Home Data Financial Stability Board hunts case studies on cross-border payments data ‘frictions’

Financial Stability Board hunts case studies on cross-border payments data ‘frictions’

Currencies: challenges arising from restrictions on the flow of data across borders are covered in the 'stocktake' report | Credit: Jitu Mondal (Pexels)

The Financial Stability Board (FSB) has invited authorities including regulators and data protection authorities to ‘develop case studies to assess the impact of selected frictions on cross-border payments and identify where action should be prioritised’.

The FSB, whose secretariat is hosted by the Bank for International Settlements (BIS) in Switzerland, co-ordinates the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of policies to promote financial stability.

With the transfer of data across borders ‘essential’ to the functioning of the cross-border payments system, the body has this week (25 September) published what it describes as a ‘stocktake’ of international data standards relevant to cross-border payments and has begun to develop recommendations to promote ‘alignment and interoperability’ across data frameworks applicable to cross-border payments.

The research, which looks at both national and regional data frameworks relevant to the functioning, regulation and also supervision of cross-border payment arrangements, was conducted to identify challenges relating to cross-border use of data faced by national authorities and the private sector for cross-border payments. It highlights fragmentation in data frameworks as a main contributor to increased cost and inability to automate cross-border payments.

The activity progresses one of the priority actions under the high-profile ‘G20 Cross-Border Payments Roadmap’ – to improve the interaction between data frameworks and cross-border payments.

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‘Significant’ challenges

The flow of data across borders, between payment originator and beneficiary, through intermediaries and the payment infrastructure, is required in any cross-border payment. The ‘Stocktake of International Data Standards Relevant To Cross-Border Payments’ report summarises a number of frictions from data frameworks that pose ‘significant’ challenges to improving the cost, speed, transparency and access to payments.

These include uncertainty among payment providers on how to balance the various obligations under different data frameworks, such as obligations related to data privacy and to anti-money laundering and combating the financing of terrorism (AML/CFT); and challenges arising from restrictions on the flow of data across borders, ‘which could make it more difficult to identify fraud, comply with AML/CFT and other regulatory obligations, as well as manage risk on an enterprise-wide basis’.

‘A certain degree of friction from data frameworks may be an unavoidable and acceptable consequence of regulations aimed at preserving the security of transactions, meeting AML/CFT objectives and protecting the privacy of citizens,’ notes the 40-page report’s executive summary. ‘However, the extent of fragmentation in data frameworks across jurisdictions was considered a main contributor to increased cost and inability to automate payments.’

To inform its drawing-up of recommendations, the FSB says it wants to engage with ‘industry, data privacy experts, financial regulators and data protection agencies’ to develop case studies. It has set a deadline for submissions of 20 October. Inputs will be ‘considered’ as it develops the recommendations, which will be issued for public consultation in ‘early 2024’.

The FSB previously held an ‘outreach event’ on how data frameworks impact cross-border payments in February 2022. This was attended by 27 representatives from banks, financial market infrastructures (FMIs), mobile-money operators, credit-card companies and non-bank payment service providers, as well as industry bodies and private sector issuers of guidance.

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Keeping track of the roadmap

Ahead of a G20 summit in New Delhi on 9-10 September, FSB chair Klaas Knot wrote to G20 leaders with an update on the cross-border payments roadmap, which was launched almost three years ago.

Targets were published in October 2021, to be achieved by 2027 in most cases. In October 2022 the FSB stated that work had reached an ‘inflection point’ and must ‘move to practical projects’. The FSB also detailed priority actions via a report delivered to G20 finance ministers and central bank governors ahead of a meeting on 24‑25 February 2023.

The Knot-signed letter (dated 5 September) noted a ‘requirement [for] further political support and sustained effort by the public- and private-sectors’ in order to meet the 2027 targets. Examples of specific projects mentioned in the letter included the development of harmonised ISO 20022 data requirements (these will be finalised next month); work in various jurisdictions to link domestic faster payments systems; and ‘the deployment of new tools in the correspondent banking network’.

The FSB will next month (October) submit to G20 finance ministers and central bank governors its first report with data on progress towards the targets alongside an annual report on progress related to individual roadmap actions.

The stocktake report states that the ‘lack of a global approach to the many different [data] frameworks acts as a barrier to innovations that could help improve the efficiency of the payments system’. It mentions innovations such as full payment traceability, one-time customer verification and pre-payment validation.