commercial banks, committed lines of credit, committed foreign exchange swaps, and committed repos, as well as highly marketable collateral held in custody and investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in extreme but plausible market conditions. If an FMI has access to routine credit at the central bank of issue, the FMI may count such access as part of the minimum requirement to the extent it has collateral that is eligible for pledging to (or for conducting other appropriate forms of transactions with) the relevant central bank. All such resources should be available when needed. | ||||||||||
| Description | Size and composition of qualifying liquid resources & Availability and coverage of qualifying liquid resources The CBRT as the operator of the EFT system is not constrained in TRY liquidity, by virtue of it being the central bank of issue. The constraint on providing liquidity to a participant as elaborated in KC 3 however is based on the overall borrowing limit established for a participant and the collateral they can bring. | ||||||||||
| Key consideration 6 |
An FMI may supplement its qualifying liquid resources with other forms of liquid resources. If the FMI does so, then these liquid resources should be in the form of assets that are likely to be saleable or acceptable as collateral for lines of credit, swaps, or repos on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed in extreme market conditions. Even if an FMI does not have access to routine central bank credit, it should still take account of what collateral is typically accepted by the relevant central bank, as such assets may be more likely to be liquid in stressed circumstances. An FMI should not assume the availability of emergency central bank credit as a part of its liquidity plan. | ||||||||||
| Description | Size and composition of supplemental liquid resources As noted the CBRT as the central bank of issue is not constrained in TRY liquidity. Availability of supplemental liquid resources As noted the CBRT as the central bank of issue is not constrained in TRY liquidity. | ||||||||||
| Key consideration 7 |
An FMI should obtain a high degree of confidence, through rigorous due diligence, that each provider of its minimum required qualifying liquid resources, whether a participant of the FMI or an external party, has sufficient information to understand and to manage its associated liquidity risks, and that it has the capacity to perform as required under its commitment. Where relevant to assessing a liquidity provider’s performance reliability with respect to a particular currency, a liquidity provider’s potential access to credit from the central bank of issue may be taken into account. An FMI should regularly test its procedures for accessing its liquid resources at a liquidity provider. | ||||||||||
| Description | Use of liquidity providers As noted in the KC 5, the CBRT as the operator the EFT system intervenes to provide liquidity support only in TRY and as the central bank of issue, it is not constrained. The CBRT is not reliant on any other institution for providing the needed liquidity. Reliability of liquidity providers As noted in the KC 5, the CBRT as the operator the EFT system intervenes to provide liquidity support only in TRY and as the central bank of issue, it is not constrained. The CBRT is not reliant on any other institution for providing the needed liquidity. | ||||||||||
| Key consideration 8 |
An FMI with access to central bank accounts, payment services, or securities services should use these services, where practical, to enhance its management of liquidity risk. | ||||||||||
| Description | The EFT system is operated by the CBRT and the CBRT provides liquidity support to the participants of the EFT system as part of its monetary policy operations, subject to an overall borrowing limit and availability of the required collateral. The participants, additionally, have access to the inter-bank money markets. | ||||||||||
| Key consideration 9 |
An FMI should determine the amount and regularly test the sufficiency of its liquid resources through rigorous stress testing. An FMI should have clear procedures to report the results of its stress tests to appropriate decision makers at the FMI and to use these results to evaluate the adequacy of and adjust its liquidity risk-management framework. In conducting stress testing, an FMI should consider a wide range of relevant scenarios. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. Scenarios should also take into account the design and operation of the FMI, include all entities that might pose material liquidity risks to the FMI (such as settlement banks, nostro agents, custodian banks, liquidity providers, and linked FMIs), and where appropriate, cover a multiday period. In all cases, an FMI should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount and form of total liquid resources it maintains. | ||||||||||
| Description | The CBRT as the central bank of issue is not constrained in TRY and as such does not require any tests to verify its adequacy of resources to provide required liquidity. However the operational aspects related to liquidity provision and also ability of participants to conform to the collateral requirements need attention. Stress test programme The CBRT does not have any explicit stress test programme. Stress test scenarios The CBRT does not have any explicit stress test programme. Review and validation As part of the risk management framework for the CBRT markets department, there is a practice of review of the liquidity support tools. However there is no structured periodic review process. | ||||||||||
| Key consideration 10 |
An FMI should establish explicit rules and procedures that enable the FMI to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations on time following any individual or combined default among its participants. These rules and procedures should address unforeseen and potentially uncovered liquidity shortfalls and should aim to avoid unwinding, revoking, or delaying the same-day settlement of payment obligations. These rules and procedures should also indicate the FMI’s process to replenish any liquidity resources it may employ during a stress event, so that it can continue to operate in a safe and sound manner. | ||||||||||
| Description | Same day settlement The EFT system is structured as a RTGS system. Unsettled transactions are cancelled at the end of the day. The EFT system is structured as a V topology and the receiving participant does not have visibility into incoming transfer orders. The participants have access to liquidity support from the CBRT and the inter-bank money markets. Replenishment of liquidity resources The EFT system is operated by the CBRT. The CBRT as part of its monetary policy operations can extend liquidity support to the participants, however as a central bank of issue, it is not constrained in its liquidity. | ||||||||||
