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Regional Efforts in the Financial Sector: The Successful Case of the Western

Hemisphere Payments & Securities Clearance and Settlement Initiative… and

its clones

Washington DC September 22, 2004

Fernando Montes-Negret , World Bank Massimo Cirasino, World Bank

Mario Guadamillas, World Bank

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ContentA. WHI: Origin, Pillars and Organization of the

Initiative

B. From the Initiative to the Forum

C. WHF Activities, Outcomes and Success Factors

D. The LAC Working Group on Payment System

Issues

E. The Payments “Clones”: the CIS Initiative, the

Arab Initiative

F. Cloning the model for other financial sector

topics: the WHCRI

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A. ORIGIN OF THE INITIATIVE

March 2, 1998WH Finance Ministersrequest the WB to lead theInitiative

March 25, 1998WB President sent a responseletter accepting the task of coordinating this effort

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CountryOwnership

Integration ofsecurities andpayments

Cooperation withinternationalorganizations

A. PILLARS OF THE STRATEGY

OBJECTIVE: Assessing and recommending improvements to payments and securities settlement systems in the Hemisphere

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A. ORGANIZATION OF THE INITIATIVE

CORETEAM

(WB)

CEMLASecretariatWorking Group

LOCALAUTHORITIES

COUNTRY TEAM

IAC Chair: WB Secretariat:

CEMLA BIS Bank of Italy Bank of Portugal Bank of Spain COSRA European Central

Bank Federal Reserve

Board Fed New York IADB IMF IOSCO CNMV Spain US SEC

COUNTRYASSESSMENT• Public Report• Statistical Tables• Glossary• Recommendations

Report/Action Plan

COSRAWorking Party

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A. CORE TEAM RESPONSIBILITIES

Implementation of the Initiative

Developing a common methodological framework for the studies (e.g., Working Papers)

Coordination with CEMLA for initiative activities

Organization of country studies

Informing IAC about initiative activities and organize its meetings

Dissemination of information about the initiative inside and outside the World Bank

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A. CEMLA RESPONSIBILITIES

Administration of the web page in Spanish and English

Management of the network of communications within and outside of the Initiative with participants and interested parties

Administer the relevant documentation, in Spanish, English and Portuguese, for the development of payments and securities clearance and settlement systems in the Hemisphere

Participate and assist in the country studies being undertaken by the Initiative

Provide support for conferences and workshops sponsored by the Initiative

Support Hemispheric Committees/Groups on Payments and Securities Clearance and Settlement

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A. IAC ROLE

Bring to bear international and national expertise on the initiative strategy and content (policy and practice) from institutions with diverse experience

Convene central bankers and securities commissioners to develop constructive approaches to payments & securities clearance and settlement issues

Help identify appropriate areas and resources for technical assistance and for initiative support

Assure consistency with the most up-to-date thinking on payments & securities clearance and settlement

Provide advice and ideas to the Hemispheric Committees/Groups on Payments and Securities Settlement Systems

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Phase 1 (From March 1998 to March 1999) Phase 1 (From March 1998 to March 1999)

PreparatoryWorkshop

January 1999

B. INITIATIVE ACTIVITIES

IAC meetingMarch 1999

MeetingsWorkshopsPreparatoryWork

- Preparation of relevant documents

- Initial contactswith IAC members

-Initial contacts withcountries in the Region

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Phase 2 (From March 1999 to June 2001)Phase 2 (From March 1999 to June 2001)

ChileDecember 1999

ArgentinaJuly 1999

PeruJune 1999

Trinidad & TobagoFebruary 2000

10 Country AssessmentsArgentinaJuly 1999

Trinidad&TobagoFebruary 2000

B. INITIATIVE ACTIVITIES

El SalvadorFebruary 2000

Costa Rica June 2001

OECS-ECCBApril 2000

Colombia February 2001

Brazil November 2000

Mexico March 2001

IAC meetingNovember 1999

Meetings Workshops

IAC meeting January 2001

Groups

COSRAWorking Party

December 1999

CEMLAWorking Group

January 2001

CEMLAWeb Page

www.ipho-whpi.org

Tools

OECS / ECCBApril 2000

Core Principles MatrixSecurities Matrix

WG TORWorking papers 1 to 4

BrazilNovember 2000

CEMLA-WBJanuary 2001

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Phase 3 (From June 2001 to June 2003)Phase 3 (From June 2001 to June 2003)

