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Public Disclosure Authorized Reforming PAYMENTS AND SECURITIES Public Disclosure Authorized SETTLEMENT SYSTEMS IN AND LATIN AMERICA THE CARIBBEAN Public Disclosure Authorized Public Disclosure Authorized MASSIMO CIRASINO MARIO GUADAMILLAS JOSÉ ANTONIO GARCÍA FERNANDO MONTES-NEGRET ©2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 5 10 09 08 07 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN-10: 0-8213-6635-1 ISBN-13: 978-0-8213-6635-6 eISBN: 0-8213-6637-8 DOI: 10.1596/978-0-8213-6635-6 Cover design: Rock Creek Creative, Inc. Library of Congress Cataloging-in-Publication Data has been applied for. Contents Preface vii Contributors ix Acknowledgments xi Abbreviations xii CHAPTER 1 Introduction 1 2 Major Trends in Payments and Securities Settlement Systems 5 3 Assessment Tools 21 4 Payments Systems Assessment Findings in Latin America and the Caribbean 27 5 Securities Settlement Systems Assessment Findings in Latin America and the Caribbean 105 6 Transparency, Oversight, and Cooperation in Payments Systems 185 7 Implementing Payments and Securities Settlement Systems Reforms 205 8 Concluding Remarks 215 v vi Contents APPENDIX 1 Main Statistics of Payments and Securities Settlement Systems in Selected Latin America and the Caribbean Countries 221 2 Scope, Elements, Participants, and Processes of Securities Settlement Systems 239 3 CPSS Core Principles for Systemically Important Payment Systems 247 4 CPSS-IOSCO Recommendations for Securities Settlement Systems 249 5 CPSS–IOSCO Recommendations for Central Counterparties 251 6 CPSS General Guidance for National Payments System Development 253 7 Recommendations of the Financial Action Task Force on Money Laundering 255 8 Systemically Important Payment Systems in Latin America and the Caribbean: Results of the Self-Assessment Exercises 261 References 265 Index 271 Preface could generate contagion and severe systemic disrup- he exponential growth in values transferred tions in financial markets. Moreover, rapid technologi- Tthrough the payment systems within national and cal changes, accompanied by evolving user needs, have across international borders, as well as the inherent transformed the role of payment systems in the delivery risks in the clearing and settlement processes, have and efficient provision of financial services. The on- increased central and commercial banks’—as well as going revolution in payment systems has increased the securities commissions’—attention to payment and opportunities to market participants and end users. securities settlement systems and their influence on the International organizations, national authorities, and, stability and efficiency of financial intermediation. As in general, payment system stakeholders have recently a result, payment systems issues have moved up the list looked more carefully into payments and securities set- of public policy priorities and have moved from the tlement issues. The first set of important standards backroom to the boardroom of financial institutions. came with the release in 1989 of the Group of Thirty In the 1970s and 1980s, central banks focused mainly recommendations regarding securities clearance and on the influence of payment systems in the transmis- settlement and the 1990 Lamfalussy Report recom- sion of monetary policy, but in recent years their atten- mending minimum standards. Since then, many differ- tion has broadened to deal more systematically with the ent organizations have issued international standards, goals of efficiency, integrity, security, reliability, and principles, recommendations, and codified best prac- accessibility. An efficient, secure, and reliable payment tices. At the end of the 1990s and the beginning of the system reduces the cost of exchanging goods, securi- 2000s, a consensus emerged within the Committee on ties, and services, and is an essential tool for the effec- Payments and Settlement Systems (CPSS) of the Bank tive implementation of monetary policy and the smooth for International Settlements (BIS) to introduce new functioning of money and capital markets. Although standards known as the core principles for systemically payment systems have traditionally focused on fund important payments systems, followed by the joint transfers, value is also exchanged by means of securi- CPSS–International Organization of Securities Com- ties trading. Consequently, recent trends in payment missions (IOSCO) recommendations for securities system development have resulted in new initiatives settlement systems. Furthermore, the work of interna- leading to increasing convergence and interoperability tional institutions is going beyond payments and secu- of banking, payment, and securities infrastructures. rities settlement systems assessment to advice on how Payments systems are considered critical for the safe and to effectively implement a reform. The World Bank effective functioning of the financial system. Safe sys- Regional Initiatives on Payments and Securities Settle- tems are, therefore, a key element for maintaining and ment Systems and the CPSS’s “General Guidance for promoting financial stability. Poorly designed systems or National Payments System Development,” published technical and operational failures, combined with the in its final version in January 2006, are clear examples increasing interdependence of financial intermediaries, of these efforts. vii viii Preface In the Latin America and Caribbean (LAC) region, the secure and efficient payments and securities clearance World Bank started efforts as early as 1995 to raise the and settlement systems in the respective member coun- awareness of the importance of modernizing national try, systems that are capable of satisfying the needs of payments systems and of setting up a regional forum the local, regional, and international markets—has for the exchange of information. Such efforts further been fostered by the work undertaken over the past evolved with the request of regional finance ministers seven years. Moreover, the WHI has led to the establish- for the World Bank to launch a regional initiative to fos- ment of a high-level regional policy forum for the dis- ter such a process of transformation. The latter initiative cussion of payments and securities settlement issues, was formalized in 1999 into the Western Hemisphere which can be invaluable to foster increased coopera- Payments and Securities Clearance and Settlement Ini- tion as the LAC region becomes more integrated. The tiative (WHI) and converted in 2003 into a regional WHI-WHF has also significantly contributed to the Western Hemisphere Payments and Securities Clearance joint World Bank–International Monetary Fund (IMF) and Settlement Forum (WHF), dedicated to the assess- Financial Sector Assessment Program. ment of and exchange of information on payments and This book intends to extract the main lessons and expe- securities settlement systems in the LAC countries. riences of WHI-WHF from the assessments to the The WHI has been a coordinated effort supported by implementation of the reforms. It benefited from the central banks and securities commissions inside and out- numerous country assessments, as well as from follow- side the region, as well as international financial and up work undertaken by the World Bank in the reform of standard-setting institutions. In addition to the World payments and securities settlement systems in the LAC Bank and the Centro de Estudios Monetarios Latino- region. The book describes major trends in payments americanos, other institutions have supported the WHI, and securities settlement systems worldwide and pre- such as the Council of Securities Regulators of the Amer- sents the assessment tools used in preparing the country icas and an International Advisory Council, the latter reports under WHI-WHF. In addition, the book provides comprising highly experienced institutions dealing with a detailed summary