| Key Conclusions | The CBRT as the operator of the EFT system itself is not exposed to any liquidity risk as the EFT is structured as a RTGS system and there are no overdrafts allowed. The EFT system is structured as a RTGS system. Unsettled transactions are cancelled at the end of the day. The CBRT as the operator of the EFT system, by itself is not constrained in TRY liquidity. However the participants could face liquidity shortages. The participants have access to liquidity support from the CBRT and the interbank money markets. These liquidity options are collateralized and in the case of the intraday and overnight CBRT liquidity support there is an overall borrowing limit for the participant. However, liquidity support is available without any limit within the framework of LOLR. The CBRT as the central bank of issue is not constrained in TRY and as such does not require any tests to verify its adequacy of resources to provide required liquidity. However the operational aspects related to liquidity provision and also ability of participants to conform to the collateral requirements need attention. The operational aspects are in the scope of the operational risk management and covered in principle 17. The availability of adequate collateral, however will need attention. In this regard, there is an ongoing review of the policy framework relating to the CBRT intraday liquidity support. There is however no set time-period for this. The transaction pattern in the EFT system shows existence of substantial liquidity risk for the participants. The CBRT has studied this and is currently evaluating suitable options. | ||||||||||
| Assessment of Principle 7 | Broadly Observed. | ||||||||||
| Recommendations and comments | The risk management framework of the EFT system could consider daily and periodic analysis of the liquidity risk jointly by the PSD and Markets departments of the CBRT. There could be additional indicators like estimate of participant’s liquidity available both from the CBRT and also the interbank money markets. This could build on the framework being established by the BRSA on liquidity risk. The CBRT could consider encouraging earlier settlements in the inter-bank money markets to allow for more liquidity to flow into the EFT system earlier. The CBRT as part of the ongoing review of its current policy on liquidity risk, analyze options to make intra-day liquidity support by the CBRT more attractive to the participants and implement suitable options. The CBRT could evaluate if pricing policies could incentivize earlier settlement perhaps as part of overall throughput guidelines. | ||||||||||
An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should maintain sufficient liquid resources in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation for the FMI in extreme but plausible market conditions. | |||||||||||
| Key consideration 1 |
An FMI should have a robust framework to manage its liquidity risks from its participants, settlement banks, nostro agents, custodian banks, liquidity providers, and other entities. | ||||||||||
| Description | The CBRT as the operator of the EFT system itself is not exposed to any liquidity risk as the EFT is structured as a RTGS system and there are no overdrafts allowed. The CBRT liquidity support to the participants is in TRY and the central bank of issue, it is not constrained in access to TRY liquidity. The EFT participants have full access to their queue and can set priority for transfer orders and change them as needed for queued transactions. There is a multilateral offsetting in the EFT system every minute. The participants are able to use the reserves held with the CBRT for meeting liquidity needs in the EFT system. The reserve maintenance period is 14 days. There are no specific minimum balances required at the end of a day, the only requirement is to ensure that the average balance across the 14 day period is met. The CBRT as the operator provides liquidity support as part of its monetary policy operations and these could be used by the participants for meeting its liquidity needs in the EFT system. The participants also can secure liquidity in the inter-bank money markets operated by the Borsa Istanbul (BIST) and Takasbank. The CBRT is an active participant and quotes its lending and borrowing rate at the BIST inter-bank money market to maintain the interest rates in a pre-defined corridor. These markets settle in the Takasbank at 4.30 PM. The participants can bring this liquidity into the EFT system quickly as the Takasbank is also a participant in the EFT system. In addition the participants have access to the Takasbank cash credit facility and also any credit lines agreed with other participants. The transaction pattern in the EFT system shows a marked skew towards transactions settling post 3 PM, with around 60% of transactions being settled post 3 PM and around 35% post 4 PM. There is a marked trend of settlements being bunched closer to the end of the day, with over 60% of the transactions settling post 2 PM and 35% post 4 PM. The CBRT has studied this topic as part of its 2015 annual review and is currently evaluating potential options. The analysis had concluded that there are a few structural reasons for the concentration of payments towards the closing period: large in flow of settlements of the TRY leg of correspondent banking transactions and that the ILF is unattractive hence the reliance on using the inter-bank money markets which settle at 4 PM. | ||||||||||
| Key consideration 2 |
An FMI should have effective operational and analytical tools to identify, measure, and monitor its settlement and funding flows on an ongoing and timely basis, including its use of intraday liquidity. | ||||||||||
| Description | The participants have access to queue management tools, access to account balances all through the day and liquidity support tools provided by the CBRT and also those available in the interbank money markets. The CBRT in addition monitors and produces daily reports on the liquidity position in the EFT system covering the source of liquidity, the amount of liquidity available in the system, and the distribution of the liquidity among participants hour by hour. The BRSA, is establishing a framework for monitoring liquidity of banks in accordance with the BIS publication - “Monitoring metrics for intraday liquidity risk management”. Once this framework has been adopted the liquidity related analysis are also intended to be shared with the Markets Department of the CBRT. | ||||||||||
| Key consideration 3 |
A payment system or SSS, including one employing a DNS mechanism, should maintain sufficient liquid resources in all relevant currencies to effect same-day settlement, and where appropriate intraday or multiday settlement, of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate payment obligation in extreme but plausible market conditions. | ||||||||||
| Description | The EFT system functions as a RTGS system and no overdrafts are allowed. The CBRT as the central bank provides liquidity support tools for participants in the EFT system. As the CBRT is the central bank of issue it is not constrained in TRY liquidity. As a policy the CBRT has established an overall borrowing limit for each participant and the liquidity support is collateralized. The participants also have access to liquidity through the inter-bank money markets which again are collateralized. Thus the participant’s access to liquidity, except for any credit lines with other participants, is capped at the amount of collateral they can bring and with respect to the CBRT liquidity support also by the overall borrowing limit. | ||||||||||
| Key consideration 4 |
A CCP should maintain sufficient liquid resources in all relevant currencies to settle securities-related payments, make required variation margin payments, and meet other payment obligations on time with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate payment obligation to the CCP in extreme but plausible market conditions. In addition, a CCP that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should consider maintaining additional liquidity resources sufficient to cover a wider range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would generate the largest aggregate payment obligation to the CCP in extreme but plausible market conditions. | ||||||||||
| Description | Sufficient liquid resources The EFT is a payment system and hence this KC is not applicable. Risk profile and systemic importance in multiple jurisdictions The EFT is a payment system and hence this KC is not applicable. | ||||||||||
