Safeguarding the Payment System



 In order to ensure that the integrity of the banking system is not compromised, there is need for the Senate to harmonise the various versions of the Payment System Bills before the National Assembly, writes Obinna Chima

Nigeria has over the years seen efforts aimed at creating a robust financial system framework through several reform initiatives targeted at fostering stability, sanitising governance and restoring confidence in the system.
A sound payment system infrastructure, where banks and their customers can transact business with confidence and convenience, trust and timeliness, supports many of the reforms.
In 2007, the Central Bank of Nigeria (CBN) launched the Payment Systems Vision 2020, which identified series of recommendations to increase the resilience of the payment system infrastructure in order to encourage the usage of electronic payment methods were inaugurated.
Clearly, the economic benefits of migrating from cash-dominated environment to an electronic payment market are unquestionable. That is why the recent one-day Public Hearing on Bill for an Act to Provide for the Management, Administration, Operation, Regulation and Supervision of Payment, Clearing and Settlement Systems in Nigeria and for Related Matters, 2017, held by the Senate has remained the cynosure of all eyes. The initial Bill was sponsored by Senator Hope Uzodiinma.
In the recent past, the CBN had in conjunction with the relevant stakeholders in the payment system in Nigeria also came up with an ideal draft legislative proposal to develop a legal framework that will accommodate its initiatives on the Payments System Vision 2020 (PV2020). The Legal Special Interest Group of PSV2020 was charged with the responsibility of coming up with the Bill. The membership of the group was drawn from the CBN, banks, payment system service providers, National Identity Management Commission (NIMC) and the Federal Ministry of Justice.
The group then studied legislations on payments system of some countries including India, Namibia, Ghana, South Africa, Croatia, Australia, the European Union and Malaysia in carrying out its task. Thereafter, the group came up with a Bill titled “Payment System Management Bill (PSMB), 2016.”
The bill was then approved by the Federal Executive Council (FEC) for presentation to the National Assembly as an executive Bill.
But apart from the PSMB 2016, which was approved by FEC then, there is also another Bill on Payment System similarly titled “Payment System Management Bill, 2016” sponsored by Senator John Owan Enoh, who is the Chairman, Senate Committee on Finance.
However, at the request of the Senate Committee on Finance, the CBN reviewed the Bill sponsored by Senator Enoh and harmonised it with the bill approved by the FEC and came up with a harmonised version titled: “Payment System Management Bill, 2017”.
Therefore, stakeholders have continued to stress the need for the regulators to, through the public hearing, review and harmonise the National Payment System Bill, 2017 (NPSB) vis-à-vis the central bank’s version of the harmonised Payment System Management Bill, 2017 (PSMB) and make appropriate recommendations.

Matters Arising
Based on the governance structure provided under PSMB, the CBN is the sole authority for management, regulation and oversight of the payment system with Payment Scheme Boards and a Strategy Committee (with membership drawn from other regulatory agencies and relevant stakeholders) providing support services to the Bank. The bill was so structured because the key infrastructure, systems and participants in the payment systems are statutorily under the purview of the Bank.
Therefore, the arrangement ensures that there is no gap between the management of payment systems and the monetary policy transmission mechanism.
This, according to a report is the structure preferred by the Committee on Payments and Market Infrastructure (CPMI) which is the international body on development of payment systems.
However, the NPSB provides for recognition of an association of payment system participants as regulators of the members. In other words, most regulatory and oversight of the payment system under the NPSB is through the instrumentality of self-regulation by system participants through their association or associations.
The NPSB also placed a role on the Minister Finance thereby introducing another governance structure.
But the CBN in a presentation argued that: “The international best practice on Payment System as stipulated by the CPMI places the responsibility of oversight of payment systems on central banks. The Core Principles of Systemically Important Payment Systems (CPSS) principles in placing the responsibility of oversight of the payment system on central banks require them to ensure compliance with the core principles by payment and settlement systems.
“The CPSS also require the central bank to cooperate with other central banks and any other foreign or domestic entity for promotion of payment systems safety and efficiency. Furthermore, most payment systems settle in central bank money for safety, availability efficiency, neutrality and finality.”
Indeed the largest settlement system that settles the large value transactions in Nigeria is the CBN RTGS. It will be more difficult for the central bank to perform this role should the governance not be fully vested in it.
Similarly, under the PSMB, there are provisions relating the power of the CBN to provide for authorisation to operate system, application for authorisation, status inquiries on application by the Bank, conditions for authorisation, refusal, revocation of authorisation and conditions for change in the payment system.  These are extensive provisions for entry and exit into the payment system which ensure that only the most technically viable and sound entities are allowed to participate in the sector. But the CBN was also given no similar power under the NPSB.
Rather, there are only provisions for an association (named “Payment System Management Body”), to be recognised by the Bank, saddled with the responsibility of organising, managing and regulating the participation of its members in the payment system. “This means that, the Bank is not in the position to determine who should or should not participate in the payment system. This is contrary to the international best practice on Payment System as stipulated by the Committee on Payment and Market Infrastructure (CPMI) of the Bank for International Settlement (BIS), which places the responsibility of oversight of Payment Systems on central banks,” the central bank stated.
Furthermore, the PSMB gave the CBN powers on supervision, calling for returns, documents or other information, issuing directions, making regulations, establishing a committee on Payment System Strategy and Payment Scheme Boards, general matters, delegation, and cooperation with other authorities. While the central bank has some powers under NPSB on some of the above matters, the powers are not as elaborate as under PSMB. In fact the NPSB allocates these powers between the Bank and the proposed  “Payment System Management Body”.
Therefore, the Bank would have more latitude to regulate and oversee the Payment System under PSMB than it would have under PSB.
“PSMB has provisions for indemnity and protection of the Bank against adverse claims for actions done in good faith. There are also provisions under PSMB for restriction on execution against property of the Bank. NPSB has no such provisions.
“There are provisions for resolution of disputes under both Bills. However, while under NPSB the only option provided is arbitration, the PSMB has provisions for ADR generally and ombudsman. The latter is thus more comprehensive.
“The PSMB also has a provision for requirement of digital signature which would ensure the integrity of electronic messages relating to Payment System. The NPSB has no provision for requirement of digital signature.  Both PSMB and PSB have created offences around clearing, settlement, payment business and failure to follow directives of the Bank.
“However, only the PSMB has provisions for offences and penalties in respect of operating without authorisation of the Bank and third party deposit, clearing or payment.  It is also only PSMB that has provision for the Bank to apply administrative sanctions,” it stated.
The NPSB empowers the Minister of Finance to exempt any person or categories of persons from the provision of the Bill prohibiting persons other than payment system participants and their agents from operating a payment system.
However, this power was given to the CBN under the PSMB obviously because it is only the Bank that has the technical and operational capacity to determine the systemic importance of any activity surrounding the payment system. This point was buttressed by the fact that there exists within the CBN, the requisite capacity (human and infrastructure) for the effective management of the national payment systems capable of optimal achievement of the objectives of the PSMB.
In view of the fact that the PSMB is more encompassing, it has been recommend that the Committee should engage the Committee of Banking and Insurance with the view to adopting the reviewed PSMB 2017 for better Payment System regime in Nigeria.