The Bank’s role in the operations and oversight of the payment and securities settlement systems is to ensure that they are safe, efficient and effective and that access to such systems is not restricted. An effective and efficient payment system is crucial to the smooth functioning of the banking system and the economy, and supports financial stability by reducing settlement risk. The Bank has obligations to the Eurosystem, the clearing banks and the Irish banking industry in the maintenance and development of our operations, policies and oversight of these systems.
The principal areas of responsibility include: Eurosystem Real Time Gross Settlement
Services (TARGET2)
This is the single IT platform for payment settlement services to all Eurosystem banks, provided via the ECB. It provides immediate (real time) settlement on a transaction-by-transaction basis. TARGET2 offers the highest standards of reliability and resilience and plays a key role in ensuring the smooth conduct of monetary policy throughout the euro area.
Collateral Management
The provision of liquidity to banks via Eurosystem monetary policy operations and Emergency Liquidity Assistance is backed by adequate collateral. The Eurosystem’s collateral management framework has undergone significant adjustment in response to the financial crisis and the Bank is amending its systems and policies also. We will implement a new local Collateral Management system to deliver new collateral management services as mandated by the ECB Governing Council. The new services include the provision of cross border tri-party services and TARGET2 Securities (T2S) auto collateralisation. In order for the Bank to provide the mandated services it must change its collateralisation technique from earmarking to pooling.
TARGET2 Securities (T2S)
T2S is a pan-European settlement system for securities which is being developed by the
Eurosystem. The project is currently in the development phase and is due to go live in June 2015. The Bank will continue to participate on the T2S Advisory Group and continue to liaise with the Irish market through the National User Group of which the Bank is chair.
Payments Oversight
The Bank’s role is to ensure the safety and efficiency of Irish retail payment systems. The main focus is at payment system level rather than on individual participants, operators and service providers. The Bank will continue to carry out its payment oversight role through:
(i) involvement, via Board representation, with IRECC (Electronic Clearing), IPCC (Paper Clearing) and IPSO (the overarching industry body); and
(ii) engagement with these companies on operational issues (e.g. approving clearing rules and new members) and projects relating to changes in the delivery of payments services.
We will also carry out our responsibilities under the Single Euro Payments Area (SEPA) initiative – see box overleaf.
35 Strategic Plan 2013–2015 SEPA
The SEPA initiative aims to create a single market for euro-denominated retail payments. SEPA will allow payment systems users to make cashless, euro-denominated payments to payees located anywhere in the EU and EEA, using a single payment account and a single set of payment instruments. SEPA will have at least some impact on every citizen, merchant, public administration and corporate entity (regardless of size) currently holding a payment account with a bank.
The design and introduction of SEPA is now complete – all that remains is to migrate all national schemes to the new SEPA standards. The European Commission has set a binding end-date of 1 February 2014 for banks and payment systems users to migrate all payments from existing national electronic credit transfer and direct debit payment schemes to their SEPA equivalents. As such, it is a legal requirement for Ireland to have migrated its domestic electronic clearing systems to SEPA by this date.
While much of the implementation of SEPA fell on the banking sector, SEPA will also need the active participation of payments users, whether they are public administrations, corporates or individual consumers. For SEPA to really succeed, all payment systems users must migrate to the new schemes at the earliest possible opportunity. The implementation of SEPA within Ireland is overseen by a subgroup of the National Payments Plan (NPP), which has been formed by the Bank. This group will track the implementation of SEPA in the public and private sectors and coordinate communications and other initiatives required to ensure the successful implementation of SEPA.
The Bank’s involvement with the NPP-SEPA subgroup (and with SEPA as a whole) derives from its Eurosystem role and from its overall responsibility for payment systems policy and oversight in Ireland. As a consequence of which it will coordinate the overall national SEPA migration and implementation effort. The Bank is also responsible for liaison with and reporting to the ECB and the EU Commission on SEPA matters.
Deposit Guarantee Scheme (DGS)
A key tool of financial stability is a deposit guarantee scheme, which limits the potential for a run on bank deposits by providing comfort to depositors that their funds are backed-up, to a certain level, by a government guarantee. Under EU obligations, the Bank is required to have systems in place to support Ireland’s DGS, which would compensate depositors in the event of the failure of a credit institution. Work on the development of this scheme has been on- going for the past year and will be completed over the lifetime of this Plan.