| Key consideration 5 |
For the purpose of meeting its minimum liquid resource requirement, an FMI’s qualifying liquid resources in each currency include cash at the central bank of issue and at creditworthy commercial banks, committed lines of credit, committed foreign exchange swaps, and committed repos, as well as highly marketable collateral held in custody and investments that are readily available and convertible into cash with prearranged and highly reliable funding arrangements, even in extreme but plausible market conditions. If an FMI has access to routine credit at the central bank of issue, the FMI may count such access as part of the minimum requirement to the extent it has collateral that is eligible for pledging to (or for conducting other appropriate forms of transactions with) the relevant central bank. All such resources should be available when needed. | ||||||||||
| Description | Size and composition of qualifying liquid resources & Availability and coverage of qualifying liquid resources The CBRT as the operator of the EFT system is not constrained in TRY liquidity, by virtue of it being the central bank of issue. The constraint on providing liquidity to a participant as elaborated in KC 3 however is based on the overall borrowing limit established for a participant and the collateral they can bring. | ||||||||||
| Key consideration 6 |
An FMI may supplement its qualifying liquid resources with other forms of liquid resources. If the FMI does so, then these liquid resources should be in the form of assets that are likely to be saleable or acceptable as collateral for lines of credit, swaps, or repos on an ad hoc basis following a default, even if this cannot be reliably prearranged or guaranteed in extreme market conditions. Even if an FMI does not have access to routine central bank credit, it should still take account of what collateral is typically accepted by the relevant central bank, as such assets may be more likely to be liquid in stressed circumstances. An FMI should not assume the availability of emergency central bank credit as a part of its liquidity plan. | ||||||||||
| Description | Size and composition of supplemental liquid resources As noted the CBRT as the central bank of issue is not constrained in TRY liquidity. Availability of supplemental liquid resources As noted the CBRT as the central bank of issue is not constrained in TRY liquidity. | ||||||||||
| Key consideration 7 |
An FMI should obtain a high degree of confidence, through rigorous due diligence, that each provider of its minimum required qualifying liquid resources, whether a participant of the FMI or an external party, has sufficient information to understand and to manage its associated liquidity risks, and that it has the capacity to perform as required under its commitment. Where relevant to assessing a liquidity provider’s performance reliability with respect to a particular currency, a liquidity provider’s potential access to credit from the central bank of issue may be taken into account. An FMI should regularly test its procedures for accessing its liquid resources at a liquidity provider. | ||||||||||
| Description | Use of liquidity providers As noted in the KC 5, the CBRT as the operator the EFT system intervenes to provide liquidity support only in TRY and as the central bank of issue, it is not constrained. The CBRT is not reliant on any other institution for providing the needed liquidity. Reliability of liquidity providers As noted in the KC 5, the CBRT as the operator the EFT system intervenes to provide liquidity support only in TRY and as the central bank of issue, it is not constrained. The CBRT is not reliant on any other institution for providing the needed liquidity. | ||||||||||
| Key consideration 8 |
An FMI with access to central bank accounts, payment services, or securities services should use these services, where practical, to enhance its management of liquidity risk. | ||||||||||
| Description | The EFT system is operated by the CBRT and the CBRT provides liquidity support to the participants of the EFT system as part of its monetary policy operations, subject to an overall borrowing limit and availability of the required collateral. The participants, additionally, have access to the inter-bank money markets. | ||||||||||
| Key consideration 9 |
An FMI should determine the amount and regularly test the sufficiency of its liquid resources through rigorous stress testing. An FMI should have clear procedures to report the results of its stress tests to appropriate decision makers at the FMI and to use these results to evaluate the adequacy of and adjust its liquidity risk-management framework. In conducting stress testing, an FMI should consider a wide range of relevant scenarios. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward-looking stress scenarios in a variety of extreme but plausible market conditions. Scenarios should also take into account the design and operation of the FMI, include all entities that might pose material liquidity risks to the FMI (such as settlement banks, nostro agents, custodian banks, liquidity providers, and linked FMIs), and where appropriate, cover a multiday period. In all cases, an FMI should document its supporting rationale for, and should have appropriate governance arrangements relating to, the amount and form of total liquid resources it maintains. | ||||||||||
| Description | The CBRT as the central bank of issue is not constrained in TRY and as such does not require any tests to verify its adequacy of resources to provide required liquidity. However the operational aspects related to liquidity provision and also ability of participants to conform to the collateral requirements need attention. Stress test programme The CBRT does not have any explicit stress test programme. Stress test scenarios The CBRT does not have any explicit stress test programme. Review and validation As part of the risk management framework for the CBRT markets department, there is a practice of review of the liquidity support tools. However there is no structured periodic review process. | ||||||||||
| Key consideration 10 |
An FMI should establish explicit rules and procedures that enable the FMI to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations on time following any individual or combined default among its participants. These rules and procedures should address unforeseen and potentially uncovered liquidity shortfalls and should aim to avoid unwinding, revoking, or delaying the same-day settlement of payment obligations. These rules and procedures should also indicate the FMI’s process to replenish any liquidity resources it may employ during a stress event, so that it can continue to operate in a safe and sound manner. | ||||||||||
| Description | Same day settlement The EFT system is structured as a RTGS system. Unsettled transactions are cancelled at the end of the day. The EFT system is structured as a V topology and the receiving participant does not have visibility into incoming transfer orders. The participants have access to liquidity support from the CBRT and the inter-bank money markets. Replenishment of liquidity resources The EFT system is operated by the CBRT. The CBRT as part of its monetary policy operations can extend liquidity support to the participants, however as a central bank of issue, it is not constrained in its liquidity. | ||||||||||
