Nepal Rastra Bank (NRB) is preparing to introduce special monitoring and regulatory measures for systemically important payment systems. On Wednesday, NRB published the draft of Framework for Identifying Systemically Important Payment Systems , which proposes a separate list of such systems along with a dedicated regulatory approach.

Currently, payments in Nepal are processed through banks, financial institutions, payment service providers, and payment system operators using platforms such as Real-Time Gross Settlement (RTGS), Connect IPS, cheques, debit/credit cards, mobile banking, and QR codes.

Recognizing that disruptions in the payment system can threaten financial stability, NRB is developing targeted regulatory arrangements to identify and oversee critical systems.

According to NRB officials, failures in national payment systems can disrupt the entire financial infrastructure, underscoring the need for special regulation. Kiran Pandit, Executive Director of the Payment Systems Department, said a separate list will include systems that process large transaction volumes, have significant market share, or pose considerable systemic risk. The regulatory framework will align with international best practices.

The draft outlines five criteria for identifying a systemically important payment system. A system will be classified as such if it meets even one of these. For instance, a payment system may qualify if it is time-sensitive and high-volume, serves a unique role in national financial infrastructure, or processes the highest volume of payments in the system.

Additionally, any system handling over one-third of retail payments by value, or two-thirds by volume, and having high interconnectivity with other systems will also be deemed systemically important. NRB may designate other systems based on their importance within the financial ecosystem.

Systems on the list must meet several requirements: a sound legal foundation, clear and transparent operating rules, effective risk management, timely settlements, quarterly self-assessments, and adherence to international standards.

Given the potential for ripple effects from disruptions in payment systems, NRB aims to proactively manage these risks through the new framework. The draft is based on the Principles for Financial Market Infrastructures developed by the Bank for International Settlements and the International Organization of Securities Commissions.

Stakeholders can submit feedback on the draft by May 18. NRB will finalize the framework after reviewing the suggestions.

The government enacted the Payments and Settlements Act in 2018, granting NRB authority over the payment system. Since then, the central bank has been regulating the sector through its Payment Systems Department.