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Effective Oversight of Payments, Clearing and Settlement Systems, 31 August - 3 September 2010, Clare College
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PDF brochure can be downloaded here
Tuesday 31 August 2010
A FRAMEWORK FOR OVERSIGHT
New demands on payments, clearing and settlement systems
Discussion led by the chairman, Bruce Summers
This session sets the scene for those that follow by introducing and discussing two themes that will recur throughout the course. The first concerns the division of labour between central banks on the one hand, and commercial clearers and organisations on the other. The second concerns the drivers of change in payment, clearing and settlement systems, notably innovation, demands for liquidity and efficiency, and increasing interdependencies across both wholesale and retail systems. Discussion will draw out the challenges these two dynamics pose for the oversight function and how it may need to respond especially in the light of lessons learned from the financial crisis.
New challenges for overseers
Sean O’Connor, Consultant, World Bank
The financial crisis that rocked financial markets in 2007-08 placed tremendous strains on payments, clearing and settlement systems. What lessons can be drawn for managing liquidity and counterparty risks? What steps can overseers take to strengthen national and international systems? What new infrastructure is needed to assure that systems are meeting evolving needs in both the wholesale and retail arenas, and addressing the special requirements of developing economies? In this session the speaker will lead a discussion on the new challenges facing overseers, including the moves towards a combined set of oversight principles across financial market infrastructures, and how they can best respond to them.
Governance: scheme ownership and operation
Paul Smee, Chief Executive, UK Payments Council
The past decade has seen a revolution in retail payments with the separation of the ownership and operation of payment schemes. In the UK, at the heart of this new model of governance sits the Payment Council, an industry body charged with formulating the strategy for UK payments. This session will look at the mechanics of retail payment governance and assess the impact the change has had on the market, service providers and customers, with particular reference to the UK’s new Faster Payments service and the consultation on closing central cheque clearing.
Case study: a detailed methodology of oversight
Knut Sandal, Director, Payment Systems Department, Norges Bank
What do we mean by “oversight”? This session focuses on the data and tools required to perform this function. The speaker will outline the different processes and data needs for the system being assessed or monitored, how a risk analysis is performed and how the central bank can test a system against international standards. Points for discussion will include the challenges of overseeing cross-border systems or systems that may be foreign-owned or run, and the importance of a formal legal framework.
Wednesday 1 September 2010
WHOLESALE SYSTEMS: OVERSIGHT AND DEVELOPMENT
Foreign exchange: are risks being managed?
Jonathan Butterfield, Director, Communications, CLS Group
More than a decade after CLS was set up, 45% of foreign exchange transactions are still settled using traditional mechanisms that are subject to settlement risk. Progress has been made in this area, but what can and what should central banks and the private sector be doing to tackle the remaining exposures? In this session a speaker from CLS will discuss the developments in the service and plans for future expansion.
Derivatives: what infrastructure is needed?
Richard Heckinger, Senior Policy Advisor, Financial Markets Group,
Federal Reserve Bank of Chicago
It took the collapse of Lehman Brothers in September 2008 to demonstrate what many in financial markets had long feared: that the absence of clearing infrastructures for derivatives exposed participants to significant risks. More worryingly it made those risks difficult to identify, let alone manage. Since then, work has begun in the United States, Europe and Japan on clearing solutions. This session will discuss developments as well as consider questions of governance, ownership, competition and oversight for this important new infrastructure.
Securities: what is the role of the central bank?
Ruben Lee, Founder and Managing Director of the Oxford Finance Group
Many large-value payments take place in securities settlement systems. These systems also move the collateral that is used to obtain liquidity in repo operations, and as such form a crucial element of financial market infrastructure. Against a backdrop of trading, clearing and settlement arrangements changing rapidly and moving cross-border, questions of ownership, governance, access and oversight are becoming increasingly important. This session, led by the author of a leading report on financial market infrastructure will consider the roles a central bank can play in securities settlement.