| Key Conclusions | The CBRT as the operator of the EFT system itself is not exposed to any liquidity risk as the EFT is structured as a RTGS system and there are no overdrafts allowed. The EFT system is structured as a RTGS system. Unsettled transactions are cancelled at the end of the day. The CBRT as the operator of the EFT system, by itself is not constrained in TRY liquidity. However the participants could face liquidity shortages. The participants have access to liquidity support from the CBRT and the interbank money markets. These liquidity options are collateralized and in the case of the intraday and overnight CBRT liquidity support there is an overall borrowing limit for the participant. However, liquidity support is available without any limit within the framework of LOLR. The CBRT as the central bank of issue is not constrained in TRY and as such does not require any tests to verify its adequacy of resources to provide required liquidity. However the operational aspects related to liquidity provision and also ability of participants to conform to the collateral requirements need attention. The operational aspects are in the scope of the operational risk management and covered in principle 17. The availability of adequate collateral, however will need attention. In this regard, there is an ongoing review of the policy framework relating to the CBRT intraday liquidity support. There is however no set time-period for this. The transaction pattern in the EFT system shows existence of substantial liquidity risk for the participants. The CBRT has studied this and is currently evaluating suitable options. | ||||||||||
| Assessment of Principle 7 | Broadly Observed. | ||||||||||
| Recommendations and comments | The risk management framework of the EFT system could consider daily and periodic analysis of the liquidity risk jointly by the PSD and Markets departments of the CBRT. There could be additional indicators like estimate of participant’s liquidity available both from the CBRT and also the interbank money markets. This could build on the framework being established by the BRSA on liquidity risk. The CBRT could consider encouraging earlier settlements in the inter-bank money markets to allow for more liquidity to flow into the EFT system earlier. The CBRT as part of the ongoing review of its current policy on liquidity risk, analyze options to make intra-day liquidity support by the CBRT more attractive to the participants and implement suitable options. The CBRT could evaluate if pricing policies could incentivize earlier settlement perhaps as part of overall throughput guidelines. | ||||||||||
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, an FMI should provide final settlement intraday or in real time | |
| Key consideration 1 | An FMI’s rules and procedures should clearly define the point at which settlement is final. |
| Description | Point of settlement finality The Article 10 of the PSL establishes settlement finality and irrevocability for systems designated by the CBRT (Art 11). The CBRT has designated the EFT, RPS and the ESTS in the official gazette and accordingly the provisions of article 10 of the PSL covers the EFT system. Article 10(1) of the PSL uses the term “transfer order”, requires the point of time when a transaction become irrevocable, the time of entry and time when a settlement of a transfer order is final, to be defined in the operating rules of the system. Article 10(3) of the PSL further elaborates that any decisions taken under any other law regarding any transaction orders, would be valid only for transactions that enter the system after the system operator has been notified. Article 10 (4) of the PSL covers systems using netting process and makes the provisions of article 10 (3) allow transaction orders that entered the system before the system operator was notified of any legal decision, to be included in the netting process. The PSOR has defined irrevocability as the time when the settlement accounts have been debited or credited (art 8) and this is also considered the time when the settlement is final. Article 7(3) of the PSOR further defines that the “server time” recorded in relevant timestamps as the time that will be used for recording time of entry, irrevocability and finality. The term “transfer order” as defined in the PSL encompasses securities transfer and hence the provisions also apply to the DVP settlements involving the securities settlements in the EFT system. The Article 9.1.b of the PSOR specifies that under DVP settlement the securities transfer and the funds transfer for a securities settlement transaction would be carried out simultaneously. The PSL is available on the CBRT website and also in gazette. The PSOR is available to the participants and also as part of the application process to the banks that apply to become a participant. Finality in the case of links The EFT system is a payment system and as such there are no links. |
| Key consideration 2 | An FMI should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. An LVPS or SSS should consider adopting RTGS or multiple-batch processing during the settlement day. |
| Description | Final settlement on the value date The EFT system is structured as a RTGS system and all settlements are final as noted in the KC 1. Intraday or real-time final settlement Transfer orders are settled only on their value date as and when funds are available in the senders settlement account and orders for future value dates are not accepted. As such, EFT provides intraday settlement in real time provided funds are available in the senders account with CBRT. Participants can track the status of their operations in real-time through reporting facilities provided by the system. |
| Key consideration 3 | An FMI should clearly define the point after which unsettled payments, transfer instructions, or other obligations may not be revoked by a participant. |
| Description | In the EFT system, it is possible to cancel transfer orders before they are settled. However, a settled transaction cannot be cancelled or revoked. This is stated in the Article 8 of the PSOR. In EFT, participants can get detailed and summary reports on queued payments and can cancel unsettled queued payments. At the end of the business day, all payments in queues are cancelled automatically. The EFT systems does not provide information to the receiver party about incoming payments before the payment is settled, payment cancellations from queues are transparent to the receiver. Participants can request for extension of operating hours on a particular day. Extensions request are made on phone and extensions granted are communicated to all participants. Extensions up to 15 minutes are to be authorized by the EFT operations head, beyond 15 minutes and up to 1 hour requires the approval of the ED of the PSD. Extensions beyond that require approval of a Deputy Governor of the CBRT. |
| Key conclusions | The EFT functions as a RTGS system with final settlement through the day. Settlement finality is protected in the PSL and clearly articulated in the PSOR and as such has a sound legal basis. |
| Assessment of Principle 8 | Observed. |
| Recommendations and comments | |
An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, an FMI should provide final settlement intraday or in real time | |
| Key consideration 1 | An FMI’s rules and procedures should clearly define the point at which settlement is final. |
