The National Payment System Department in Bank of Uganda oversees the national payment system with the objective of ensuring overall effectiveness and integrity of the payment systems in the country.
The Central Bank objectives and approach to regulation of the payments system are shaped by the requirement to control risk, promote efficiency and competition in the payments system and it discharges its responsibility through:
Regulation of payment systems is intended to contribute to:
Principle 3 of the PFMI’s talks about a Framework for the comprehensive management of risks. It states that An FMI should have a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, and other risks. It therefore requires:
Of key importance in risk management/control is the effort to identify and manage systemic risk. Rochet and Tirole define systemic risk as the propagation of an agent’s economic distress to other agents linked to that agent through financial transactions. Systemic risk in financial markets refers to the risk of a disturbance in one section of the financial market that spreads to other parts of the market. The initial disturbance itself can e.g. be severe liquidity problems or insolvency of a bank and its causes varied. The reason of failure may be confided to the single bank (e.g. a rogue trader) or be caused by macroeconomic variables negatively affecting many banks simultaneously (e.g. reduced collateral values). The initial disturbance may become systemic (a systemic event) when it propagates to other participants of the financial system. A systemic event may undermine the confidence in participants of the financial sector and thus propagate through "investor panics" when creditors simultaneously withdraw their claims. A systemic event may materialise as credit losses and/or liquidity problems and may cause other banks to become insolvent or illiquid. A disturbance of systemic nature may weaken the performance of the financial markets and eventually adversely affect the economy as a whole.
In promoting the efficiency of the payments system, the Bank focuses on three things:
In pursuing competition in the payments system, the Central Bank largely focuses on two areas.
Oversight of payment and settlement systems is a central bank function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change.
In monitoring the central banks focuses on the following areas
Assessment is based on:
With respect to assessment results, the central bank may be compelled to induce change and in inducing change the central bank may use the following option at its disposal:
In Uganda the central banks is an operator of the RTGS, ACH and the CSD. Therefore it offers systems which facilitate transfer of value on gross and net basis and settlement; it also offers final settlement on its books for some retail payment systems like interswitch and ABC. The central bank also provides retail payment services to government.
The central Bank plays catalyst role. Activities range from maintaining contacts with private sector firms, to conducting research on important payments topics, to encouraging and initiating various market outcomes. The central bank sometimes works with other public authorities in their catalyst role and also often draws on its strong relationships with the country’s financial institutions and banking and payment associations.