Oversight of Payment Systems
1. The Bank of Thailand’s Objectives and Roles with respect to the Oversight of Payment Systems
Payment systems play a critical role in facilitating the continuous and secure functioning of the country’s economic activities by supporting and handling financial transactions of the financial institutions, public sectors, private sectors, and general public, to enable them to function conveniently, quickly, and efficiently; which help fostering the functioning of economic activities and maintaining the financial stability of the country.
The Bank of Thailand (BOT) is responsible for the oversight of operators/ service providers of the payment systems under the Payment Systems Act B.E. 2560 (2017) (Payment Systems Act). The Payment Systems Committee (PSC) is empowered to formulate policies relating to the payment systems under the BOT’s purview and interbank clearing systems, including oversee the BOT’s operations with respect to the establishment or supporting of the establishment of payment systems.
The objectives of the BOT in overseeing the payment systems are to promote safety and efficiency, to reduce risks in various aspects in accordance with international standards, to strengthen user confidence, and to promote competition among operators/service providers; which lead to the stability of the payment systems and overall financial systems.
2. Oversight of Payment Systems in Thailand
The BOT established an “Oversight Framework of Payment Systems in Thailand” to adopt as the approach of the BOT for the oversight of the payment systems as follows:
2.1) Oversight according to Payment Systems Act
Oversight according to Payment Systems Act is divided into 3 main groups which are:
2.1.1) Highly Important Payment Systems which are BAHTNET system (Bank of Thailand Automated High-value Transfer Network) and ICAS system (Imaged Cheque Clearing and Archive System), which are the systems established and operated by the BOT.
In this regard, the Payment Systems Act includes legal provisions being essential to the stability of the payment systems; which are the protection of any funds transfer, clearing, or settlement, that has been made through the highly important payment systems before the time that the court has issued the order accepting the petition for business reorganization or the order for receivership of a member, which shall be considered final and shall not be revoked, reversed, modified, stopped or set aside (Payment finality) in order to prevent systemic risks.
2.1.2) Designated Payment Systems which are (1) Inter-institution Fund Transfer System (2) Payment Card Network and (3) Settlement System
2.1.3) Designated Payment Services which are (1) provision of credit card, debit card, or ATM card services (2) provision of electronic money services (3) provision of accepting electronic payment for and on behalf of sellers or service providers or creditors (4) provision of electronic money transfer services and (5) other payment services which may affect payment systems or public interests.
The Payment Systems Act empowers the BOT to issue notifications prescribing regulations on supervision of the payment systems by using a supervisory framework consisting of 5 areas include (1) Financial status (2) Governance (3) Risk management and security (4) User protection and (5) Promotion of efficiency and competitiveness. In addition, the BOT has the power to conduct examination and to obtain relevant information, including the power to order for rectification of the financial conditions or operations that may cause damages to the public, or violate or omit to comply with the regulations in the notifications prescribed by the BOT.
2.2) Oversight according to International Standards
The Payment Systems Committee (PSC) approved criteria for classification of the payment systems according to the level of importance, and set out the oversight framework for each group of payment systems to be overseen in accordance with the international standards Principles for Financial Market Infrastructures (PFMI) which was issued by the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) in April 2012. The oversight of payment systems according to the PFMI is summarized as follows:
2.2.1) Systemically Important Payment System (SIPS) includes the BAHTNET system operated by the BOT because it is the Financial Market Infrastructures (FMI) of the country which handles interbank large-value funds transfer transactions, and uses for the settlement of financial market transactions and for the settlement of other FMIs. If there are system disruptions, it would be likely to have broad and continuous impact to members of the systems (systemic risk), or have an impact on the security and stability of the payment systems. Therefore, it is necessary that the SIPS shall be subject to the oversight according to the PFMI for all principles relating to the payment systems (a total of 18 principles).
2.2.2) Prominently Important Retail Payment Systems (PIRPS) include ICAS system operated by the BOT and the ITMX system (Interbank Transaction Management and Exchange) which is interbank retail funds transfer systems operated by the National Interbank Transaction Management and Exchange Co., Ltd. (NITMX). For the oversight of PIRPS, 14 principles of the PFMI are applied, by not including the principles relating to financial risks.
2.3) BOT’s Payment Systems Oversight Approach
2.3.1) Continuous off-site monitoring
2.3.2) Risk assessment
2.3.3) On-site examination
2.3.4) Reporting to committee
3. Co-operative Oversight
The BOT, having a role as a regulator of the payment systems, cooperates with relevant authorities being responsible for the oversight of FMIs both domestically and internationally to share information relating to the oversight of linked or interdependent FMIs to ensure safety, security and efficiency, to have adequate risk management, to properly prevent systemic risks in the systems, and to be aligned with the international standards of PFMI with respect to the Responsibility E: Cooperation with other authorities. The scope for co-operative oversight was defined to cover arrangements of setting policies and development plans for the linked FMIs, management of critical risks, and arrangements for the case of systems being disrupted or having problems, which may affect the linked FMIs.
3.1) Domestic Regulators which are the Securities and Exchange Commission (SEC), who oversees the Central Securities Depositories (CSD), Securities Settlement Systems (SSS), and Central Counterparties (CCP).
3.2) Regulators outside Thailand which are Hong Kong Monetary Authority (HKMA), who oversees US Dollar Clearing House Automated Transfer System (USD CHATS), which has a linkage to the BAHTNET system (cross-border links) for the cross-border real time settlement with the mechanisms of Payment-versus-Payment (PvP) in order to mitigate the FX settlement risk for THB/USD transactions.
4. Related Documents
Payment Systems Oversight Activities Annual Report 2016
Payment Systems Oversight Activities Annual Report 2015
Payment Systems Oversight Activities Annual Report 2014