Self-Assessment of Compliance with the Core Principles for Systemically Important Payment Systems: The BOJ-NET Funds Transfer System*
The original Japanese text, however, remains entirely unchanged.
* This is an English translation of the Japanese original released on July 23, 2003.
August 22, 2003
Bank of Japan
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Introduction
In January 2001, the Bank for International Settlements (BIS) published the report Core Principles for Systemically Important Payment Systems, developed by the Committee on Payment and Settlement Systems (CPSS) of the central banks of the Group of Ten countries. 1 The report sets out ten "Core Principles for systemically important payment systems" (Core Principles) and four "Responsibilities of the central bank in applying the Core Principles" (Responsibilities).
The Core Principles were developed to serve as guidelines to promote safety and efficiency in the design and operation of systemically important payment systems. 2 The report states that one of the Responsibilities of central banks is to oversee payment systems to promote their safety and efficiency, and in particular to reduce systemic risk. This paper provides a self-assessment of compliance with the Core Principles by the funds transfer system owned and operated by the Bank of Japan (the Bank), and describes how the Bank fulfills the Responsibilities. 3
Safe and efficient payment systems are critical for maintaining the stability of the overall financial system. In particular, systemically important payment systems are essential for the effective functioning of the financial system and, if such a system is insufficiently protected against risk, a disruption within it could be transmitted to other participants in the system and result in wider systemic disruptions in the financial system as a whole.
The Bank operates an interbank funds transfer system, the BOJ-NET Funds Transfer System, 4 and also oversees payment systems it does not operate, 5 as an integral part of its activities for ensuring the safety and efficiency of Japan's overall payment and settlement system. 6 The Bank uses the Core Principles and the Responsibilities as the standards in carrying out these activities.
The BOJ-NET Funds Transfer System is a systemically important payment system that is used for transferring funds through current accounts held with the Bank. It settles large-value interbank payments including money market transactions, the cash legs of trades of securities such as JGBs, and net obligations of participants in private-sector clearing systems. The aggregate volume and value of payments it processes is very large--in 2002, it settled a daily average of more than 19,000 payments, with a daily average value of more than 73 trillion yen.
In order to prevent systemic disturbance, the operator of a systemically important payment system is responsible for continuously reviewing the system's compliance with the Core Principles, disclosing the resulting assessments and, where necessary, setting out action plans for achieving full compliance. 7 The Bank has conducted this self-assessment as the operator of the BOJ-NET Funds Transfer System. The Bank also believes that publicly reporting how the Bank fulfills the Responsibilities will enhance the transparency of its roles and policies in the field of payment and settlement. Based on the results of its self-assessment, which are described below, the Bank has concluded that the BOJ-NET Funds Transfer System complies with the ten Core Principles and the Bank fulfills the four Responsibilities. The Bank will keep a vigilant eye on the developments and changes in the environment surrounding the Bank's operation and oversight of payment and settlement systems, and will update and review its self-assessment from time to time to ensure that its system continues to comply with the Core Principles and that it fulfills the Responsibilities.
1 Core Principles for Systemically Important Payment Systems, BIS, January 2001.
2 Whether a payment system is systemically important or not is determined based on factors such as the size and nature of the individual payments and their aggregate value.
3 Information contained in this paper is as of July 2003. The Japanese original of this paper, released in July 2003.
4 The Bank of Japan Financial Network System (BOJ-NET) is a computer network system linking the Bank's computer center, its Head Office/branches, and the participants in the system, which is used to transmit and process payment instructions online. In this paper, "participants in the BOJ-NET Funds Transfer System" (the participants) signifies both current account holders with access to BOJ-NET (the online participants) and those without (the off-line participants). In addition to dedicated BOJ-NET terminals, online participants are able to access the system via computer-to-computer connection. Off-line participants, who are generally participants that handle a low volume of payment instructions, submit paper-based instructions at the Bank's counters, and the Bank's staff input the information into BOJ-NET terminals. As of March 2003, 373 out of 627 participants are online participants. The Bank also operates a book-entry system for the settlement of Japanese government bonds and bills (JGBs).
5 The Bank promotes the safety and efficiency of payment and settlement systems it does not operate by monitoring those systems and, where necessary, encouraging and persuading the operators of these systems to make improvements.
6 The role the Bank performs in the payment and settlement field, its major policies, and recent activities are described in "The Role of the Bank of Japan in Payment and Settlement Systems," Bank of Japan, Bank of Japan Quarterly Bulletin, November 2002.
7 The Japanese Bankers Association (JBA) published in December 2001 its self-assessment of compliance with the Core Principles by the three systems it operates, namely the Domestic Fund Transfer System (Zengin System), the Foreign Exchange Yen Clearing System (FXYCS), and the Tokyo Clearing House's Bill and Check Clearing System (TCH-BCCS). See "Assessing the Compliance of Japan's Payment Systems with 'Core Principles for Systemically Important Payment Systems' by BIS," JBA, December 2001.
