Payments System

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CBN Real Time Gross Settlement System (RTGS)

The CBN RTGS is a product of CBN re-engineering and restructuring processes. The CBN RTGS will provide an on-line Payment System in which processing and settlement take place continuously in real time (that is, without deferral) and gross (i.e. Transaction by transaction). The system would handle large value, time-critical payments.

Settlement of Credit Transfer Instructions will be done when there is sufficient balance in the settlement account of the participants with the Central Bank of Nigeria and is guaranteed for its FINALITY and IRREVOCABILITY. Thus it will help to reduce systemic risk as the central objective of the RTGS system is to reduce systemic risk, by preventing the failure of a payment or of a participant having knock-on effects on other participants and thereby endangering the stability of the financial system.

In addition, the system will significantly reduce the risk associated with the current net settlement systems in operations and also accelerate the payment process while guaranteeing finality and irrevocability of transfers and settlement.

Participants
The operators of the CBN RTGS are CBN (Head Office and branches), commercial banks, discount houses and NIBSS for net settlement position of banks. Each participant of the CBN RTGS has obligations (responsibilities) towards the smooth operation of the CBN RTGS. The operational procedures of the RTGS system will be clearly well defined including the roles and responsibilities of and for the CBN and the other participants. CBN will act as the operator of the RTGS system that will enable participants to achieve prompt settlement of payments by debiting and crediting their accounts with CBN.

Participants in the CBN RTGS must maintain accounts with the CBN and may use the system to transfer funds to each other directly and /or perform third party transfers for and on-behalf of their customers/account holders. Deferred net settlement obligation from clearing system (e.g. cheques, POS, ATM and other cards transactions) would also be settled over the CBN RTGS System.

RTGS Operations
The RTGS system will have a time schedule for operations within which participants are expected to effect all transfer instructions in RTGS. These instructions would be settled if and when participant's accounts are funded

Some of the features of the RTGS System include:

• Instruction processing
• Settlement processing
• liquidity risk management
• queue management
• settlement account monitoring
• connectivity to other systems, etc

Liquidity Risks Management
To prevent liquidity risk during the operation hours if participants experience shortfall of their settlement account, CBN would employ two liquidity mechanism facilities: namely:

1. if there is insufficient fund in a participants account, CBN would not settle the transfer instruction but place that instruction in a queue for it to be settled on a FIRST IN FIRST OUT basis for smooth operation of the RTGS system.
2. For net settlement requests for low value net settlement systems, if a participant does not have sufficient funds to settle net position, this could prove a risk to the whole system, CBN would provide collateralized intraday credit facility, which would be accessed to enable participants to make payments. The collateral must be high quality and the amount would be determined by CBN. Any participant that enjoys this facility must make the fund available in its account to cover the credit not later than the close of the day's business.

Components of The RTGS System
The RTGS system is made up of 3 components:

1. Terminal Access Device (TAD)
   This is the module that would be made available by CBN to be installed at participants head office. This module would be used for data entry payment instructions, monitoring of participant's own instructions, queue management, etc.
    
2. Control Terminal (OCT)
   This module would be installed at CBN for monitoring and used as the management tool for the RTGS.
    
3. RTGS Server Application
   This module would process high value payment instructions and would be installed at CBN Head.

Network Communication Requirement
Participants are expected to hook up to CBN communication network to be able to participate in the payment system. All accesses to CBN network and application would be authenticated and validated.

RTGS Rules & Regulations
There must exist clearly defined rules and regulations and operational guide for operating the CBN RTGS to prevent systemic risks as well collapse of the financial sector.

A technical committee comprising of some participants of the CBN RTGS was set up in the third quarter of Year 2004 and met ensure that the enabling RTGS Rules and Regulations conform to International standards. This committee its conclude work on the Rules and Regulations before the end of Year 2005. This committee was to actively participate with the CBN in the smooth implementation of the CBN RTGS.

Implementation Efforts
The implementation of the RTGS system has commenced in earnest. A contract for customization and implementation of RTGS was awarded to IMS Systems Co Limited of Korea in May 2003 and awareness seminars were held for the financial sector in the second quarter of Year 2004. The customization of the purchased package was to ensure that the application meets CBN's business requirements. The CBN RTGS was customized to facilitate connectivity with other systems that require settlement and also to facilitate interface with the West African Monetary Zone (WAMZ) RTGS when the West African Central Bank (WACB) takes off.

Series of training programmes was conducted for the RTGS stakeholders in Year 2005 and more training are planned for Year 2006 to reduce Operations risk.

CBN would make available the front end of the application (Terminal Access Device) to participants of the RTGS System. Each participant is expected to connect to the CBN via a secure communication network in order to be able to participate in the payment system. The participants would be charged fees for services provided in relation to the use of the system.

Current Time Table
The CBN RTGS is expected to be available for 'live' run by the end of the first quarter of Year 2006 and is expected to provide an efficient, risk-free, and reliable payment mechanism for high-value funds transfer in Nigeria.