Kathmandu: Nepal Rastra Bank (NRB), the country’s central bank, has announced that it will place its most critical payment systems under special regulation.
On Wednesday, the central bank’s Payment Systems Department launched a new framework to identify and regulate “systemically important payment systems.”
According to NRB, if certain key payment systems fail or face disruption, it could pose significant risks to Nepal’s overall payment ecosystem. In line with international best practices, the central bank is moving to identify such systems and apply targeted regulatory oversight.
Globally, frameworks exist to designate systemically important payment systems, and NRB has now issued its own guidelines for Nepal.
The central bank stated that the failure of any major payment system could trigger systemic effects on the broader financial system, directly impacting financial stability, liquidity management, and operational risk. The purpose of the new framework is to identify such systems and apply separate regulatory arrangements.
The framework is designed to establish criteria for evaluating and identifying systemically important payment systems in Nepal. It brings such systems under closer supervision and regulation, with the aim of minimizing risks of systemic disruption to the financial system. Its overarching goal is to promote financial stability.
The framework outlines four main objectives: i) Identify payment systems whose disruption could impact the entire financial system, ii) Ensure the secure operation of critical payment systems, even during financial crises or technical disruptions, iii) Detect risks in payment systems, monitor how they arise and spread within the system, and iv) Develop mechanisms for effective monitoring, management, and control of such risks.
The framework sets out six criteria. Meeting even one is sufficient for a payment system to be classified as systemically important, triggering special regulation and supervision: i) Systems that handle time-critical or large-value payments as designated by NRB (such as Real Time Gross Settlement – RTGS), ii) The sole payment system considered essential to the banking sector’s digital infrastructure, iii) The largest system based on total payment value, iv) A system that accounts for one-third of retail transaction volume or more than two-thirds of transaction value, v) A system with extensive interconnections with other payment systems, and vi) Any other payment system deemed critical by NRB based on its own assessment.
The framework stresses that systemically important payment systems are essential for the smooth functioning of payment, clearing, and settlement processes, and therefore must be subject to rigorous regulatory supervision. Such systems must manage systemic risk, ensure operational resilience, and promote transparency and good governance.
Once designated, these systems will be regulated under the international “Principles for Financial Market Infrastructures” (PFMI). Operators will be required to effectively manage operational, liquidity, credit, legal, and IT-related risks.
The framework mandates that designated systems must fulfill ten key responsibilities: i) Ensure a solid legal foundation, ii) Establish clear and understandable rules and procedures, iii) Manage risks effectively, iv) Guarantee timely and final settlement, v) Maintain effective governance arrangements, vi) Seek approval or notify authorities for major changes, vii) Conduct periodic self-assessments, viii) Promote transparency and disclosure, ix) Support financial stability and mitigate systemic risk, and x) Align with international standards and best practices.
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