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CBI Announcement 8/12/2014

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1CBI Announcement 8/12/2014 Empty CBI Announcement 8/12/2014 Tue Aug 12, 2014 5:10 pm



News and Announcements

Iraqi payments system and the most important developments and achievements taking place in the Payment Systems


I looked at the Arabic document attached to this document and saw the initials RTGS and ACH found the following information about it on the CBI Site. It gives us a good insite to what they are up to  Wink   :


Payment Systems

Iraq owns one of the most advanced electronic payment systems in the world. The system is designed to ensure the exchange of payment orders between banks automatically via an efficient and secure network.

The Central Bank of Iraq (CBI) operates and manages the settlement accounts of the participants to ensure the safety and efficiency of payment systems and clearing operations.
The payment network consists of the following systems:

   RTGS: Real Time Gross Settlement System
   C-ACH: Cheque - Automated Clearing House
   GSRS: Government Securities Registration System

The CBI aims to reduce the use of cash in the country despite the challenges of geography and the remaining security issues which make the transfer of money across the country difficult and risky. Hence the objective is to automate the settlement of checks, salaries and the activation of automation systems for electronic cards, in order to keep more liquidity in bank accounts.

The other achievement is the automation of the primary market for the government securities system which the CBI began to work on with the consultation with the Ministry of Finance (MOF) in 2008. There are also a plans to automate the activities of the secondary market.
The legal framework of payment and settlement systems

The overall aim of the CBI with the support of its laws is to maintain domestic price stability and promote a competitive & stable financial system. The legal framework for the banks and the CBI is stated in the Banking Law and the Central Bank of Iraq Law which were issued on September 19th, 2003 and March 6th, 2004 respectively. The objective of the CBI in issuing these laws was to set up an Iraqi legal framework for banking in line with international banking standards, promote confidence in the economy by establishing a safe financial environment, and provide a competitive and accessible banking system.

It should be noted that the laws of payment systems are currently under study by the CBI in order to assess the experiences of other countries and its applications in the working environment for a country like Iraq. Based on the 2004 CBI law, these electonic activities have been agreed between participants and the CBI through contracts which include guarantees, legal rights, and protections for all parties.

The CBI is also working with local and foreign entities to issue special laws for all electronic payments so that these actitivies operate under a proper legal environment.

The Securities Law was legislated and published in April 2004. It highlights the need to legislate more developed laws to cover the activities of the private sector in the securities market as well as on the organization of primary and secondary markets for government securities.
IPS Components

1. Real Time Gross Settlement system - RTGS

   The system was activated on the 24-AUG-2006. The system connects the CBI with the main bank branches, and the Ministry of Finance (MOF) for exchanging high valued transactions inside Iraq.
   This system replaced the manual execution for operations and eliminated settlement risks between banks.
   CBI is the owner of the system, and takes on the responsibility to install the required software for the participant banks, in additon to providing training courses for users. On the administration side for the CBI, important processes such as the monitoring of banks are now made easier.
   At beginning five banks participated in settlement processes, but gradually the CBI widened the system to cover all banks and foreign branches that have a license in Iraq.
   The system has safety features (i.e. the 4 four eyes principle), and the authorization required to activate the system can only be provided by CBI.

2. Cheque - Automated Clearing House - C-ACH

   The system enables the participants banks and their branches to exchange payment orders automatically. The final settlement is processed and sent to the Real Time Gross Settlement System (RTGS). Within this system the encoded cheques are exchanged and the original copies of the cheques are kept at the deposited branch, then the electonic version of the cheque's data is sent through the branch to the head office system.
   The system was activated on the 14-SEP-2006 for the main bank branches (Rafidain Bank, Rasheed Bank, Bank of Baghdad, Commercial Bank, Middle East Bank). The number of participants has increased since then, there are now more than 19 banks in addition to the CBI branches.
   CBI branches employee (in Basra, Erbil, Mosul, and Sulaimaniya) have been trained to install the system for bank's branches to facilitate the transaction processes within Iraq.
   The Electronic Clearing Cheque System is part of Automated Clearing House System. Its execution started with the Bank of Baghdad, the Middle East Bank, the Credit Bank, Dar El Salam Bank, the Commercial Bank, and the Trade Bank of Iraq. There are now 17 participant banks.
   It has been agreed with participant banks to also take on some of the responsability of their own training and be prepared for further testing environments.
   Training of Iraqi and foreign banks branches will be provided until full participation is achieved.

3. Government Securities Registration system - GSRS

   The system manages the government securities issued by CBI and Ministry of Finance (MOF). Through this system the CBI has a greater control over liquidity. The system was activated in November 2008.
   The system manages the process of auctions for the issuance of government securities – Primary Markets.
   The system keeps the main recordes, including interest payments and repayment of the debts.
   The system handles the settlement of processes of government financial securities between the market and participating banks – Secondary Market.
   Saving and archiving processes.
   GSRS system connects with RTGS for completing the financial settlement operation on participant accounts in RTGS.
   The GSRS relates with C-ACH for presenting information on the status of collateral at the begining of each session.

Lifes purpose is not to arrive at the grave in a well preserved body, but rather to slide in sideways shouting HOLY CHIT what a ride

2CBI Announcement 8/12/2014 Empty Re: CBI Announcement 8/12/2014 Tue Aug 12, 2014 5:15 pm



What is RTGS payment?