| Description | Point of settlement finality The Article 10 of the PSL establishes settlement finality and irrevocability for systems designated by the CBRT (Art 11). The CBRT has designated the EFT, RPS and the ESTS in the official gazette and accordingly the provisions of article 10 of the PSL covers the EFT system. Article 10(1) of the PSL uses the term “transfer order”, requires the point of time when a transaction become irrevocable, the time of entry and time when a settlement of a transfer order is final, to be defined in the operating rules of the system. Article 10(3) of the PSL further elaborates that any decisions taken under any other law regarding any transaction orders, would be valid only for transactions that enter the system after the system operator has been notified. Article 10 (4) of the PSL covers systems using netting process and makes the provisions of article 10 (3) allow transaction orders that entered the system before the system operator was notified of any legal decision, to be included in the netting process. The PSOR has defined irrevocability as the time when the settlement accounts have been debited or credited (art 8) and this is also considered the time when the settlement is final. Article 7(3) of the PSOR further defines that the “server time” recorded in relevant timestamps as the time that will be used for recording time of entry, irrevocability and finality. The term “transfer order” as defined in the PSL encompasses securities transfer and hence the provisions also apply to the DVP settlements involving the securities settlements in the EFT system. The Article 9.1.b of the PSOR specifies that under DVP settlement the securities transfer and the funds transfer for a securities settlement transaction would be carried out simultaneously. The PSL is available on the CBRT website and also in gazette. The PSOR is available to the participants and also as part of the application process to the banks that apply to become a participant. Finality in the case of links The EFT system is a payment system and as such there are no links. |
| Key consideration 2 | An FMI should complete final settlement no later than the end of the value date, and preferably intraday or in real time, to reduce settlement risk. An LVPS or SSS should consider adopting RTGS or multiple-batch processing during the settlement day. |
| Description | Final settlement on the value date The EFT system is structured as a RTGS system and all settlements are final as noted in the KC 1. Intraday or real-time final settlement Transfer orders are settled only on their value date as and when funds are available in the senders settlement account and orders for future value dates are not accepted. As such, EFT provides intraday settlement in real time provided funds are available in the senders account with CBRT. Participants can track the status of their operations in real-time through reporting facilities provided by the system. |
| Key consideration 3 | An FMI should clearly define the point after which unsettled payments, transfer instructions, or other obligations may not be revoked by a participant. |
| Description | In the EFT system, it is possible to cancel transfer orders before they are settled. However, a settled transaction cannot be cancelled or revoked. This is stated in the Article 8 of the PSOR. In EFT, participants can get detailed and summary reports on queued payments and can cancel unsettled queued payments. At the end of the business day, all payments in queues are cancelled automatically. The EFT systems does not provide information to the receiver party about incoming payments before the payment is settled, payment cancellations from queues are transparent to the receiver. Participants can request for extension of operating hours on a particular day. Extensions request are made on phone and extensions granted are communicated to all participants. Extensions up to 15 minutes are to be authorized by the EFT operations head, beyond 15 minutes and up to 1 hour requires the approval of the ED of the PSD. Extensions beyond that require approval of a Deputy Governor of the CBRT. |
| Key conclusions | The EFT functions as a RTGS system with final settlement through the day. Settlement finality is protected in the PSL and clearly articulated in the PSOR and as such has a sound legal basis. |
| Assessment of Principle 8 | Observed. |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should minimize and strictly control the credit and liquidity risk arising from the use of commercial bank money. | |
| Key consideration 1 | An FMI should conduct its money settlements in central bank money, where practical and available, to avoid credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 2 | If central bank money is not used, an FMI should conduct its money settlements using a settlement asset with little or no credit or liquidity risk. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 3 | If an FMI settles in commercial bank money, it should monitor, manage, and limit its credit and liquidity risks arising from the commercial settlement banks. In particular, an FMI should establish and monitor adherence to strict criteria for its settlement banks that take account of, among other things, their regulation and supervision, creditworthiness, capitalisation, access to liquidity, and operational reliability. An FMI should also monitor and manage the concentration of credit and liquidity exposures to its commercial settlement banks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 4 | If an FMI conducts money settlements on its own books, it should minimize and strictly control its credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 5 | An FMI’s legal agreements with any settlement banks should state clearly when transfers on the books of individual settlement banks are expected to occur, that transfers are to be final when effected, and that funds received should be transferable as soon as possible, at a minimum by the end of the day and ideally intraday, in order to enable the FMI and its participants to manage credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key conclusions | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Assessment of Principle 9 | Observed. |
| Recommendations and comments | |
An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should minimize and strictly control the credit and liquidity risk arising from the use of commercial bank money. | |
| Key consideration 1 | An FMI should conduct its money settlements in central bank money, where practical and available, to avoid credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 2 | If central bank money is not used, an FMI should conduct its money settlements using a settlement asset with little or no credit or liquidity risk. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 3 | If an FMI settles in commercial bank money, it should monitor, manage, and limit its credit and liquidity risks arising from the commercial settlement banks. In particular, an FMI should establish and monitor adherence to strict criteria for its settlement banks that take account of, among other things, their regulation and supervision, creditworthiness, capitalisation, access to liquidity, and operational reliability. An FMI should also monitor and manage the concentration of credit and liquidity exposures to its commercial settlement banks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 4 | If an FMI conducts money settlements on its own books, it should minimize and strictly control its credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key consideration 5 | An FMI’s legal agreements with any settlement banks should state clearly when transfers on the books of individual settlement banks are expected to occur, that transfers are to be final when effected, and that funds received should be transferable as soon as possible, at a minimum by the end of the day and ideally intraday, in order to enable the FMI and its participants to manage credit and liquidity risks. |
| Description | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Key conclusions | The EFT system settles in the books of the CBRT and as such uses central bank money. |
| Assessment of Principle 9 | Observed. |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor, and manage the risks associated with such physical deliveries. | |
