Oversight to Mitigate Digital Payment Risks
Amid the rapid expansion of digital payment platforms across Nepal, the Nepal Rastra Bank (NRB) has introduced a framework for Systemically Important Payment Systems (SIPS) to minimize risks associated with online transactions.
The SIPS are vital parts of the financial system as they handle large-value and time-critical transactions. Any disruption in such systems could trigger systemic shocks with far-reaching consequences for financial stability.
Objectives of the Framework
According to NRB, the framework has four key objectives:
- Identifying at-risk payment systems to ensure their continuity during crises or disruptions.
- Recognizing and monitoring risks within payment systems.
- Facilitating risk assessment in payment platforms.
- Developing mechanisms for effective monitoring, management, and control.
Criteria for Classification
Currently, NRB has licensed nine payment system operators. The framework provides criteria to determine which are systemically important, such as:
- Handling time-critical and high-value payments through RTGS.
- Capturing one-third or more of total retail transactions, or two-thirds of transaction value.
- High interconnection with other payment platforms.
Regulatory Standards
The framework mandates operators to:
- Maintain a sound legal base.
- Conduct annual stress tests covering credit, liquidity, operational, and business risks.
- Ensure timely settlements, robust governance, and transparency in risk policies.
- Establish crisis management protocols to safeguard financial stability.
Periodic Assessment
Payment platforms must carry out annual self-assessments against international standards and submit the results to NRB. Additionally, the NRB’s Payment Systems Department will conduct yearly reviews. The framework will be revised every two years or sooner if new risks or technologies arise.
Ensuring Stability in a Digital Economy
The central bank emphasized that payment systems form the infrastructure for fund transfers between individuals, businesses, and financial institutions. By enforcing these standards, the framework seeks to strengthen trust, safeguard financial stability, and support the growing digital economy.
