The harmonisation of Application Programming Interface (API) protocols for data exchange and “more consistent” anti-money laundering (AML) oversight are among the priorities set out by a group of central banks seeking to improve cross-border payments.
The proposals are contained in a report released this week by a Bank for International Settlements (BIS) committee that examines how improved technology and regulator collaboration could make cross-border payments faster, cheaper, more transparent and inclusive.
‘Enhancing cross-border payments: building blocks of a global roadmap’, published by the BIS’s Committee on Payments and Market Infrastructures (CPMI), contains what its authors describe as 19 ‘building blocks for a global roadmap’ to improve cross-border payments.
It can take up to 10 days for a cross-border payment to be completed and cost up to 10 times as much as a domestic payment, CPMI chairman Sir Jon Cunliffe said. Cunliffe, who is the Bank of England’s deputy governor, said cross-border payments are necessarily more complex than domestic payments, but “we need to bring them into line with the standards, efficiency and reliability that users now have a right to expect”.
Bolstering oversight co-ordination and data quality
The CPMI report sets out 19 topics grouped into five focus areas: a commitment to a joint public- and private-sector vision; regulatory, supervisory and oversight coordination; improvement of existing payment infrastructures; enhancing data quality; and exploring the potential of new payment infrastructures.
As well as the recommendation on APIs – software intermediaries that allow two machines to interact – and AML, other recommendations in the report include the adoption of a harmonised version of ISO20022, the emerging global standard for payments messaging; facilitating increased take-up of Payment vs Payment (PvP) – a mechanism that ensures that the final transfer of a payment in one currency occurs if (and only if) the final transfer of a payment in another currency or currencies takes place; and the promotion of “safe payment corridors”.
The report also identifies the potential of Legal Entity Identifiers – 20-character, alpha-numeric reference codes that can be used to identify business entities involved in financial transactions – as “directly mitigating the friction around fragmented and truncated data”.
G20 priority as market passes $20 trillion mark
Cross-border payments have grown in size to amount to about $20 trillion in 2019, Cunliffe said this week. The rise of potential global so-called ‘stablecoins’ such as Facebook’s proposed Libra has further increased regulators’ interest in cross-border matters. The new report contains the recommendation that central bank digital currency (CBDC) designs “factor in” an international dimension.
The report, which is accompanied by a 60-page technical backgrounder, is the second of three publications drawn up in response to a request from the G20 – which has made boosting cross-border payments a priority, and had asked the BIS’s Financial Stability Board (FSB) to devise an action-plan. This report was sent to G20 finance ministers and central bank governors ahead of their virtual meeting this weekend.
The FSB’s first report, which assessed current cross-border payment arrangements and outlined the challenges, was published in April. The third publication is scheduled for October.
“Faster, cheaper, more transparent and more inclusive cross-border payment services would have widespread benefits for citizens and businesses worldwide, supporting economic growth, international trade, global development and financial inclusion,” said Cunliffe, who added that “if anything, [central banks’] role is more important in view of accelerating digital innovation and the challenges posed by the pandemic.”