| Key consideration 1 | An FMI’s rules should clearly state its obligations with respect to the delivery of physical instruments or commodities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 2 | An FMI should identify, monitor, and manage the risks and costs associated with the storage and delivery of physical instruments or commodities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key conclusions | The EFT is a payment system and hence this principle is not applicable. |
| Assessment of Principle 10 | Not Applicable |
| Recommendations and comments | |
An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor, and manage the risks associated with such physical deliveries. | |
| Key consideration 1 | An FMI’s rules should clearly state its obligations with respect to the delivery of physical instruments or commodities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 2 | An FMI should identify, monitor, and manage the risks and costs associated with the storage and delivery of physical instruments or commodities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key conclusions | The EFT is a payment system and hence this principle is not applicable. |
| Assessment of Principle 10 | Not Applicable |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • |
| PS | CSD | SSS | CCP | TR |
| • |
A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimise and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. | |
| Key consideration 1 | A CSD should have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of securities issuers and holders, prevent the unauthorised creation or deletion of securities, and conduct periodic and at least daily reconciliation of securities issues it maintains. |
| Description | Safeguarding the rights of securities issuers and holders The EFT is a payment system and hence this KC and principle are not applicable. Prevention of the unauthorised creation or deletion of securities The EFT is a payment system and hence this KC and principle are not applicable. Periodic reconciliation of securities issues The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 2 | A CSD should prohibit overdrafts and debit balances in securities accounts. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 3 | A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. Where appropriate, a CSD should provide incentives to immobilise or dematerialise securities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 4 | A CSD should protect assets against custody risk through appropriate rules and procedures consistent with its legal framework. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 5 | A CSD should employ a robust system that ensures segregation between the CSD’s own assets and the securities of its participants and segregation among the securities of participants. Where supported by the legal framework, the CSD should also support operationally the segregation of securities belonging to a participant’s customers on the participant’s books and facilitate the transfer of customer holdings. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 6 | A CSD should identify, measure, monitor, and manage its risks from other activities that it may perform; additional tools may be necessary in order to address these risks. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key conclusions | The EFT is a payment system and hence this principle is not applicable. |
| Assessment of Principle 11 | Not Applicable. |
| Recommendations and comments | |
A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimise and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. | |
| Key consideration 1 | A CSD should have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of securities issuers and holders, prevent the unauthorised creation or deletion of securities, and conduct periodic and at least daily reconciliation of securities issues it maintains. |
| Description | Safeguarding the rights of securities issuers and holders The EFT is a payment system and hence this KC and principle are not applicable. Prevention of the unauthorised creation or deletion of securities The EFT is a payment system and hence this KC and principle are not applicable. Periodic reconciliation of securities issues The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 2 | A CSD should prohibit overdrafts and debit balances in securities accounts. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 3 | A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry. Where appropriate, a CSD should provide incentives to immobilise or dematerialise securities. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 4 | A CSD should protect assets against custody risk through appropriate rules and procedures consistent with its legal framework. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 5 | A CSD should employ a robust system that ensures segregation between the CSD’s own assets and the securities of its participants and segregation among the securities of participants. Where supported by the legal framework, the CSD should also support operationally the segregation of securities belonging to a participant’s customers on the participant’s books and facilitate the transfer of customer holdings. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key consideration 6 | A CSD should identify, measure, monitor, and manage its risks from other activities that it may perform; additional tools may be necessary in order to address these risks. |
| Description | The EFT is a payment system and hence this KC and principle are not applicable. |
| Key conclusions | The EFT is a payment system and hence this principle is not applicable. |
| Assessment of Principle 11 | Not Applicable. |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • |
If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other. | |
| Key consideration 1 | An FMI that is an exchange-of-value settlement system should eliminate principal risk by ensuring that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the FMI settles on a gross or net basis and when finality occurs. |
| Description | The EFT system is a payment system settling transfer order denominated only in TRY. The EFT system is used for settling the securities settlement transactions in a DVP mode, however the ESTS functions as the SSS for that. This principle is hence addressed as part of the ESTS assessment. The EFT system is used for the TRY leg of foreign exchange transactions, however these are structured as two separate transactions and as such there is no PVP arrangement to link the two legs. |
| Key conclusions | The EFT system does perform exchange-of-value settlement. The EFT system is used for DVP settlements by the ESTS. There is no PVP for foreign exchange transactions, with the TRY leg settling independently of the foreign exchange leg, with the TRY denominated transfer orders being settled in RTGS mode. |
| Assessment of Principle 12 | Not Applicable. |
| Recommendations and comments | |
If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other. | |
| Key consideration 1 | An FMI that is an exchange-of-value settlement system should eliminate principal risk by ensuring that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the FMI settles on a gross or net basis and when finality occurs. |
| Description | The EFT system is a payment system settling transfer order denominated only in TRY. The EFT system is used for settling the securities settlement transactions in a DVP mode, however the ESTS functions as the SSS for that. This principle is hence addressed as part of the ESTS assessment. The EFT system is used for the TRY leg of foreign exchange transactions, however these are structured as two separate transactions and as such there is no PVP arrangement to link the two legs. |
