Payment Systems Oversight Principles for Oversight

Under section 188 of the Banking Act 2009, the Bank of England may publish principles to which the operators of recognised interbank payment systems are to have regard in operating those systems. Following consultation, the Bank has adopted fourteen Principles. These consist of the ten internationally-recognised CPSS Core Principles for Systemically Important Payment Systems, and four additional Principles.

Operators of recognised payment systems will be expected to take appropriate action in respect of matters described in the Principles in a way that is appropriate to their system's particular characteristics and the risks they pose to the UK financial systems or to business or other interests.

Further guidance on the new principles is being developed and will be published in due course. The Principles are as follows:

Principle I. The system should have a well-founded legal basis under all relevant jurisdictions.

Principle II. The system's rules and procedures should enable participants to have a clear understanding of the system's impact on each of the financial risks they incur through participation in it.

Principle III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

Principle IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day.

Principle V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation.

Principle VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

Principle VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

Principle VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

Principle IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

Principle X. The system's governance arrangements should be effective, accountable and transparent.

Principle XI. The system should manage its business risks so that its users can rely on continuity of its services.

Principle XII. The system should regularly review the risks it bears from, and poses to, other infrastructures as a result of interdependencies, and implement controls adequate to manage those risks.

Principle XIII. The system should understand and manage risks that are brought to the system as a result of participants' relationships with indirect participants.

Principle XIV. The system should manage its outsourced relationships prudently, ensuring that contractual and risk management arrangements are clear, appropriate and robust.

Further guidance on the new principles is being developed and will be published in due course.