The Reserve Bank of India (RBI) on Saturday revised the supervisory framework for financial market infrastructure (FMI) and retail payment systems (RPS). This is owing to the bigger role the payment entities have been playing in the last few years.
The RBI has classified the National Payments Corporation of India (NPCI) as FMI, thereby increasing the regulatory oversight on the entity.
It also included the National Electronic Funds Transfer (NEFT) in the FMI framework.
NPCI will now, as per disclosure framework prescribed in the principles of FMI, have to disclose its self-assessment on compliance on an annual basis and also submit a copy to the RBI.
Also, there will be on site inspection and assessment conducted bi-annually by the department of payment and settlement systems (DPSS) or an external agency.
For NEFT, on site inspection and assessment will be conducted periodically. NPCI has also been designated as a “system wide important payment system (SWIPS).”
Earlier, Real Time Gross Settlement System (RTGS), Securities Settlement System (SSS), Clearing Corporation of India (CCIL) and Negotiated Dealing System — Order Matching (NDS-OM) were part of the FMI.
The applicability of principles for FMIs may also be extended to some important retail payment systems. “Since some principles may not be relevant for certain specific types of FMIs and important RPSs, the RBI may impose higher requirements. But it will depend on the gravity of risks the RPSs expose market participants to in the context of wider financial sector stability,” the RBI said.
In case of retail payment systems, such as card payments network, system audit reports and segmented financial statements for India-specific operations have to be submitted to the RBI on an annual basis.
Also, financial statements for India-specific operations have to be provided to the RBI for each quarter and the entire year.
The RBI has outlined a host of measures that retail payment systems such as ATM networks, pre-paid payment instruments, Bharat Bill payment system, trade receivable discounting systems and white lable ATM operators have to undertake.
The principles for FMIs are there to enhance safety and efficiency in payment, clearing, settlement and recording arrangements. More broadly, to limit systemic risk and foster transparency as well as financial stability.
The RBI’s view is that, to promote safety, security and efficiency of FMIs and retail payment systems, they should aim to have better governance arrangements.
In order to manage the risk from a participant default, they should consider their impact by collateralising current and future credit exposures.
The RBI also said that they should preferably conduct their money settlements in central bank money, where practical and available, to avoid credit and liquidity risks.