The BahamasMarch 2002

UruguayNov-Dec 2001

Costa Rica June 2001

JamaicaJune 2002

Country Assessments The Bahamas (CBB)May 2001

B. INITIATIVE ACTIVITIES

Ecuador August 2002

VenezuelaNovember 2002

Dominican Republic January 2003

Netherlands Ant.December 2002

IAC meetingApril 2002

MeetingsWorkshops

COSRAWorking PartyFebruary 2001

CEMLAWorking Group

April 2002

Web Pagewww.ipho-whpi.org

Tools

Core Principles MatrixSecurities Matrix

IMF-WB Guidance NoteWorking papers 1 to 4

GlossariesStandardized Tables of Contents and Statistics

Cartagena (Securities)November 2001

COSRAWorking PartyOctober 2001

CEMLAWorking GroupNovember 2001

WHI Research Series

Payments WeekApril 2002

HondurasMarch 2003

IAC meetingJune 2003

CEMLAWorking GroupDecember 2002

Payments WeekJune 2003

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B. Yellow Books1. Peru (English and Spanish) 2000

2. Argentina (English and Spanish) 2000

3. Trinidad y Tobago (English and Spanish) 2000

4. El Salvador (English) 2000

5. Chile (English and Spanish) 2001

6. Colombia (English and Spanish) 2001

7. Costa Rica (English and Spanish) 2002

8. Mexico (English and Spanish) 2003

9. Ecuador (English and Spanish) 2003

10. Venezuela (English and Spanish) 2003

11. Dominican Republic (English and Spanish) 2003

12. Brazil (English, Spanish and Portuguese) 2004

13. OECS (English and Spanish) 2004

14. Guatemala (English and Spanish) 2004*

15. Paraguay (English and Spanish) 2004*

16. Bolivia (English and Spanish) 2004*

* estimated

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B. Public Reports Updates

Peru 2002

Upcoming:

Argentina 2004

Chile 2004

* Date of first posting for Public Comments ^ Estimated dates

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B. IAC and WGPS-LAC Participation to Country Studies

Peru Bank of Spain, CNMV Spain, IADB

Argentina Bank of Italy, Fed NY, CNMV Spain, IADB

Chile CNMV Spain, IADB

El Salvador* COSRA (CONASEV Peru)

Trinidad & Tobago Bank of Italy, CEMLA (Bank of the Netherlands Antilles) COSRA

(CMV Argentina), Fed, US SEC

OECS Bank of Italy, CEMLA (Bank of the Netherlands Antilles), Swiss

National Bank

Brazil Bank of Italy, Bank of Portugal, Fed Board,

US SEC

Colombia Bank of Italy, CEMLA, CEMLA (Bank of the Netherlands Antilles), CNMV Spain* Coordinated with the FSAP

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B. Participation to Country Studies

Mexico * Bank of Spain, CNMV Spain,

Costa Rica Banco de la Republica (Colombia), de Nederlansche Bank, Swiss National

Bank

Jamaica Swiss National Bank, US SEC

Ecuador Banco Central de Costa Rica, de Nederlansche Bank

Venezuela Banco Central de la Republica Argentina, Bank of Spain, CNVM Spain

Netherlands Antilles Central Bank of TT, de Nederlansche Bank

Dominican Republic Swiss National Bank

* Coordinated with the FSAP

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B. FROM THE INITIATIVE TO THE FORUM

The Initiative has become a regional Forum for payments and securities settlement issues, following the guidelines presented in a Strategy Paper, which counted on the advice of the IAC and the approval of CEMLA Governors

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B. From the Initiative to the Forum

The Forum was formally launched in June 2003 at the WHI’s Payments Week.

The Forum, with an enhanced role of the Working Groups and other local authorities, will undertake the following tasks:

Knowledge dissemination, including administration of web page

Preparation of reports on topics of regional interest

Country studies, update of Yellow Books and Statistical Information

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B. NEW ORGANIZATION OF THE FORUM

CoordinationGroup

CEMLA

LOCALAUTHORITIES

CONTINUATION OF PROJECT ACTIVITY

WB

Working GroupCEMLA

Working GroupCOSRA

IAC Chair: WB Secretariat:

CEMLA BIS Bank of Italy Bank of Portugal Bank of Spain COSRA De Nederlansche

Bank European Central

Bank Federal Reserve

Board Fed New York IADB IMF IOSCO CNMV Spain Swiss National

Bank US SEC

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B. Activities of the Forum (June 2003-June 2004)

Country missions: Nicaragua (November

2003), Guatemala (January 2004), Paraguay

(April 2004)

Ad-hoc technical assistance: Central Bank

of Brazil (April 2004)

Coordination with COSRA: Brazil (October

2003), Dominican Republic (March 2004)

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B. Activities of the Forum:The Annual Payments Week

Since 2003, LAC central banks, through the

regional Working Group on Payment System

Issues (WGPS-LAC), select the topics for

discussion (one topic per day)

WGPS-LAC members engage in high-level

discussions among them and with extra

regional experts and prepare action points to

be submitted to Central Bank Governors for

their consideration

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B. Activities of the Forum:The Annual Payments Week