National Payments Plan (NPP)
The Bank is also playing a leading role in the development and implementation of the National Payments Plan which aims to increase the level of electronic payments in the economy and increase payments efficiency generally.
NPP
While there has been substantial investment in upgrading Ireland’s payments infrastructure in recent years, as a member state we are lagging behind our European peers in terms of the adoption of these technologies. The National Competitiveness Council has ranked Ireland as the second highest in the euro area in terms of its use of cash as a proportion of GNP, while there are only four European coun- tries that still use a significant volume of cheques.
The efficiency of Ireland’s existing payment systems infrastructure could be improved by changing behaviour to make more use of secure and efficient electronic payment methods leading to a reduction in the reliance on cash and paper instruments. Further improvements can be achieved in the efficiency of cash distribution, which will remain an important payment method into the future.
In the Strategic Plan 2010–2012 the Bank committed to play a strong role in the development of a National Payments Strategy to transform how payments are transacted in Ireland. The Bank was re- quested in Q2 2011 by the Minister for Finance to take the lead in preparing an NPP. Since the start of 2012 the Bank has overseen the compilation of the NPP which has four principal targets:
» double the number of ePayments, such as debit cards or standing orders, by 2015; » greatly improve the efficiency of the Irish cash cycle;
» reduce cheque usage to the EU average by 2015; and
» ensure the successful transition to SEPA standards by February 2014.
There are significant benefits to the successful implementation of the Plan. The main benefit is cost competitiveness - if Ireland were to match best practice in Europe, savings of up to €1 billion per annum could be made. Further payment reform will also promote greater security, convenience, ex- panded consumer choice and reduced financial exclusion.
The NPP has been submitted to government and once approved will be published. The role of the Bank in 2013 and 2014 will be to drive a number of the initiatives and to track the implementation of the overall plan. There will be particular focus on ensuring that the benefits of payments reform flow to consumers and businesses.
Currency Services
A key component of our payments systems is the provision of high quality banknotes and coin and other related currency services to the public. The Bank is committed to increasing its role in the national cash cycle, to improve the efficiency and resilience of the cycle and to maintain the quality of notes in circulation. This will be achieved through balancing the processing of cash between the Bank and third parties. The Bank will continue to proactively monitor compliance with the recirculation regulations.
Plans are well advanced in the Eurosystem to issue a second series of euro banknotes. The new series will seek to improve the quality and further enhance the security of euro banknotes. The first banknotes in the new series are due to be issued in 2013 and will be introduced on a phased basis over the coming years. The Bank will engage in an information campaign to educate cash handlers and the general public.
Coin will continue to be issued to meet market demand and to ensure that retail transactions can be effected efficiently. However, the continued issuance of the lowest denomination coins will be reviewed.
37 Strategic Plan 2013–2015
Strategy Action
Maintain and develop payment and securities settlement system infrastructure
» Ensure Ireland’s interests are accommodated in Eurosystem payment and securities developments, including through policy development at the Payment and Settlement Systems Committee (PSSC) and related committees
» Monitor the implementation of the Single European Payments Area (SEPA)
» Contribute, through IRECC, IPSO and IPCC, to the oversight of the Payments System in Ireland » Participate effectively on T2S Advisory Group
» Ensure awareness of Irish securities market participants and suppliers with T2S developments and opportunities
Participate in the Implementation of the
National Payments Plan (NPP)
» Participate in the Steering Committee for the NPP » Govern the implementation of the agreed proposals
Deposit Guarantee Scheme
(DGS) » Complete the work to put in place systems to support the DGS
Produce banknotes and coin
to meet market demands » Meet the annual ECB banknote production quota » Produce sufficient coin annually to meet demand
» Continue to issue collector coin
Maintain the quality of bank
notes and coin in circulation » Ensure banknote circulation is maintained efficiently and at a high quality
» Process and classify all counterfeit banknotes and coins received
Prepare for the introduction of the second series of euro banknotes
» Produce and issue banknotes according to agreed schedule
» Inform cash handlers and the public on relevant security features