WEAK INSTITUTIONAL FRAMEWORKS HAMPERING PAYMENT SYSTEMS OVERSIGHT

Payment systems oversight and regulation in the MEFMI region is constantly changing due to dynamics in the financial markets, economic reforms, and complex demands by the market on the use of various payment system products.  Central banks face innumerable challenges in supervising their payment systems to ensure safety and efficiency in the financial system.

Current trends show an increase in the variety of payment systems and their related products in the MEFMI member states. These systems link and ease the functioning of the financial sector.  Also, cross-border payment systems have come to the fore, linking regional economic communities on a real-time basis and facilitating efficient payment and settlement of trade obligations in the region. These developments call for greater proficiency in overseeing and managing both domestic and regional payment systems.

In its effort to build capacity in this critical area, MEFMI’s Financial Sector Management Programme (FSMP) conducted a Regional workshop on Practical Application of Payment Systems Operations and Oversight from the 16-24 October 2017 in Windhoek, Namibia.
The course was designed to develop practical skills for overseeing and managing payment systems and to equip participants with essential abilities for designing and implementing payment systems oversight benchmarks.

The region has seen an increase in depth and scope of payment systems. The majority of the MEFMI member states have now implemented large value settlement systems, automated clearing houses and securities settlement systems. Furthermore, many have introduced innovative products and technologies like mobile and internet based payment schemes. Sadly, regulatory frameworks for these systems remain ad-hoc and lag behind new developments and upcoming challenges. In addition, existing oversight structures are weak and inadequate and do not help central banks to perform this critical role effectively. It was therefore found necessary for payment system overseers in the region to convene and deliberate on such matters of common interest.

The workshop was officially opened by Mr Ebson Uanguta, Deputy Governor of the Bank of Namibia, on behalf of the Governor. In his opening remarks, Mr Uanguta highlighted the significance of payment systems, which he noted, were often an unappreciated component of the financial sector. He stressed that payment systems, if resilient, are key to the smooth functioning of the financial system, improve monetary policy transmission and can reduce risks in financial markets. Concluding, therefore, that oversight of these systems was a key central bank task that needed payment systems analysts to be conversant with the latest trends and advancements in developing and implementing oversight policy frameworks. The Deputy Governor also pointed out the challenges in enhancing and retaining skills for payment systems oversight. He stressed that some oversight divisions in the MEFMI central banks were yet to acquire the requisite level of authority or sufficient resources to perform this key function.

Mr Uanguta advised that oversight arrangements are not a ‘one size fits all’ and that practices varied significantly across jurisdictions due to differences in economic, financial or political environments. He underscored the need for market regulators and other authorities to design frameworks tailored to the distinct circumstances of each country. Despite these differences, however, the Deputy Governor noted that many issues cut across and the workshop would provide a forum for exchange of experiences and learning to develop and improve payment systems policy and oversight frameworks. 

Addressing the participants earlier, the Programme Manager of the FSMP, Ms Jackie Kitiibwa advised that MEFMI had been working closely with its member institutions at both the country and regional level, to build capacity in payment systems oversight. This, she added, involved supporting countries to set up oversight units within the central banks, working with countries to draft policies and regulation for oversight and, developing oversight tools and templates. These efforts, she stressed, have not only seen the development and implementation of resilient payment systems but have culminated in the strengthening of oversight capacity within member countries. Ms Kitiibwa emphasized that the workshop was, therefore, meant to build on these efforts; by providing a forum for countries to reflect on what had been achieved so far and identify constraints that prevail.  She was optimistic that the workshop would provide the strategic direction needed for the institutions to move forward.

The event was attended by middle level professionals from the MEFMI Central Banks and Ministries of Finance in 12 member countries. Participants were mainly from payment systems oversight divisions and other key support functions like Internal Audit, Legal and Financial Stability. 

MEFMI organized the event in collaboration with the Bank for International Settlements (BIS). The speakers included Mr. Marc Hollanders from the BIS; Dr Leon Perlman from Columbia University, Professor Phillip Mashele from North West University and MEFMI Graduate Fellow, Mr Patrick Ibrahim. 

The course employed both theoretical lectures and practical sessions. The practical work involved exercises and group activities to help the participants contextualize the theoretical concepts. Some of the topics covered included cybersecurity in payment systems, the Principles for Financial Market Infrastructures, risk based oversight, development of oversight policy frameworks, oversight of innovative products, payment aspects of financial inclusion, data analysis and management and oversight process techniques and methods.

The main outcome of the activity has been  enhanced knowledge and skills in conducting payment systems oversight and increased capacity to augment existing oversight policy frameworks.