| Key conclusions | The EFT system does perform exchange-of-value settlement. The EFT system is used for DVP settlements by the ESTS. There is no PVP for foreign exchange transactions, with the TRY leg settling independently of the foreign exchange leg, with the TRY denominated transfer orders being settled in RTGS mode. |
| Assessment of Principle 12 | Not Applicable. |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • |
An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations. | |
| Key consideration 1 | An FMI should have default rules and procedures that enable the FMI to continue to meet its obligations in the event of a participant default and that address the replenishment of resources following a default. |
| Description | Participant default rules and procedures The EFT system functions as a RTGS system and no overdrafts are allowed. The article 13(7) of the PSOR defines default as resulting from insolvency of the participant or failure to settle its dues with the CBRT – which could be either repayment of the credit availed through the liquidity support operations of the CBRT or any fees due to the CBRT. The article also further notes that in the event of default or other circumstances including bankruptcy, termination of operations, merger or any other technical or operational issues, the CBRT can use the participants assets in the EFT, RPS or ESTS system to collect the amount owed to the CBRT. Article 13(8) of the PSOR lists the actions that the CBRT could take on participants who have defaulted or those facing operational or technical issues:
Use of financial resources The EFT system is structured as a RTGS system, participants themselves bear no credit risk amongst them. The CBRT is exposed to the default of a participant to the extent the collateral posted by the defaulting participant does not cover the liquidity facility availed by the participant. This however is considered outside the system as the liquidity facility provided is treated as a monetary policy operation. Nevertheless the PSOR, as noted above, allows the CBRT to access all of the participant’s assets in the system including the collateral posted to cover its loss. This provision in the PSOR has a sound legal basis deriving from article 10(5) of the PSL. The CBRT may provide intraday and overnight liquidity to other participants in order to prevent liquidity shortfalls arising from a participants default. |
| Key consideration 2 | An FMI should be well prepared to implement its default rules and procedures, including any appropriate discretionary procedures provided for in its rules. |
| Description | The PSD has developed a default management procedure for the RPS, EFT and ESTS in one integrated document. The document outlines the process to be followed in various scenarios. This document was adopted after endorsement by the management on the 21st December 2015. Operations start upon receiving the written notification from the CBRT Legal Department and are conducted in accordance with the PSL, PSOR and applicable regulations. Additionally, in case of a default of a participant, operations to be performed in the CBRT Payment Systems are documented, including the co-ordination with other relevant departments of the CBRT. |
| Key consideration 3 | An FMI should publicly disclose key aspects of its default rules and procedures. |
| Description | The default management processes are outlined in the PSOR, article 13. The PSOR is available to all participants. |
| Key consideration 4 | An FMI should involve its participants and other stakeholders in the testing and review of the FMI’s default procedures, including any close-out procedures. Such testing and review should be conducted at least annually or following material changes to the rules and procedures to ensure that they are practical and effective. |
| Description | The default procedure was developed taking into account past experience in handling defaults of participants in the early 2000’s. This process however is not tested in its entirety. Specific elements are included in the business continuity operations and on an ongoing basis – for example the online communications tools available in the EFT system. |
| Key conclusions | The PSD has developed a default management procedure recently covering all the payment and securities settlement systems operated by the CBRT. The default procedure is consistent with the provisions in the PSOR and derives its legal basis from the PSL. Given that the procedure was adopted very recently it has not been tested in its entirety. The participants in the system are all banks, except the MKK. Banks are supervised by the BRSA and the MKK by the CMB. These authorities have the sole right related to insolvency or bankruptcy of these participants. There are existing co-ordination and information sharing arrangements between the CBRT, BRSA and the CMB. Hence there is high degree of certainty that the CBRT will have adequate notice to execute its default management process. Nevertheless, any delays in executing the default management process, could escalate the risks in the system. |
| Assessment of Principle 13 | Broadly Observed |
| Recommendations and comments | The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise. This could be integrated with the BCP or conducted as a standalone exercise at least once a year. The CBRT could consider as part of publication of the PFMI assessments or the disclosure framework make available key details of the PSOR and default procedures publically. |
An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations. | |
| Key consideration 1 | An FMI should have default rules and procedures that enable the FMI to continue to meet its obligations in the event of a participant default and that address the replenishment of resources following a default. |
| Description | Participant default rules and procedures The EFT system functions as a RTGS system and no overdrafts are allowed. The article 13(7) of the PSOR defines default as resulting from insolvency of the participant or failure to settle its dues with the CBRT – which could be either repayment of the credit availed through the liquidity support operations of the CBRT or any fees due to the CBRT. The article also further notes that in the event of default or other circumstances including bankruptcy, termination of operations, merger or any other technical or operational issues, the CBRT can use the participants assets in the EFT, RPS or ESTS system to collect the amount owed to the CBRT. Article 13(8) of the PSOR lists the actions that the CBRT could take on participants who have defaulted or those facing operational or technical issues:
Use of financial resources The EFT system is structured as a RTGS system, participants themselves bear no credit risk amongst them. The CBRT is exposed to the default of a participant to the extent the collateral posted by the defaulting participant does not cover the liquidity facility availed by the participant. This however is considered outside the system as the liquidity facility provided is treated as a monetary policy operation. Nevertheless the PSOR, as noted above, allows the CBRT to access all of the participant’s assets in the system including the collateral posted to cover its loss. This provision in the PSOR has a sound legal basis deriving from article 10(5) of the PSL. The CBRT may provide intraday and overnight liquidity to other participants in order to prevent liquidity shortfalls arising from a participants default. |
| Key consideration 2 | An FMI should be well prepared to implement its default rules and procedures, including any appropriate discretionary procedures provided for in its rules. |
