1. Oversight Policy Framework and Operational Guidelines
Presented by Patrick Ibrahim
MEFMI Workshop on Practical Application of Payment Systems Oversight
, October 2017

2. Agenda: The Ws and H of Oversight Policy and Operational Guidelines2
What
Why
Who
How

3. OUTLINE Scene Setting Policy Framework Operational Guidelines
Conclusion

4. Effect of increased vol/val
SCENE SETTING: RECALL THE NEED FOR OVERSIGHT
Effect of increased vol/val
Plus
Changing market environment
Leading to:

5. SCENE SETTING:
In order to guaranteed the public policy objectives of safety and efficiency, overseers need to establish policy frameworks that enables a systematic and consistent approach towards full implementation of the oversight function
Among others, the policy framework provides a launch pad for overseers to better carry out the three key oversight activities of monitoring, assessment and inducing change
Through this, the role of the Overseer as regulator and catalyst of change in the payments space (usually implemented through PS units) is consolidated
However, some of the policy frameworks adopted are not as comprehensive or, in some instances, not fully implemented

6. A. Oversight Policy Framework

7. Recall: Oversight Framework
Blue print / guiding policy for oversight process
FRAMEWORK
Objectives
Minimizing risk (especially systemic)
Based on safety and efficiency of PS
Support pursuit of further PS reforms
Systems not institutions
Scope
Designation of systems
Focus of the oversight activities
Instruments
Operator
System profiles
Action
Dynamic
Outline strategies / policies for risk mgt.
Implementation steps
Onsite and offsite inspections

8. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
Introduction
Explain the importance of the PS in terms of:
Economy
Risk propagation
Explain the rationale and mandate (legal powers) of the Overseer to regulate PS
Link this to the Central Bank’s vision and mission statement especially on PS
Briefly highlight stakeholder roles and responsibilities in the oversight process
Describe the best practice standards and implementation approach to be adopted

9. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
2. Objective of the Policy Framework
General statements on Overseers commitment towards:
Safety
Efficiency
Further development of the NPS
Link this to the importance of the PS to the FMI and the economy

10. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
3. Definition of Technical Terms
This part should contain the definition of technical terms used in the Policy: -
i.e. In this Oversight Policy Framework document, PS means “ …”; settlement means “…” etc.
Use conventional / standard definitions
Where necessary, liaise with experts and other regulators on terminology that might be peripheral but still important in PS and have been included in the policy framework
Either work backwards or update the chapter on the go (as and when a technical term is introduced in the documents!)

11. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
4. Overview of the National Payments System
• This chapter highlights the current status of the national payments infrastructure in a country in terms of:
implemented systems
instruments in use
system participants
payment bodies / associations and their roles
current oversight arrangements including cooperation with other regulators
other achievements and challenges
The chapter lays the foundation for policies that need to be implemented to improve safety and efficiency

12. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
5. Policy Statement
• This is where you provide specific policy statement to guide payments system oversight in terms of:
Safety e.g.
Bank of Zemunda shall ensure systems are operating under robust and supportive legal framework complying with Banking Act, 1989, NPS Act, 2016 and other laws and regulations relevant to NPS infrastructure in Zemunda
Bank of Zemunda shall ensure that payment systems are developed and operated with adequate and appropriate risk management controls; particularly on monitoring, evaluation and management of payment systems risks (list them)
Bank of Zemunda shall ensure systems are effectively governed; by encouraging effective cooperate governance principles, transparency and accountability in operations of the systems

13. Policy Statement/… ii. Efficiency, e.g.
Bank of Zemunda shall encourage innovation and adoption of appropriate technology that reduce cost of providing services,
Central Bank shall encourage development and operation of payment systems that are interoperable to enhance cooperation and competition in the market
iii. Equity, e.g.
Central Bank shall ensure payment system services are conducted on an equitable basis without undue restrictions on access or over pricing etc.

14. STRUCTURE AND CONTENT OF AN OVERSIGHT FRAMEWORK
6. Policy Implementation, Monitoring and Evaluation
• This is where you convert policy statements into action for effective implementation e.g.
Institutional Setup
In recognition of cross cutting issues in payments, the NPS department is hereby being entrusted with the role of implementing and monitoring the policy framework
In pursuit of this, the NPS department shall do the following:
update BoZ mgt on any dvpts related to the policy
undertake periodic reviews of the policy
develop guidelines and directives related to oversight etc.

