2013 Self-assessment of the Reserve Bank Information and Transfer System 1. Introduction and Executive Summary

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Following the publication of the Principles for Financial Market Infrastructures (the Principles) by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) in April 2012, the Australian Securities and Investments Commission (ASIC) and the Reserve Bank of Australia (the Bank) issued a statement setting out how the Principles would be applied across financial market infrastructures (FMIs) in Australia.^[1]

For payment systems, the statement identified the Reserve Bank Information and Transfer System (RITS) as the only domestic payment system for which assessment against the Principles was currently necessary. This reflected that RITS accounts for the majority of interbank settlements across payment systems in Australia, and that RITS has a central role in settling time-critical payments and payment obligations arising in other FMIs. The Bank committed in the statement to conducting a self-assessment of RITS on an annual basis.

This report presents the Bank's first Self-assessment of RITS against the Principles, which has been carried out in accordance with the approach and rating system set out in the Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology (the Disclosure Framework) produced by CPSS and IOSCO in December 2012^[2]. Previous self-assessments of RITS were carried out periodically against the CPSS Core Principles for Systemically Important Payments Systems (Core Principles) – most recently in 2009.^[3]

This Self-assessment concludes that RITS observes all relevant Principles. In the spirit of continuous improvement, some actions have nevertheless been identified.

1.1 Background

Since RITS is owned and operated by the Bank, effective oversight is assured by separation of the Bank's operational and oversight functions, as well as by transparent self-assessments against international standards. This report has been produced by the Bank's Payments Policy Department drawing on information provided by its Payments Settlements Department, which is the functional area responsible for operating RITS. It has been endorsed by the Payments System Board of the Bank.

The application of the Principles to central bank-owned systems such as RITS necessarily differs from that for private sector systems. This is acknowledged in the Principles. Most importantly, policies and operational arrangements dealing with matters such as access to central bank accounts, credit provision and collateral eligibility will typically be integrally linked to policies that underpin the central bank's monetary operations. It is therefore accepted that these should not be constrained by the Principles.

The scope of this Self-assessment is limited to RITS as a real-time gross settlement (RTGS) system, although, where relevant, RITS's role in settling interbank payment obligations from net settlement systems is discussed. To the extent that the matters covered by the Principles are relevant to the Bank as a whole or are managed under Bank-wide policies, these have been covered in the Self-assessment.

1.2 Material Developments

This Self-assessment was conducted as at end October 2013 and covers developments since the last Self-assessment of RITS against international standards was published in 2009. Most important among these are enhancements to RITS's operational arrangements, including:

regular rotation of operations between the primary and secondary sites to ensure that efficient failover could be achieved in the event of a site outage
comprehensive internal and external reviews of RITS's systems and architecture following an operational incident in September 2012, which have prompted improvements to network and systems monitoring, and enhancements to procedures for service restoration after an incident
finalisation of new Business Continuity Standards for RITS participants, which require both resilience of systems that support the processing of RITS payments and arrangements for rapid recovery from an operational incident
improved security arrangements for access to the RITS User Interface, including replacement of the Certification Authority for the issuance of digital certificates to RITS users.

There have also been some significant developments in the wider operating environment for RITS. In particular, there have been material changes to RITS's operational and liquidity arrangements, including to accommodate same-day settlement of direct entry (DE) obligations. Among these are:

The Low Value Clearing Service (LVCS). This is an optional service that the Bank provides to simplify access to networks for clearing low-value payments. Launched in June 2010, LVCS is able to translate files sent over different networks or using different file transfer protocols.
The Low Value Settlement Service (LVSS). This service, which began operating in May 2012, facilitates the settlement of net obligations at specified intervals through the day. As of 25 November 2013, DE settlement instructions are settled six times daily. Accordingly, the RITS operating day has also been extended to 10.00 pm to accommodate the final scheduled settlement of DE payments at around 9.15 pm.
New arrangements to provide liquidity to participants. Since the last two DE settlements each day can take place outside of normal banking hours, the Bank has made arrangements to increase the availability of overnight liquidity provided to participants so that peak liquidity needs can be met. This additional liquidity is provided through ‘open’ repurchase agreements (repos).

1.3 Assessment

On the basis of the evidence presented in this report, the Self-assessment concludes that RITS observes all of the relevant Principles. The Bank nevertheless continues to work to ensure that RITS's operations continue to meet international best practice. Reflecting this, the Bank has committed to actions in a number of areas, including:

Legal basis. The Bank is conducting a comprehensive review of the RITS Regulations and the RITS Conditions of Operation (together the RITS Regulations) to identify areas in which the clarity of the RITS Regulations could usefully be improved.^[4]
Operational risk. As part of the Bank's commitment to continuously improve the operational resilience of RITS, work has begun on an upgrade to RITS's core infrastructure. In addition, the Bank is implementing further enhancements to network and system monitoring arising from the post-incident review of RITS's systems and architecture, while also continuing to monitor RITS participants' compliance with the new Business Continuity Standards.
Disclosure of rules, key procedures and market data. The Bank is involved in ongoing work by CPSS and IOSCO on quantitative disclosures for FMIs to supplement the Disclosure Framework published in December 2012. As this work proceeds, the Bank will review its public disclosure to ensure that RITS observes the new requirements.

The remainder of this report is structured as follows. Section 2 provides general background on RITS and Section 3 summarises in tabular form the conclusions and actions arising from the Bank's detailed assessment of RITS against each Principle. Section 4 summarises, thematically, the key findings of the detailed assessment, while drawing out material developments since the last assessment against the Core Principles and actions to be taken over the coming period in the spirit of continuous improvement. Finally, the detailed assessment of RITS against the Key Considerations for each relevant Principle is provided in Appendix A.

Footnotes

Implementing the CPSS-IOSCO Principles for Financial Market Infrastructures in Australia, available at <https://www.rba.gov.au/payments-and-infrastructure/financial-market-infrastructure/principles/implementation-of-principles.html>. [1]

Principles for Financial Market Infrastructures: Disclosure Framework and Assessment Methodology, available at <http://www.bis.org/publ/cpss106.htm>. [2]

Self-Assessment of the Reserve Bank Information and Transfer System, September 2009, available at <https://www.rba.gov.au/payments-and-infrastructure/rits/self-assessments/2009/>. [3]

The RITS Regulations are available at <https://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/regulations.pdf> and the RITS Conditions of Operation are available at <https://www.rba.gov.au/payments-and-infrastructure/rits/user-doc/pdf/conditions-operation.pdf>. [4]