CBN rolls out regulations on indirect participants in payments system

By Moses Obajemu

The Central Bank of Nigeria (CBN) has rolled out regulations governing the operations of the in-direct participants in the payments system.

According to a circular  titled “Regulation for the operation of indirect participants in the payments system”, released by the apex bank on Thursday which was signed by Sam Okojere, its director of payment system department, the regulator listed the minimum criteria to qualify as an indirect participant having a satisfactory risk-based rating from the CBN and secure a letter of recommendation from its direct participating bank, signed by the chief risk officer and an executive director of the direct participating bank.

Other criteria listed by the CBN include compliance with the NUBAN Standards.

The apex bank said it was doing this in exercise of the powers conferred on it under the CBN Act 2007 to promote sound financial system in Nigeria, issue regulations to facilitate the development of an efficient and effective payments system in Nigeria.

Under the regulations guiding the operations of indirect participants, an indirect participant shall comply with the applicable provisions of the Nigeria Bankers’ Clearing System Rules(NBCS), and maintain a settlement account(s) with the direct participating bank wherein the net settlement position of the indirect participants shall be credited or debited as may appropriate after each settlement session (hereinafter called “the Settlement Account”)

“An indirect participant must pledge collateral in an amount as agreed with the direct participating bank which shall serve as security for settlement obligations; as well as indemnify and hold the direct participating bank harmless in respect of any liability or loss whether direct or indirect that may arise as a result of this agreement.

“Accordingly, indirect participants hereby undertake to be primarily responsible and liable for all instruments presented for processing; pay settlement fee to the direct participating bank annually or as may be agreed by the parties; and make up any shortfall in the clearing collateral before the commencement of the next settlement window in the event of a shortfall or re-discount to bring the aggregate value of the collateral up to the agreed minimum value as specified in the Settlement Agreement or subsequent review of the collateral amount”, the circular directed.

An indirect participant will also undertake to bear the cost of re-discounting the collateral necessitated by a need to recover the debit balance in the Settlement Account

The CBN further said only direct participating banks are permitted to settle payment obligations of indirect participants.

“An indirect participant shall settle all its payments obligations through only one direct participating bank per payment scheme at any given time”, the CBN said.

On the relationship between a direct participating bank and an indirect participant, the apex bank said it shall be governed by a settlement agreement.

The apex bank explained that where the account of an indirect participant with a direct participating bank is not adequately funded, the direct participating bank may decline further settlement services to the indirect participant and inform the payment processor accordingly.

“Except as otherwise agreed, a direct participating bank or an indirect participant shall give at least thirty (30) days’ notice to the other party before terminating the settlement agreement for any other reason apart from the circumstances in”, it said.

The circular directs that the terminating party shall notify the payments service provider (PSP)of its intention to terminate.

However, the CBN mandates a direct participating bank and an indirect participating bank to enter into a bilateral agreement to guide the relationship.

“Where an indirect participant connects directly to a PSP for transaction processing, the indirect participant, direct participating bank, and the PSP shall enter into a tripartite Agreement.

“Where the direct participating bank is not a settlement bank, it shall obtain written consent of its settlement bank prior to establishing settlement relationship with an indirect participant. The settlement limits agreed between the direct and indirect participants shall be monitored and enforced as agreed by the parties.

“Indirect participants shall process their e-reference instruments through the direct participating bank or directly, through the Nigeria Inter-Bank Settlement System (NIBSS).The receiving bank shall not discriminate between e-references originating from banks and indirect participants.