15. Implementation, Monitoring and Evaluation/…
Performance Monitoring and Evaluation
The NPS Department shall be responsible for implementing and monitoring this Policy by, among others:
establishing measures to assess progress in meeting set objectives
establishing procedures to ensure stakeholder buy-in on all oversight policy framework issues

16. 7. REFERENCES
Source documents
Include Appendices

17. B. Operational Guidelines Framework

18. WHY OPERATIONAL GUIDELINES
Assists the Overseer to operationalize the policy by providing guidance on the actual day – to – day activities related to oversight function
Highlights the specifics within the modalities of conducting oversight
This enables analyst to shape their skills and techniques in carrying out oversight

19. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
1. Introduction
Provide a working definition of oversight and highlight the salient issues therein
The Overseer should interpret and link these salient issues to the domestic payments environment
Example
Based on the BIS definition “oversight of payment and settlement systems is a central bank function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change”
How do we interpret safety and efficiency? For which systems? Who does what to attain this and how?

20. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
2.0 Purpose
State the purpose of the Guideline:
For example:
This Guideline operationalizes the oversight policy by providing guidance on conducting payment systems oversight
Specifically, it seeks to highlight the activities and organization of the oversight function including scope, tools and deliverables

21. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
3.0 Oversight Mandate
As is the case with the Policy Framework, relate this to the specific statutory provisions in all the relevant legislations, regulations and policies e.g. Banking Act, NPS Act, Interoperability Directive etc.

22. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
4.0 Scope of Oversight
Designation of Systems to be overseen
Identify type of systems to be overseen and the justification for the choice
Determination may also be based on:
interbank systems
aggregate throughput (in relative terms)
significance in the economy (i.e. only system in the economy?)
cross-border systems etc.

23. Scope of Oversight/… Types of Payment Instruments
List down the instruments to be included and the justification; nature, relative importance etc
The justification may also be based on:
volume and values
degree of acceptability as a means of payments
inter-bank payment instruments
cross-border instruments etc.

24. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
5.0 Oversight Activities
i. System and Instrument Profiling
As a follow up to designation, develop profiles for identified systems and instruments
The profile may reflect some of the following:
The System/ instrument risk management policies and mechanisms
Members of the systems
Purpose of the system (what is it for; payments, clearing or settlement? and of what? fund or securities or both?).
Statistics (throughput, incident reports, operational risks etc)

25. Oversight Activities/…
Information could be sourced from:
NPS and BASU dpts. (through their licensing activities)
System participants, other operators and regulators
The profiles need to be updated regularly to keep abreast with market trends
ii. Payment Systems Risk Profiling
Identify main risks
Develop risk registers for each system and instrument profiled
Regularly update the risk registers

26. Oversight Activities/…
iii. Action Plan
Come up with Activity Schedule based on the risk profiles
Priority should be given on the high risk area.
Take action:
Instituting risk management measures provided in the legal instruments (e.g. system rules)
Cooperate with other regulators depending on issues at hand
Conducting ad-hoc on-site inspections
Enforce compliance (as per the legal powers)

27. Oversight Activities/…
iv. Reporting
Reports should be based on the activities such as:
System Profile Report
system’s relative importance
risk management
recommendations
Instrument Profile Report
instrument’s relative importance
risk Management

28. Oversight Activities/…
Risk Profile Report
based on risk matrix, showing:
Identified Risks
probability and impact of occurrence
Recommendations
On-site and off-site reports
Periodical Progress Reports

29. STRUCTURE AND CONTENT OF OPERATIONAL GUIDELINES
6.0 Payment System Standards and Best Practices
State the international, regional and national standards and best practices that shall be adopted in ensuring safety and efficiency of the national payments system e.g. PFMIs
The standards and best practices should be reviewed regularly based on market developments (including conduct of participants) in assessing the systems and instruments to ensure their operations and provision of services are safe and efficient to the economy.

30. 7. REFERENCES
Source documents
Include Appendices

31. CONCLUSION
Oversight framework provides a blue print formalizing the oversight function of the Central Bank.
Among others it highlight the objectives, scope and approach to be taken and justification thereof.
To operationalize the policy framework, some Overseers come up with Operational Guidelines detailing the specific modalities of conducting the oversight function.

32. References
BIS (2003): Risk Management Principles for Electronic Banking, Basle; available at
BIS (2005): Central bank oversight of payment and settlement systems, Basle; available at
ECB (2010): The Payment System, edited by Tom Kokkola, ECB, Frankfurt am Main; available at

33. End of presentation
QUESTIONS