The Financial Stability Board (FSB) wants national and international regulatory authorities to shift from analysis to implementation in the next phase of activity under its global roadmap to improve cross-border payments.
The FSB announced today (10 October) the next steps and priorities for the ‘G20 Roadmap for Enhancing Cross-Border Payments’, two years after the influential plan was launched, with greater ‘engagement and partnership’ with the private sector in the pipeline.
Work related to the roadmap has reached an ‘inflection point’ and ‘needs to move to practical projects’, the FSB states. Focus is to be placed on projects that help to achieve roadmap targets – first published in October 2021 and to be achieved by 2027 in most cases – for enhancing the cost, speed, access and transparency of cross-border payments.
‘The guiding principle in prioritisation will be: ‘In what way will this project help to achieve the targets that have been set for cross-border payments?’. By placing this at the centre of its planning, the public and private sector can direct resources toward the work most likely to have the biggest impact by the target date,’ the FSB – whose secretariat is hosted by the Bank for International Settlements (BIS) in Switzerland – states.
Three themes will form the backbone of activity: payment system interoperability and extension; legal, regulatory and supervisory frameworks; and cross-border data exchange and message standards.
KPIs to track progress
Two documents have been published today: a 30-page ‘G20 Roadmap for Enhancing Cross-border Payments: Consolidated progress report for 2022’; and a six-page ‘G20 Roadmap for Enhancing Cross-border Payments: Priorities for the next phase of work’. Both have been sent to G20 finance ministers and central bank governors for their meeting in Washington DC later this week (12-13 October).
Accompanying the priorities is a plan to ‘expand both the FSB’s systematic engagement with the private sector and its engagement with a wider range of public authorities’. The FSB will hold a ‘Cross-border Payments Summit’ later this month to launch this phase of work, convening public- and private-sector leaders. The invitation-only virtual event is seeking to achieve a ‘more specific joint public-private sector commitment’ to take forward work to enhance cross-border payments.
The targets – which address the challenges of cost, speed, transparency and access faced by cross-border payments – play an ‘important role in defining the ambition of the work and creating accountability for realising practical improvement’, the FSB states. It plans to publish an update on a planned framework for monitoring progress toward the targets in November. The FSB will also publish annual updates on progress made toward achieving the targets, using key performance indicators (KPIs).
‘Roadmap targets will not be achieved merely on paper through analyses and recommendations,’ notes the ‘Priorities for the next phase of work’ document. ‘The improvements of underlying systems and arrangements and the development of new systems will require global coordination and sustained political support. It will also require investment in systems, processes and technologies. Its success will depend heavily on the commitment of public authorities and the private sector, working together.’
An updated roadmap will be provided to the first G20 finance ministers and central bank governors meeting in 2023.
‘Greater sense of shared ownership’ wanted
Work on the priority of payment system interoperability and extension includes extension of real-time gross settlement (RTGS) operating hours and access policies.
In terms of work on legal, regulatory and supervisory frameworks, the FSB notes that inconsistent implementation of or variations on anti-money laundering/combatting the financing of terrorism (AML/CFT) controls, including customer due diligence requirements across jurisdictions, can be sources of frictions that reduce the speed and increase the cost of cross-border payments.
On the theme of cross-border data exchange and message standards, the FSB warns that even with the global transition to the ISO 20022 standard, ‘inconsistent implementation or use’ could limit its benefits.
As to the overarching plan for greater engagement with the private sector, the FSB acknowledges that there has already been ‘extensive engagement at a technical level’ with the private sector. But this ‘needs to be complemented by strengthened strategic engagement at senior executive and management level to develop a greater sense of shared ownership in the work of the roadmap, shared commitment to the requisite investments and partnership in executing on practical projects.’
The FSB also notes that ‘engaging a wider range of public-sector authorities from jurisdictions beyond the G20 will be similarly important if cross-border payments are to be improved in regions currently facing many of the biggest challenges’.
Working towards the ‘holy grail’
The FSB brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.
The body is currently chaired by Klaas Knot, president of De Nederlandsche Bank, who succeeded Randal Quarles 10 months ago. Its secretary-general is Dietrich Domanski.
A working paper published by the European Central Bank (ECB) in August, ‘Towards the Holy Grail of Cross-Border Payments’, stated that the ‘holy grail’ of cross-border payments – defined as a solution allowing cross-border payments to be immediate, cheap, universal and settled ‘in a secure settlement medium’ – is within reach in 10 years.
Visions of how to achieve this holy grail were examined in the paper, which concluded that two routes could have highest potential for larger cross-border payment corridors: the interlinking of domestic instant payment systems and future central bank digital currencies (CBDCs), both with a ‘competitive’ FX (foreign exchange) conversion layer, are identified as the most promising avenues.
The importance of trends helping the achievement of the holy grail were outlined in the paper, including the ‘rapid’ fall in the costs of global electronic data transmission and computer processing; new payment systems technology (allowing for instant payments); innovative concepts such as the interlinking of payment systems including a currency conversion layer and CBDC; and what it described as ‘unprecedented’ political will and global collaboration such as through the G20.
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