2014 Assessment of the Reserve Bank Information and Transfer System 1. Introduction and Executive Summary

Following the publication of the Principles for Financial Market Infrastructures (the PFMIs) by the Committee on Payment and Settlement Systems (CPSS, now the Committee on Payments and Market Infrastructures (CPMI)) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) in April 2012, the Reserve Bank of Australia (the Bank) and the Australian Securities and Investments Commission (ASIC) issued a statement (the Joint Statement) setting out how the PFMIs would be applied across financial market infrastructures (FMIs) in Australia.[1]

For payment systems, the Bank has identified the Reserve Bank Information and Transfer System (RITS) as the only domestic payment system for which assessment against the principles within the PFMIs (the Principles) is currently necessary. This reflects the fact that RITS accounts for the majority of interbank settlements across payment systems in Australia, and that RITS has a central role in settling time-critical payments and payment obligations arising in other FMIs. The Bank committed in the Joint Statement to conducting an Assessment of RITS on an annual basis.

This report presents the second Assessment of RITS against the Principles.[2] This Assessment has been carried out in accordance with the approach and rating system set out in the Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology (the Disclosure Framework) produced by CPMI and IOSCO in December 2012.[3]

This Assessment concludes that RITS observed all relevant Principles. In the spirit of continuous improvement, Payments Policy Department have nevertheless recommended a number of actions.

1.1 Background

RITS is owned and operated by the Bank. The Bank seeks to ensure effective oversight of RITS by separating the Bank's operational and oversight functions, as well as by transparent Assessments against international standards. This report has been produced by the Bank's Payments Policy Department, which is the functional area responsible for oversight of the payments system, drawing on information provided by the Bank's Payments Settlements Department, which is the functional area responsible for operating RITS (see Section A.1 for further background on the governance and oversight of RITS). It has been endorsed by the Payments System Board.

This Assessment focuses on the critical services provided by RITS; in particular, RITS's role as a real-time gross settlement (RTGS) system. In RTGS systems, individual payments are processed and settled continuously and irrevocably in real time. RITS also has a role in settling interbank payment obligations from net settlement systems, which is discussed where relevant. To the extent that the matters covered by the Principles are managed on a Bank-wide basis, these have also been considered in the Assessment.

1.2 Material Developments

This Assessment was conducted during the 12 months to the end of October 2014 (the Assessment period) and covers developments since the last Assessment of RITS, published in 2013. Most important among these developments are enhancements to operational arrangements, including:

  • implementation of the remaining recommendations from reviews of RITS's operational risk procedures and controls carried out in 2013, which will improve the Bank's ability to identify and respond to system problems
  • renewal of core elements of the technological infrastructure that makes up RITS, which has enhanced the performance and resilience of RITS and reduced the complexity of system maintenance
  • finalisation of enhancements to the Bank's organisation-wide project and change management practices, including the establishment of a new enterprise-wide project management framework and a new functional area to manage projects across the Bank.

There have also been some significant developments in the wider operating environment for RITS. These include:

  • Same-day settlement. As reported in the previous Assessment, direct entry (DE) payments began to settle on a same-day basis on 25 November 2013. The successful implementation of same-day settlement marks the completion of the first of the initial strategic objectives established by the Payments System Board's 2012 Strategic Review of Innovation in the Payments System.
  • Fast Settlement Service. The Bank continues its work on the Fast Settlement Service, which will support the industry-led project – the New Payments Platform – designed to meet the Payments System Board's remaining strategic objectives for payments system innovation, including achieving real-time settlement of retail payments.
  • Property settlement. The Bank has developed functionality in RITS to receive and settle interbank payments originating from a new electronic conveyancing system developed by Property Exchange Australia Ltd (PEXA). Settling the cash leg of property transactions in RITS reduces reliance on less efficient payment methods such as bank cheques.

1.3 Assessment

On the basis of the evidence presented in this report, the Assessment concludes that RITS observed all of the relevant Principles in the Assessment period. The Bank nevertheless continues to work to ensure that the operations of RITS continue to meet international best practice. Consistent with this, Payments Policy Department have made recommendations in a number of areas, including:

  • Legal basis. The Bank should continue to progress a comprehensive review of the RITS Regulations and the RITS Conditions of Operation (together the RITS Regulations) to identify areas where the clarity of the RITS Regulations could be improved.[4]
  • Operational risk.

    – The Bank should keep under continued review its approach to cyber security, and in particular its mechanisms for prevention and detection, and its plans to recover from a cyber-related incident.

    – The Bank should examine the benefits, challenges and costs of implementing a range of measures that could further enhance the resilience of RITS and facilitate timely recovery from an operational incident.

    – The Bank should continue to monitor RITS participants' compliance with the new participant Business Continuity Standards.

The remainder of this report is structured as follows. Section 2 summarises in tabular form the progress towards completing the committed actions in the 2013 Assessment, as well as the conclusions and recommendations arising from the 2014 assessment of RITS against each Principle. Section 3 summarises material developments in relation to RITS and its operating environment since the 2013 Assessment. Where relevant, the implications for RITS's observance of the Principles, and planned enhancements, are noted. Appendix A provides background information on RITS and its operating environment. Finally, the detailed assessment of RITS against the Key Considerations for each relevant Principle is provided in Appendix B.

Footnotes

The Joint Statement by the RBA and ASIC, Implementing the CPSS-IOSCO Principles for Financial Market Infrastructures in Australia, is available at <https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.html>. [1]

The 2013 Assessment is available at <https://www.rba.gov.au/payments-and-infrastructure/rits/self-assessments/2013/>. While the 2013 Assessment was published as a ‘self-assessment’ it was produced by the Bank's Payments Policy Department, a separate functional area with responsibility for oversight of the payments system, and was endorsed by the Payments System Board. To better reflect the separation between the area responsible for the operation of RITS and the independence of the Payments System Board, from 2014 these Assessments will be published simply as Assessments. [2]

CPSS-IOSCO (2012), Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology, December, available at <http://www.bis.org/cpmi/publ/d106.htm>. [3]

The RITS Regulations are available at <https://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/regulations.pdf> and the RITS Conditions of Operation are available at <https://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/conditions-operation.pdf>. [4]