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Self-Assessment of Compliance with the Core Principles for Systically Important Payment Systs: The BOJ-NET Funds Transfer Syst*

Some editorial revisions have been made to the English translation since it was initially released on August 22, 2003.
The original Japanese text, however, rains entirely unchanged.

  • This is an English translation of the Japanese original released on July 23, 2003.

August 22, 2003
Bank of Japan

Click on set0308a.pdf (124KB) to download the full text.

Introduction

In January 2001, the Bank for International Settlents (BIS) published the report Core Principles for Systically Important Payment Systs, developed by the Committee on Payment and Settlent Systs (CPSS) of the central banks of the Group of Ten countries. 1 The report sets out ten "Core Principles for systically important payment systs" (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 systically important payment systs. 2 The report states that one of the Responsibilities of central banks is to oversee payment systs to promote their safety and efficiency, and in particular to reduce systic risk.This paper provides a self-assessment of compliance with the Core Principles by the funds transfer syst owned and operated by the Bank of Japan (the Bank), and describes how the Bank fulfills the Responsibilities. 3

Safe and efficient payment systs are critical for maintaining the stability of the overall financial syst.In particular, systically important payment systs are essential for the effective functioning of the financial syst and, if such a syst is insufficiently protected against risk, a disruption within it could be transmitted to other participants in the syst and result in wider systic disruptions in the financial syst as a whole.

The Bank operates an interbank funds transfer syst, the BOJ-NET Funds Transfer Syst, 4 and also oversees payment systs it does not operate, 5 as an integral part of its activities for ensuring the safety and efficiency of Japan's overall payment and settlent syst. 6 The Bank uses the Core Principles and the Responsibilities as the standards in carrying out these activities.

The BOJ-NET Funds Transfer Syst is a systically important payment syst 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 systs.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 systic disturbance, the operator of a systically important payment syst is responsible for continuously reviewing the syst'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 Syst.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 settlent.Based on the results of its self-assessment, which are described below, the Bank has concluded that the BOJ-NET Funds Transfer Syst 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 settlent systs, and will update and review its self-assessment from time to time to ensure that its syst continues to comply with the Core Principles and that it fulfills the Responsibilities.

  1. Core Principles for Systically Important Payment Systs (Link to an external website), BIS, January 2001.
  2. Whether a payment syst is systically 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 Syst (BOJ-NET) is a computer network syst linking the Bank's computer center, its Head Office/branches, and the participants in the syst, which is used to transmit and process payment instructions online.In this paper, "participants in the BOJ-NET Funds Transfer Syst" (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 syst 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 syst for the settlent of Japanese government bonds and bills (JGBs).
  5. The Bank promotes the safety and efficiency of payment and settlent systs it does not operate by monitoring those systs and, where necessary, encouraging and persuading the operators of these systs to make improvents.
  6. The role the Bank performs in the payment and settlent field, its major policies, and recent activities are described in "The Role of the Bank of Japan in Payment and Settlent Systs," Bank of Japan, Bank of Japan Quarterly Bulletin, Novber 2002.
  7. The Japanese Bankers Association (JBA) published in Decber 2001 its self-assessment of compliance with the Core Principles by the three systs it operates, namely the Domestic Fund Transfer Syst (Zengin Syst), the Foreign Exchange Yen Clearing Syst (FXYCS), and the Tokyo Clearing House's Bill and Check Clearing Syst (TCH-BCCS).See "Assessing the Compliance of Japan's Payment Systs with 'Core Principles for Systically Important Payment Systs' (Link to an external website) by BIS," JBA, Decber 2001.