As a result of the discussions held during

the 2003 Payments’ Week, a total of 16 action

points were prepared in the following areas:

Securities Settlement Systems and their Interactions with

Funds Transfer Systems (5 action points)

The Oversight of the Payments System (8 action points)

A Regional Agenda for payments and securities clearance

and settlement issues on the basis of international

developments and their impact in LAC (3 action points)

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B. Activities of the Forum:The Annual Payments Week

2004 Payments Week

San Jose, Costa Rica, 14-18 June, 2004

Topics selected by the WGPS-LAC:

Integration and Regionalization of Securities Settlement

Systems in LAC (trading, custody, settlement, role of

authorities)

Cross-Border Payments (large value and retail)

Retail Payment Systems (innovative instruments,

business, clearance and settlement circuits, role of

authorities)

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B. Activities of the Forum (June 2004 – June 2005)

Publication of country reports (Guatemala, Paraguay, Bolivia, Barbados)

Publication of Updates of country reports (Argentina, Chile)

Assessments of remaining countries (Bolivia, Aruba, Uruguay)

Further strengthening of the Forum organizational arrangements

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B. NEXT STEPS

Publication of country reports and updates

Assessments of the remaining countries

Further strengthening the Forum’s organizational arrangements

Supporting the activity of the Working Groups

Coordination with COSRA activities

Payments Week 2005

Expanding research activities (through the Research Series)

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B. NEXT STEPS Responding to ad hoc demands for technical assistance from other countries in the Region

Preparing models for training courses in coordination with IAC institutions

Preparing the second round of country missions

Assisting other regions in launching similar efforts in the area of payment systems

Assisting other regional initiatives in LAC on other issues related to the development of financial infrastructure: the Western Hemisphere Credit&Loan Reporting Initiative

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C. OUTCOMES

Effective diagnostics and cost effective access to international experts

Improved information on the region’s financial infrastructure (“Yellow Books”)

Raising awareness in the region, creating momentum for the implementation of reforms

Creating conditions for sub-regional harmonization and eventual integration

Establishment of working groups to give continuity to the reform process

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C. OUTCOMES

Strengthening of the Secretariat

Strengthening of CEMLA’s in-house expertise

Development of specific country-studies tools

based on international standards

Economies of scale with FSAPs

Demand from additional countries for

assessment

Demand from other Regions to replicate the

model

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C. OUTCOMES

The WHI helped created momentum for the

reform in all visited countries and resulted in:

World Bank directly supported reform projects Loans:

Dominican Republic Brazil Ecuador Guatemala Honduras Paraguay

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C. OUTCOMES Fee Based Services

Barbados

The Bahamas

Trinidad and Tobago

Venezuela

Ad Hoc Support to Payment System Reform

Brazil

Chile

Colombia

El Salvador

Peru

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C. OUTCOMES

In the pipeline Bolivia

Jamaica

Nicaragua

Uruguay

Other countries that engaged in reforms without direct support from the Bank

Mexico

Netherlands Antilles

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C. SUCCESS FACTORS

High Level Mandate

A coordinated approach for assessing both

securities and payment settlement systems

Country ownership

Cooperation with a broad spectrum of

relevant international organizations

Effective Role of the IAC

Involvement of Regional Organizations

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C. SUCCESS FACTORS

Effective and committed technical team

Reform-oriented approach

Continuous consultation with regional

authorities

Effective and coordinated use of the

expertise within the WB

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D. The Working Group on Payment System Issues of

Latin America and the Caribbean

(WGPS-LAC)

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D. GENERAL OBJECTIVES OF THE WGPS-LAC

1. Promote the knowledge of payment system issues in the region.• Develop training programs.• Research and publications.

2. Promote the preparation of ad hoc Reports which might serve as a reference point for the on-going reforms in the region.

• Help with the implementation of the relevant international standards throughout the LAC Region.

3. Promote cooperation with other institutions active in payment and settlement systems within LAC and at the International level.

The Group meets regularly twice a year. As a general rule, it tries to synchronize its meetings with other relevant events in the payment and settlement systems area.

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D. CURRENT STRUCTURE

As of June 2004, a total of 19 LAC Central Banks are “full members” (membership was formally requested by the corresponding Central Bank Authorities)

Argentina, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, ECCU, Ecuador, El Salvador, Guyana, Jamaica, Mexico, Paraguay, Peru, Trinidad &Tobago, Uruguay and Venezuela.

The remaining central banks in the LAC Region are represented in an indirect manner for the time being.

Formal Observers: Bank of Canada, COSRA, CPSS, U.S. Federal Reserve, IDB, IMF and The World Bank.

