Systemically important payment systems

Systemically important payment systems (SIPS) are payment systems which have the characteristic that a failure of these systems could potentially endanger the operation of the whole economy. In general, these are the major payment clearing systems or Real Time Gross Settlement of individual countries, but in the case of Europe, there are certain pan-European payment systems. TARGET2 is a pan-European SIPS dealing with major inter-bank payments. STEP2, operated by the Euro Banking Association is a major pan-European clearing system for retail payments which has the potential to become a SIPS.

In the event of a bank failure, adherence to the rules for the operation of SIPS should prevent a domino effect whereby payment obligations of the failing bank are effected against the solvent banks. Clearly, this does not prevent the effects of a bank failure from spreading; however, it closes off one route.

In 2001, the Bank for International Settlements (BIS) issued the "Core Principles for Systemically Important Payment Systems", and these are summarised below. In certain banking circles, these have become known as the 10 Commandments.

In 2003 the European Central Bank (ECB) further elaborated on how the principles should be applied in Euro retail payment systems",

Subsequently, in response to the perceived increased risks of terrorist attacks, the ECB in 2006 published detailed oversight expectations for business continuity planning, greatly expanding on core principle number 7.

BIS added an additional recommendation in relation to countries which use cheques. It urged the operators of cheque clearing to have special regard to the fact that cheques may be dishonoured and returned some days after presentation, and this poses special risks. This is particularly relevant to countries such as Britain, Ireland, France, and US and should be regarded as the 11th commandment of payments.

BIS CPSS is currently preparing for the new global standards for not only payment systems but also securities settlement systems, central counterparties and trade repositories. The new standards (Principles for FMI) is now under market consultation and going to be published in 2012.

A Systemically Important Payment Systems (SIPS) should have:

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