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Environmental Issues Influencing the Reform: the Constraints PowerPoint PPT Presentation


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Environmental Issues Influencing the Reform: the Constraints. Legal and Regulatory Framework . Maria Chiara Malaguti. Is « The Payments System » a legal concept?. « Payment » as execution of a (monetary) obligation Cash, bank money, ….

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Environmental Issues Influencing the Reform: the Constraints

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Environmental issues influencing the reform the constraints l.jpg

Environmental Issues Influencing the Reform: the Constraints

Legal and Regulatory Framework

Maria Chiara Malaguti


Is the payments system a legal concept l.jpg

Is «The Payments System» a legal concept?

«Payment» as execution of a (monetary) obligation

  • Cash, bank money, …

«Payment instrument» as the vehicle to execute the tranfer of money

  • Banknotes, cheques, wire transfers, …

«Payment system» as the set of arrangements to provide the service of executing payment operations by an intermediary

  • Correspondent banking, clearing houses, .. .


Slide3 l.jpg

Underlying obligation

A

B

Cash

Often the only recognized

Legal tender

Cheque

Negotiable instrument

Wire transfer

Credit transfer

Debit transfer

Each payment instrument

has special features:

potentially

specific legislation


Payment by fiduciary money l.jpg

Payment by Fiduciary Money

Central Bank

Settlement

Clearing

Clearing House

Bank B

Bank A

Correspondent banking

(by agreement: agency)

Mandate to pay

Client B2

Client B1

Client A


The payments system in law a three level situation l.jpg

«The Payments System» in law: a three-level situation

Operator to operator

Finality of payment by fiduciary money and circulation of instruments (as cheques)

Bank to client

Agency relation and limits on mandate to pay/receive payment; transparency

  • Bank to bank

  • Bi-multilateral netting: systemic risk; settlement and role of central bank as lender of last resort


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… what about securities?

Stock Exchange

Investor

Broker A

Broker B

Order to buy

Novation

CCP (if any)

Funds transfer

CSD

DVP

Settlement

Custodian

Cash clearing

and settlement

Cash transfer into Central Bank money


Some legal barriers netting and validity of contractual clauses l.jpg

Some legal barriers:netting and validity of contractual clauses

Bilateral netting and legal «compensation»

Bilateral netting and «current accounts»

Mutuality and bilateralism: «mutuality» if set-off on behalf of clients?

Multilateral netting and legal compensation

Lack of bilateralism and mutuality

Solution: netting by novation


Some legal barriers netting by novation and central counterparty l.jpg

Some legal barriers:netting by novation and central counterparty

c

d

b

e

a

g

f

g

Central counterparty

Central counterparty

liable towards each party

instead of counterparty?


Some legal barriers finality of settlement the zero hour and effects of bankruptcy l.jpg

Some legal barriers:finality of settlement, the «zero hour» and effects of bankruptcy

  • Retroactivity of bankruptcy effects

  • Par condicio of creditors


Some legal barriers the transfer of ownership of securities by book entry l.jpg

Some legal barriers:the transfer of ownership of securities by book entry

  • Need for transfer of paper-based document?

  • The question of centralized immobilization


The payments system as a regulatory concept l.jpg

«The Payments System»as a regulatory concept

Bank A

Bank B

BankC

Credit risk

Liquidity risk

Insolvency risk

Clearing

Systemic risk

Final settlement by Central Bank


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supervision

oversight

On the single

operator to

guarantee

individual

stability

On the system

as such

to guarantee

global stability

Central banks

Supervisory authorities

Central banks

Financial markets

regulatory authorities


Tools for oversight l.jpg

Tools for oversight

Regulation

  • Moral suasion

Cooperation

  • Self-regulation


Some regulatory issues how to organize oversight l.jpg

Banking or non-banking activity?

Institutional or functional approach?

Some regulatory issues:how to organize oversight?


Some regulatory issues consolidation or competition l.jpg

Some regulatory issues:Consolidation or Competition?

Cost-effectiveness

Choice of providers

Centralised risk management

Reduction of systemic risk

Leave the market free to consolidate, but:

Fair and open access

Sufficient pressure for innovation


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Sectors for legal and regulatory intervention

  • Recognition of fiduciary money

  • Regulation of specific instruments of payment according to specificities

  • Electronic transfers

  • Regulation of payment services (clearing/netting; settlement finality; zero hour)

  • Regulation: supervision and oversight

  • Consolidation and competition

  • Rules on conflict of laws


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For tailor-made solutions according to country legal environment..

  • Order of priorities in legal and regulatory reform

  • With a global understanding of laws on property, contracts, corporate action, negotiable instruments, fiduciary relationships, financial institutions…


With an eye to openess to foreign investments and inter operability l.jpg

..with an eye to openess to foreign investments and inter-operability

  • Restrictions on the location

  • Barriers related to taxation

  • Rules on conflict of laws


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