Payment system bill and issues of duplication

Arguments over strengthening of existing institutions and creating entirely new ones have remained unsettled issues in this country. Unfortunately, it has always been associated with critical segments of the economy, with unparalleled distraction and option of “make or mar”.

We have the argument over merger of Economic and Financial Crimes Commission and Independent Corrupt Practices and Related Offences Commission; and the Nigeria Police and Federal Road Safety Commission. In recent past, the issue of parallel regulation of banking system by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation also came up.

Now, it is about the payment system, which currently is under the Operations Directorate of CBN, with a Department known as Banking and Payment System. Two bills, with the same name, are seeking for payment system reforms, but with different ideologies.

Records as at December 2016 showed that Nigeria’s economy has over N20 trillion in circulation and there is the possibility of another substantial percentage in the informal sector not captured in the estimate.

This amount runs through the payment system, mostly with the revolutionised electronic modal. This is about monetary policy, a major mandate of the CBN. It is about the management of the economy and it is a weighty issue that must be carefully considered, not on political sentiment, but on its merit.

Granted, there may be some shortcomings, but these are mostly about legal framework as the bill identified. Should the operations be strengthened, redirected or yanked off?

The bill- Payment Systems Management, is seeking an Act to provide for the management, administration, operation, regulation, oversight and supervision of payments, clearing and settlements system in Nigeria and for connected matters.

In its objective, it is to create a legal, institutional and regulatory framework; ensure safety and certainty in payment, clearing and settlement systems; institutionalise best practices in payment systems management in Nigeria; ensure nationally utilised and internationally recognised payment systems encompassing the total payment processes from issuance of instruction to final settlement; and provide uniform, comprehensive and effective mechanism for the settlement of disputes arising from payment systems management.

“The absence of such framework exposes participants in the payments system to financial risks, which in turn pose danger to safe and sound financial system,” the bill’s introduction statement noted.

It must be noted that there is no difference between the objectives so far stated and what was previously there. The only input is the observation of lack of adequate framework, which is putting participants in financial risks and this is no case against one institution. Is this the time to improve the framework and strengthen existing ones or an excuse to create another institution, with full cost and the risk of learning on the job?

CBN said it has, in conjunction with the relevant stakeholders in the Payment System Industry in Nigeria, come up with an ideal draft legislative proposal to find a legal framework that will accommodate its initiatives on the payments system that is encapsulated in Payment Vision 2020 (PV2020).

An economist, Dr. Agu Onwe, said although he was not part of the team, he was fully aware that a Legal Special Interest Group of PSV2020 was drawn from the CBN, Deposit Money Banks (DMBs), payment system service providers, National Identity Management Commission (NIMC) and the Federal Ministry of Justice.

“The constitution of this team is adequate. But because we are all human, any shortcoming needs to be updated, because payment system is now in continuous change.  The most important thing is to give the ideas legal backing. It is absurd to think of separating payment system oversight from the central bank, What will it be doing?” he queried.

Corroborating the claim, CBN in a statement to The Guardian, said: “The Group studied legislations on payments system of some countries including India, Namibia, Ghana, South Africa, Croatia, Australia, the European Union and Malaysia in carrying out its task. The Group came up with a Bill titled ‘Payment System Management Bill 2016’. The bill was approved by the Federal Executive Council for presentation to the National Assembly as an Executive Bill.

However, with regard to the present bill in contention- National Payment System Bill 2017 (NPSB), a variation to the earlier harmonised document, CBN is noting that its role is being undermined and this may pose serious danger if adopted.

For example, while the harmonised PSMB, puts CBN as the sole authority for management, regulation and oversight of the payment system, with a Payment Scheme Boards and a Strategy Committee, the NPSB 2017 provides for recognition of an association of payment system participants as regulators of the members.

A payment system practitioner, Bright Wagboo, said that beside sentiment, international best practice on Payment System as stipulated by the Committee on Payment and Market Infrastructure (CPMI) places the responsibility of oversight of payment systems on central banks.

“The Core Principles of Systemically Important Payment Systems (CPSS) rules that placing the responsibility of oversight of the payment system on central banks require them to ensure compliance with the core principles of payment and settlement systems.

“Furthermore, most payment systems settle in and with central bank money for reasons of safety, availability, efficiency, neutrality and finality. Indeed the largest settlement system that settles the large value transactions in Nigeria is the CBN’s Real Time Gross Settlements (RTGS). It will be more difficult for the CBN to perform this role should the governance not be fully vested in it,” he said.

Under the PSMB, there are provisions relating to the power of the apex bank to provide for authorisation to operate, application for authorisation, status inquiries on application, conditions for authorisation, refusal, revocation of authorisation and conditions for change in the payment system. However, the bank is given no similar power under the NPSB, but an association is saddled with such responsibility.

A top manager in one of the Nigerian banks with international presence said: “This means that CBN is not in the position to determine who should or should not participate in the payment system if the NPSB goes through. This is contrary to the international best practice.

This country has not grown to this level that the bill is playing up a mere association. We are talking about regulation of a whole payment system, with extensive provisions for entry and exit of the Payment System, which ensure that only the most technically viable and sound entities are allowed to participate. It would soon be abused to the peril of the system.”

Yinka Subomi, an employee of one of the payment system providers in the country, said that all that is important is to enlarge the operational framework, which the lawmakers can facilitate easily, knowing that the economy needs progress now than ever.

“They must listen to the experts in the field and in view of the fact that the PSMB appears more encompassing and globally accptable”.