What is RTGS? RTGS stands for Real Time Gross Settlement. RTGS is the fastest money transferring mechanism between the banks. In RTGS, the transactions are processed and settled in "Real time" and on "Gross" bases. Once the transaction is settled, it is irreversible. "Real time" means as and when the transaction is processed. There is no waiting time. "Gross" means the transaction is settled individually without being clubbed with other transactions. Net Settlement Mechanism: A well known alternative settlement mechanism is Net Settlement. In Net settlement mechanism, the transactions are received and processed as and when it arrives. However settlement happens in a batch process, typically at the end of the day. The batch contains list of transactions that are net amount to be transacted between banks. In some countries the batch may be submitted more than once in a day. Goals of RTGS The goals of RTGS are 1. To reduce settlement risk due to settlement lag 2. To reduce credit risk 3. Speed up the process of high value payments 4. To give accurate position of the participating bank RTGS & Core Banking System The RTGS does not require the participating banks to have core banking system in place. The core banking system of banks is used to record transactions of its customers in the banks books whereas the RTGS transactions happen for participating banks in the books of Central Bank. The participating banks can access RTGS system through the means provided by the central bank. The common interfaces provided for RTGS system are Participant Interface (PI) or Web Interface (WI). Participant Interface The Participant Interface is thin application that is installed in the commercial banks. The user can enter transactions in PI which submits it to the RTGS system in central bank through communication network. All error messages and notifications including the settlement notification will be received by PI. Web Interface With the advent of technology the latest RTGS implementations are normally provided with the Web Interface. The WI is user friendly and there is no need to install any separate software. Web browsers like Internet Explorer and Firefox can be used to submit transactions to the RTGS system. All error messages and notifications including the settlement notification will be received by WI. Straight Through Processing (STP) If the participating bank has core banking system then it can be interfaced with the RTGS through connecting mechanism called Straight Through Processing (STP). STP is defined as that the payment transactions are keyed in only once and processed until settlement. For an STP, payment transactions can come from core banking system, trading system or any other system. The transaction request message will be automatically routed to RTGS system and the response received from RTGS will be processed and sent to the appropriate system that raised the transaction request. STP is very useful when there are many RTGS transactions to be submitted and manual entry of each transaction is difficult. Security The transactions that are submitted to RTGS are safe, secure and reliable. The Central Bank takes due diligence in the matter of security of RTGS system and address all the issues like authenticity, duplication and non-repudiation. It does not matter what type of interface participant banks use to submit transaction to RTGS, the security is always ensured. Liquidity In the Net settlement system the participating banks are to pay only the net difference of debit and credit where as in RTGS each transaction is effected individually. Because of this nature RTGS demands more liquidity to be available with the participating banks. For example, say Yes-Bank is to pay No-Bank amount of 100,000 SDG and No-Bank is to pay Yes-Bank amount of 75,000 SDG. In Net Settlement System, the two transactions would be netted and one transaction from Yes-Bank to No-Bank for the amount of 25,000 SDG would be effected. Hence the total liquidity in the system needed for settling these two transactions is 25,000 SDG. On accounting entry perspective, there will be one debit and one credit entry for the amount of 25,000 SDG. In RTGS, the mentioned two transactions would be settled as individual transactions, so two transactions, one for 100,000 SDG and another for 75,000 SDG will be effected. Hence the total liquidity in the system needed is 175,000 SDG. Though RTGS system has many advantages, the high liquidity need is a drawback of it. This is mainly due to the asynchronous nature of the payments. However, Central Banks provide additional liquidity needed by RTGS to the commercial banks. Also this additional liquidity is inbuilt in the RTGS system and takes place automatically when a commercial bank is in need of liquidity. The following are the facility by which liquidity problem is sorted out. Intraday Repo The repo transaction is selling of security from one bank to another bank or central bank with the agreement to repurchase it later. Incase the repurchase cannot be done as per the agreement; the sale can become a permanent trade. This is the liquidity mechanism to be used in the Sudan's RTGS system. Settlement Queues There are queuing mechanisms available in RTGS. In this mechanism, the transactions that cannot be settled due to lack of funds will be kept and retried later when the funds arrive. By this mechanism, the rejection of transactions due to lack of funds will be avoided. Gridlock Mechanism When there are multiple transactions to be settled and each transactions wait for another transaction to settle, the situation is called gridlock. In gridlock situation no transaction settles and waits indefinitely for other transaction to settle. RTGS has gridlock solving algorithms which will consolidate those transactions and settle it as a group. The gridlock program can be scheduled to run automatically or my by manual trigger. Transaction Value Unlike Net settlement system which generally process transactions of any amount, RTGS only works the high value transactions. Numerous studies have shown that few number of transactions accounts for high value of transaction settled per day. For example, say 100 transactions have the total value of 1M SDG, where as 900 transactions amounts for only 0.5M SDG. RTGS system is designed mainly to focus on the 100 high value transactions. RTGS will replace any high value clearing systems that are in practice. However, it will not replace Net Settlement System because Net Settlement System is still needed to process the high number of low value transactions. After the implementation of RTGS, Net Settlement System will be able to submit more than one batch per day.

Lifes purpose is not to arrive at the grave in a well preserved body, but rather to slide in sideways shouting HOLY CHIT what a ride

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