| Description | The PSD has developed a default management procedure for the RPS, EFT and ESTS in one integrated document. The document outlines the process to be followed in various scenarios. This document was adopted after endorsement by the management on the 21st December 2015. Operations start upon receiving the written notification from the CBRT Legal Department and are conducted in accordance with the PSL, PSOR and applicable regulations. Additionally, in case of a default of a participant, operations to be performed in the CBRT Payment Systems are documented, including the co-ordination with other relevant departments of the CBRT. |
| Key consideration 3 | An FMI should publicly disclose key aspects of its default rules and procedures. |
| Description | The default management processes are outlined in the PSOR, article 13. The PSOR is available to all participants. |
| Key consideration 4 | An FMI should involve its participants and other stakeholders in the testing and review of the FMI’s default procedures, including any close-out procedures. Such testing and review should be conducted at least annually or following material changes to the rules and procedures to ensure that they are practical and effective. |
| Description | The default procedure was developed taking into account past experience in handling defaults of participants in the early 2000’s. This process however is not tested in its entirety. Specific elements are included in the business continuity operations and on an ongoing basis – for example the online communications tools available in the EFT system. |
| Key conclusions | The PSD has developed a default management procedure recently covering all the payment and securities settlement systems operated by the CBRT. The default procedure is consistent with the provisions in the PSOR and derives its legal basis from the PSL. Given that the procedure was adopted very recently it has not been tested in its entirety. The participants in the system are all banks, except the MKK. Banks are supervised by the BRSA and the MKK by the CMB. These authorities have the sole right related to insolvency or bankruptcy of these participants. There are existing co-ordination and information sharing arrangements between the CBRT, BRSA and the CMB. Hence there is high degree of certainty that the CBRT will have adequate notice to execute its default management process. Nevertheless, any delays in executing the default management process, could escalate the risks in the system. |
| Assessment of Principle 13 | Broadly Observed |
| Recommendations and comments | The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise. This could be integrated with the BCP or conducted as a standalone exercise at least once a year. The CBRT could consider as part of publication of the PFMI assessments or the disclosure framework make available key details of the PSOR and default procedures publically. |
| PS | CSD | SSS | CCP | TR |
| • |
| PS | CSD | SSS | CCP | TR |
| • |
A CCP should have rules and procedures that enable the segregation and portability of positions of a participant’s customers and the collateral provided to the CCP with respect to those positions. | |
| Key consideration 1 | A CCP should, at a minimum, have segregation and portability arrangements that effectively protect a participant’s customers’ positions and related collateral from the default or insolvency of that participant. If the CCP additionally offers protection of such customer positions and collateral against the concurrent default of the participant and a fellow customer, the CCP should take steps to ensure that such protection is effective. |
| Description | Customer protection from participant default The EFT system is a payment system and hence this principle and KC are not applicable. Customer protection from participant and fellow customer default The EFT system is a payment system and hence this principle and KC are not applicable. Legal basis The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 2 | A CCP should employ an account structure that enables it readily to identify positions of a participant’s customers and to segregate related collateral. A CCP should maintain customer positions and collateral in individual customer accounts or in omnibus customer accounts. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 3 | A CCP should structure its portability arrangements in a way that makes it highly likely that the positions and collateral of a defaulting participant’s customers will be transferred to one or more other participants. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 4 | A CCP should disclose its rules, policies, and procedures relating to the segregation and portability of a participant’s customers’ positions and related collateral. In particular, the CCP should disclose whether customer collateral is protected on an individual or omnibus basis. In addition, a CCP should disclose any constraints, such as legal or operational constraints, that may impair its ability to segregate or port a participant’s customers’ positions and related collateral. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key conclusions | The EFT system is a payment system and hence this principle is not applicable. |
| Assessment of Principle 14 | Not Applicable |
| Recommendations and comments | |
A CCP should have rules and procedures that enable the segregation and portability of positions of a participant’s customers and the collateral provided to the CCP with respect to those positions. | |
| Key consideration 1 | A CCP should, at a minimum, have segregation and portability arrangements that effectively protect a participant’s customers’ positions and related collateral from the default or insolvency of that participant. If the CCP additionally offers protection of such customer positions and collateral against the concurrent default of the participant and a fellow customer, the CCP should take steps to ensure that such protection is effective. |
| Description | Customer protection from participant default The EFT system is a payment system and hence this principle and KC are not applicable. Customer protection from participant and fellow customer default The EFT system is a payment system and hence this principle and KC are not applicable. Legal basis The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 2 | A CCP should employ an account structure that enables it readily to identify positions of a participant’s customers and to segregate related collateral. A CCP should maintain customer positions and collateral in individual customer accounts or in omnibus customer accounts. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 3 | A CCP should structure its portability arrangements in a way that makes it highly likely that the positions and collateral of a defaulting participant’s customers will be transferred to one or more other participants. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key consideration 4 | A CCP should disclose its rules, policies, and procedures relating to the segregation and portability of a participant’s customers’ positions and related collateral. In particular, the CCP should disclose whether customer collateral is protected on an individual or omnibus basis. In addition, a CCP should disclose any constraints, such as legal or operational constraints, that may impair its ability to segregate or port a participant’s customers’ positions and related collateral. |
| Description | The EFT system is a payment system and hence this principle and KC are not applicable. |
| Key conclusions | The EFT system is a payment system and hence this principle is not applicable. |
| Assessment of Principle 14 | Not Applicable |
| Recommendations and comments | |
| PS | CSD | SSS | CCP | TR |
| • | • | • | • |