Interlinkages: risk and liquidity management
Peter Lightfoot, Head of Positioning and Collateral Management, Money
Markets, RBS Global Banking & Markets
The credit crisis has placed liquidity risk at the top of policymakers’ agenda. As the conduits through which liquidity flows to the financial system, payments systems and their securities counterparts are crucial. Today, balance sheets of market players are more complex, the instruments they invest in more diverse, and markets more closely linked, rendering liquidity risk more important but more opaque. This session considers the implications of growing trends such as group-wide liquidity management and central banks broadening the range of collateral they accept.
Ensuring robustness and business continuity
John Dyer, Principal Technical Consultant for Clearing and Settlement Systems,
Logica
As technologically intensive sectors, payment systems and their support networks are heavily exposed to operational and security risks. In this session, the speaker, drawing on his experience in working with RTGS systems in many countries, considers how an overseer can identify the single points of vulnerability in a system. Broader group discussion will address the importance of comprehensive and robust continuity planning for financial sector emergencies.
Thursday 2 September 2010
RETAIL SYSTEMS: OPPORTUNITIES AND CHALLENGES
New payment media and non-banks
Harry Leinonen, Adviser to the Board, Bank of Finland
Are new technologies, such as mobile payments or contactless payment devices, particularly exposed to fraud? What should be the attitude of overseers to such systems, which in the past have been deemed “non-systemic”? This session draws on the experience of Harry Leinonen, a leading thinker and author on payments systems and policy towards them to consider what approach overseers should take to new payment systems, such as mobile phones, and new (non-bank) players.
Emerging standards: development and governance
Harry Leinonen
Overseers, market practitioners and end-users alike increasingly recognise that the key to efficient payments lies in the standards used and the governance arrangements that determine these. Yet while both these typically remain national in origin, demands for cross-border payments are on the rise. This session will address the developments of standards, such as ISO2022, their adoption and ownership.
How to tackle online fraud – the role of incentives
Ross Anderson, Professor of Security Engineering, Cambridge University
The dramatic rise in phishing and online banking fraud threatens the integrity of retail systems. Should authorities be concerned with these problems? Is more technology the only way to keep fraudsters out? The speaker will argue that the answer to first question is “yes” but “no” to the second. Many security failures are at their core due to wrong incentives rather than technical failures and this session will focus on how overseers can scrutinise these when considering threats to systems used every day by millions of people.
Workshop: practical challenges
Led by Bruce Summers and Harry Leinonen
In this session, participants will split into smaller working groups to share experiences regarding the scope of central bank oversight and identify the chief practical challenges in overseeing systems. A plenary session will pool and analyse the results.
Friday 3 September 2010
SAFEGUARDING CRITICAL INFRASTRUCTURE
What is the future of RTGS?
Philipp Haene, Deputy Head, Oversight, Swiss National Bank
“[a]lthough RTGS systems were developed in response to large-value interbank needs, retail transactions have de facto become part of their business model.”
This admission by the European Central Bank highlights the dilemma facing central banks today. While systems have typically been separated into large-value and retail silos, recent years have seen increasing cross-over. Should retail payments be processed in dedicated interbank systems? Conversely, with the advent of more sophisticated and reliable “retail” systems, what is the future for large-value systems? One solution is to develop a “hybrid” and, in this session, a speaker will describe the operations and risk management of such a system.
Revisiting the CPSS Principles
Speaker to be confirmed
In response to the financial crisis, the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have launched an overhaul of the standards that underpin today’s payment and securities settlement systems and central counterparties. The joint review presents an enormous task, but offers overseers and supervisors the opportunity to take a holistic approach to the requirements for financial market infrastructure. The revised standards, drafts of which are due in early 2011, will set the agenda for the next decade. In this session, a central bank speaker will lead a discussion on the origins, approach and outlook for the project.
Course conclusion
Roundtable discussion led by Bruce Summers
The day and the course will conclude with a session led by the chairman drawing in the main points of the course including the findings of the workshop. Delegates will be encouraged to pool their thoughts and prepare action plans to take back to their home institutions.
PDF brochure available to download here
For more information, contact Aurelie Li at aurelie.li@centralbanking.com
