Download Bank of Israel Adoption of the Principles for Financial Market

Bank of Israel
Accounting, Payment and Settlement Systems Department
Payment and Settlement Systems Division
November 20, 2014
Adoption of the Principles for Financial Market Infrastructures
by the Bank of Israel
The Bank of Israel, which oversees the payment systems in Israel, examined the
Principles for Financial Market Infrastructures that were published by the BIS, and
has decided to adopt the principles and to apply them in Israel to “controlled” and
“designated controlled” payment systems. The goal of doing so is to ensure the
efficiency and stability of the payment and settlement systems in Israel.
Likewise, in accordance with generally accepted practice worldwide, the Bank of
Israel expects that all financial infrastructures in Israel’s payments system will
work to adopt these principles and operate according to them.1
Explanation
Financial market infrastructures fill a critical function in the economy in general, and in
the financial system in particular. Safe and efficient financial market infrastructures
contribute to financial stability and to economic growth. However, if they are not
operated properly, they are liable to serve as a source of financial shocks or as a channel
for transmitting shocks to domestic and international financial markets.
Recognition of the risks inherent in settlement led the Bank for International Settlements
(BIS) several years ago to establish international standards for financial market
infrastructures. These included ten Core Principles which served as the main principles
for overseeing Systemically Important Payment Systems (SIPS).
In April 2012, the BIS published the standards report, Principles for Financial Market
Infrastructures. This report establishes 24 international principles that will apply to all
financial infrastructures, including payment systems, central securities depositories,
securities settlement systems, central counterparties, and trade repositories. These
principles consolidated, expanded and strengthened the previous principles.
1
In addition, the Israel Securities Authority, under its authority per the Securities Law to oversee the Stock
Exchange Clearing Houses in order to confirm their stability and efficiency, has decided to adopt the new
principles and apply them to these clearing houses.
Bank of Israel
Accounting, Payment and Settlement Systems Department
Payment and Settlement Systems Division
The new principles establish standards and requirements in various areas, and they refer
to, among other things, the connections and interdependencies between payment systems,
which can lead to a wide distribution of risks.
As an integral part of the new principles, five areas of responsibility for their
implementation were set for central banks and regulators operating in the market for
financial infrastructures. Within this framework, it was recommended that central banks
and regulators operating in the market adopt the new principles and apply them
consistently on the financial infrastructures operating in the market, in order to strengthen
regulatory and oversight activities and to support the setting of the risk management
standards. The oversight authorities are to take care and apply the principles on, at least,
the payment systems, central securities depository systems, securities settlement systems,
central counterparties, and trade repositories that have systemic importance.
The Bank of Israel decided, as part of its function of regulating and overseeing the
payment and settlement systems in the economy, to adopt the new principles and to apply
them on payment systems that have been declared “controlled” or “designated
controlled” systems in accordance with the Payment Systems Law, 5768-2008, in order
to ensure their efficiency and stability.
Adopting the new principles obligates the operators of financial infrastructures in Israel’s
payments system, to prepare appropriately for their implementation. The Bank of Israel
will examine and assess, on a regular basis, that the “controlled” and “designated
controlled” systems are fulfilling these principles.
In accordance with general practice worldwide, the Bank of Israel expects that other
financial infrastructures operating in Israel’s payments system will also act in accordance
with the new principles.
The Israel Securities Authority has decided, under its authority per the Securities Law to
oversee the Stock Exchange Clearing Houses, to apply the new principles on these
clearing houses in order to confirm their stability and efficiency.