Resolving longstanding frictions and challenges in cross-border payments has been a major objective of the Committee on Payments and Market Infrastructures (CPMI). According to CPMI, the international standard setter which promotes the safety and efficiency of payment, clearing, settlement and related arrangements, “Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.”
In a comprehensive report published today, the CPMI identified “19 building blocks, which offer a comprehensive set of measures to enhance cross-border payments.” This is the second report in a series of three analyzing challenges to cross-border payments, building blocks to improve cross-border payment systems and the roadmap to resolve the frictions and challenges. The analysis included retail (including remittances) and wholesale payments.
Some of the key challenges to effective cross-border payments are due to low rate of straight-through-processing in payments, delays in clearing and settlements of cross-border payments, and the complexities of adherence to anti-money laundering and terrorism financing laws.
Each of those nineteen building blocks assessed in this report was determined to have the potential to address at least one of the seven frictions identified in the first report published by the Financial Stability Board earlier this year. The task force working on the blocks assessed undertook a qualitative analysis for each building block. The task force looked at a block’s
· expected impact on the seven frictions;
· its interdependencies with other building blocks;
· the complexity and potential time frame of its delivery; and
· the potential risks that advancing a building block could create for the smooth functioning of payment systems, monetary stability and financial stability.
Two frictions with the fewest building blocks targeting them are (i) operating hours and (ii) legacy technology. However, “the former friction is addressed directly by the building block on the extension/alignment of operating hours, and it is expected that the combined effect of many building blocks will incentivize improvements in technological capability.”
The CPMI task force determined that focus areas A to D are more likely to improve cross-border payments in the short to medium term, while focus area E has a longer-term perspective.
The next essential step will be for public and private sector entities to design and implement a global approach to enhancing cross-border payments. This is likely to take a lot of time and significant coordination. The task force envisions that public and private sector could work together by creating a mechanism to drive coordinated changes across many jurisdictions and provide a basis for monitoring progress in a meaningful manner. One of the key reasons why this will be time consuming is that supervisors and regulators will have to work in a coordinated manner to make sure that ‘rulemaking can facilitate and benefit from technical and operational change delivered within the payments market without compromising sovereignty.”