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CBN to address systemic risks within payments landscape

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The Central Bank of Nigeria (CBN), has unveiled its Nigerian Payments System Risk and Information Security Management Framework, to identify and address sources of systemic risks associated with the payments landscape.
 
The apex bank, which released the framework yesterday on its website, said the structure will guide the management of risks associated with the payments system in Nigeria.
  
Some of the risks that the framework is expected to address are systemic risks; credit risk; liquidity risk; operational risk; compliance, legal and regulatory risk, settlement risk, and information security risk.

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The framework is also meant to establish sound governance arrangements to oversee the risk management framework by ensuring that risks are identified, monitored, treated; and establish clear and appropriate rules and procedures to carry out the risk management objectives.
 
Other objectives of the framework are to employ the resources necessary to achieve the payment system’s risk management objectives and integrate risk management into the decision making processes.
 
The CBN also said the framework would guide operators and users of the payment systems across Nigeria, as these systems may be organised, located, or operated within Nigeria (domestic payments), outside Nigeria (offshore payments), or both (cross-border payments), and may involve currencies other than the Naira.
 
It reads in part, “At a minimum, the risk management framework shall establish sound governance arrangements to oversee the risk management framework; set sound risk management objectives and establish processes for identifying the key risks associated with the payment scheme; establish clear and appropriate rules and procedures to pursue the stated objectives.”
 
It added that the framework would, “employ the resources necessary to achieve the system’s risk-management objectives and implement effectively its rules and procedures; and build resilience and security adequate to ensure the confidentiality, integrity, and availability of the system.”
 
The CBN, however, warned that the framework is not intended to apply to bilateral payment, clearing, or settlement relationships, where a payment system is not involved.
 
It said: “The rapid growth in the volume and value of financial transactions has significantly altered the risks associated with the payment and settlement of these transactions.

“As a result, payment and settlement systems are important potential sources of systemic risks.
 
“Furthermore, the payments system may increase, shift, concentrate or otherwise transform risks in unanticipated ways.
 
“The failure of one or more of the participants in a payment system to settle their payments or other financial transactions could create credit or liquidity problems for participants and their customers.
 
“Such a failure may ultimately undermine public confidence in the nation’s financial system.”
  
Against this backdrop, the apex bank said the framework became imperative to effectively manage the risks associated with the payments system, as disruptions may originate from any of the interdependent entities.

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