Dear Delegate,

EFFECTIVE OVERSIGHT OF PAYMENT AND SETTLEMENT SYSTEMS

In financial crises, it is payment and settlement systems that face the full force of the moving market. And they must be able to withstand it.

Today, every central banker recognises that well-designed and resilient systems for making payments and settling securities are vital to financial markets. The turbulence in markets since last summer has only reinforced this with the very high and record volumes processed.

Yet these systems face added pressures: changing market needs, increased demands for liquidity, closer international ties, questions of governance and continuous technological innovation.

For you, your central bank and its oversight team, the challenge at a time of heightened uncertainty in financial markets is to formulate a framework for ensuring safety and reliability as well as, increasingly, addressing issues of competition, accessibility and efficiency.

The course, Effective Oversight of Payment and Settlement Systems, equips payment systems experts in central banks to meet these challenges as well as many others.

The four-day programme of interactive roundtable seminars and workshops offers practical examples of payment system oversight, as well as their development and reform.

The panel of expert speakers combines practical central banking experience and expertise in the technical aspects of payment systems, as well as views from private sector experts. The format encourages delegates to quiz the presenters, raise issues and discuss solutions.

This year we are pleased to welcome:
Tomáš Hládek, Czech National Bank;
Robert Lindley, CPSS Secretariat;
John Trundle, Euroclear, and formerly of the Bank of England
John Veale, Reserve Bank of Australia;
and Can Okay, Central Bank of Turkey

We are also delighted that Bruce Summers, formerly of the Federal Reserve, will be joining us as chairman.

We look forward to seeing you in Cambridge on 2 September.

Yours faithfully,

Robert Pringle
Managing Director

Defining roles in payment and settlement systems
Discussion led by the chairman, Bruce Summers

Oversight challenges in remittances
Robert Lindley
Deputy Head of CPSS Secretariat, Bank for International Settlements and
Atam sandhu
Managing Director, Developing Markets Associates

With worldwide flows above $300 billion in 2007, no one today disputes the importance of remittances. Often, however, such payments are handled by largely unregulated sectors of the economy, where consumer protection and safeguards are lacking. What oversight regime is appropriate to these payments and what role should public sector authorities play? This session will explore these policy questions drawing on a recent report from CPSS and recent work in the UK to improve consumer awareness and protection.

Legal issues and payment system governance
Paul Anning
Partner,OsborneClarke

Does payment system oversight require an oversight law? How can overseers ensure effective governance of a payment scheme through separation of a payment scheme’s owner and operator? This session will consider these two pressing and explore how legal regimes can help to ensure safe and efficient payments for both large-value and retail systems. Drawing on his experience of working in the UK and the eurozone, Paul Anning will discuss legal approaches to the regulation of payments in general, with specific references to initiatives such as Europe’s Payment Services Directive and the Single Euro Payments Area (SEPA) as examples of a new law and industry self-regulation, respectively.

New challenges in managing liquidity risk
Peter Allsopp
CEO, Allsopp Consultancy Services and former Head of Payments, Bank of England
Peter Lightfoot
Head of Positioning and Collateral Management, Money Markets, RBS Global Banking & Markets

The recent credit crisis has placed liquidity risk at the top of international policymakers’ agenda. As the conduits through which liquidity flows through the financial system, payments systems and their security counterparts are crucial in this. Today, balance sheets of financial-market players are more complex, the instruments they invest in more diverse, and markets more closely linked, rendering liquidity risk more opaque. This session considers the implications for payment systems and their overseers of such growing trends as group-wide liquidity management and central banks broadening the range of collateral they accept.

Oversight of new payment systems
Harry Leinonen
Adviser to the Board, Bank of Finland

This session considers what approach overseers should take to new payment systems, such as mobile phones? Are new payment media, such as contactless payment devices, particularly at risk to fraud? What should be the attitude of overseers to such systems, which in the past have been deemed ‘non-systemic’?

Cost recovery and pricing for RTGS and netting systems
John Veale
Chief Representative in London and former Head of Payments Policy Department, Reserve Bank of Australia

Setting prices for interbank payment systems, be they gross or net systems, poses a particular dilemma for central banks. There is a public good element and central banks want to encourage use of large-value systems, but they have the investment and running costs to finance. In this session, the speaker will lead a discussion on the methodologies central bank overseers can use to assess pricing, with an emphasis on how these can be tailored to national markets. Debate will also broaden to cover questions of efficiency generally in payment systems.

Case study: a detailed methodology of oversight
Ron Berndsen
Head of Oversight, The Netherlands Bank

This session focuses on implementation of payment system oversight and the data required to perform this. The speaker, from the Netherlands Bank, will address the different processes and data needs for the system being assessed or monitored, how a risk analysis is performed and how the central bank tests a system against international standards. Points for discussion will focus on how to meet the changing needs of an international market place, the benefits (and costs) to the system, and whether a formal legal framework is required.

Strengthening linkages between payment and security systems
John Trundle
Head of Risk Management, Euroclear

Many large-value payments take place in securities settlement systems. They also move the collateral that is used to support liquidity provision. As a result many banks manage their liquidity across payment and settlement systems which reinforces the interdependencies. There is also growing competition and rapid change in the structure of securities markets with trading, clearing and settlement arrangements changing and increasingly being cross-border. The risk of a failure in one system contaminating another may be increasing. What steps can the payment system overseer take to mitigate these risks?

What is the role of the central bank in developing payment systems for tomorrow?
Can Okay
Deputy General Manager IT Department, Central Bank of Turkey

The last ten years have witnessed intensive reforms throughout most of the world's economies aimed at implementing safe and efficient payment systems or improving existing ones. Huge resources have been, and continue to be, spent in both advanced and developing countries. The question now is: where do we go from here? In this session the speaker examines the drivers of payment system reform and considers how best to meet the emerging agenda of reform which includes interoperability between markets' infrastructures, how to strengthen links to securities settlement systems, how to promote cross-border payments and, critically, how to ensure that local market players are involved in this process.

Workshop: practical challenges
Led by the chairman, Bruce Summers

In this session, participants will split into smaller working groups to discuss the scope of central bank oversight and examine some of the practical challenges in overseeing systems.

Ensuring robustness and business continuity
John Dyer
Principal Technical Consultant for Clearing and Settlement Systems, Logica CMG

As technologically intensive sectors, payment systems and their support networks are heavily exposed to operational risks. As systems which involve a degree of manual input and intervention, too, procedures remain a key area of risk exposure. In this session, the speaker, drawing on his experience in working with RTGS systems in many countries, considers how an overseer can identify the single points of vulnerability in a system. Broader group discussion will address the importance of comprehensive and robust continuity planning for financial sector emergencies.

Course conclusion
Roundtable discussion led by the chairman, Bruce Summers

The day and the course will conclude with a session led by the chairman drawing in the main points of the course. Delegates will be encouraged to pool their thoughts and prepare action plans to take back to their home institutions.