Observers actively support the Group through expert advise and by facilitating its insertion in the international discussion of the major trends in the payments and settlement systems area.

Current Organization (June 2003-June 2004)

Chair: Brazil

Vice-Chairs: Colombia and the Eastern Caribbean Currency Union (ECCU)

Secretariat: CEMLA (permanent)

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D. WGPS-LAC FINISHED PRODUCTS(in chronological order)

1. Model for the Update of Country “Yellow Books” Model published at the WHF’s web page in November 2001.

Peru was the first country to update its Yellow Book following this model in April 2002. Argentina and Chile will follow.

2. Glossary of Terms Used in Payment and Settlement Systems Based on the CPSS Glossary in English.

Spanish version published in July 2002.

Portuguese version published in May 2003.

Periodical updates will follow in the WHF’s website.

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D. WGPS-LAC PRODUCTS(in chronological order)

1. Model for the update of Country “Yellow Books” Model published at the WHI’s web page on November 2001.

2. Glossary of Terms Used in Payment and Settlement Systems Based on the CPSS Glossary in English.

Published in Spanish in July 2002 (hard copy) and at the WHI’s web page.

Published in Portuguese at the WHI’s web page in June 2003. Hard copy will follow during the second semester of 2003.

Periodical updates, including the introduction of new sections, will be posted in the electronic version.

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3. Self Assessment of the Region’s SIPS vs. the CPSS Core Principles

• Methodologies included the CPSS Core Principles Report and the IMF-World Bank Guidance Note for the Assessment of SIPS as part of FSAP missions.

• A total of 15 LAC central banks participated in this exercise.

• An article describing the main outcomes was published in June 2003 (English and Spanish in the same volume) in the WHF’s “Research Series”.

4. Payment System Statistics

• Country and Comparative Tables:

The 17 country tables model being used is that of the Statistical Appendix of the “Yellow Books”.

Comparative tables: a model of 43 tables (in 15 groups) developed by the WHF Core Team.

• A Standard Methodology developed by the WHF Core Team (available at the WHF’s website) was used by all countries to prepare the information.

• The final version covering 1997-2001 for 17 LAC countries was published at the WHF’s website in January 2004 (English and Spanish).

• Portuguese and hard copies by year-end. Updates will follow every year.

D. WGPS-LAC PRODUCTS (cont.)

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Settlement Risks in Domestic Foreign Exchange Transactions

• Objectives: to gather information on current practices and increase awareness throughout the region to move forward in the adoption of “best practices”

• A questionnaire was prepared and distributed in early 2004. The questionnaire targets the wholesale market only and covers the following areas:

Features of the domestic FX market

Trading and settlement mechanisms and systems

Awareness and measurement of settlement risks

Methodologies being used to mitigate counterparty risk

Legal aspects

• By the end of May 2004, nine central banks had answered the questionnaire.

• The preliminary findings will be presented and discussed at the 2004 Payments’ Week (Wednesday sessions on cross-border payments) and at the WGPS-LAC meeting next Friday

D. WGPS-LAC CURRENT WORK

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Payment System Oversight Models throughout LAC

• Objective: to analyze and describe the current situation throughout LAC regarding the internal organization of the region’s central banks for the operation and oversight of payment systems

• A questionnaire was prepared and sent to the region’s central banks in early 2004. The questionnaire was based in the following documents:

• Arango and Bernal, “Systemically Important Payment Systems in LAC: Results of the Self-Assessment Exercises”

• Bossone and Cirasino, “The Oversight of the Payments System: a Framework for the Development and Governance of Payment Systems in Emerging Economies”, 2002

• CPSS Core Principles Report, 2001

• By the end of May 2004, fifteen central banks had answered the questionnaire.

• A document prepared by the Central Bank of Venezuela containing an analysis of the current situation and preliminary conclusions will be presented and discussed at the WGPS-LAC meeting later this week (Friday, June 18)

D. WGPS-LAC CURRENT WORK (cont.)

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Proposed Agenda for 2004-2005 (subject to change)

a. Liquidity Management in the National Payments and Securities Settlement System (NPSSS)

b. The Impact of Financial Crises over the NPSSS

c. Increased Harmonization, particularly of the legal and regulatory environments, with a view to increasing the safety and efficiency of cross-border transactions to support integration.

d. The need for increased Interoperability of payment and securities settlement systems.

e. The need for increased Resilience of the NPSSS.

Permanent efforts

a. More and better Education, for both private sector participants and government authorities, in order to further support reforms to the NPSSS.

b. Enhanced Cooperation, with market participants and amongst authorities.

c. Improving Technical Assistance.

D. PERMANENT EFFORTS AND THE AGENDA FOR THE NEAR FUTURE

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E. The Payments “Clones”:

• the CIS Initiative

• the Arab Initiative