Regulators set out steps to boost cross-border payments

By on 16/07/2020
The Bank of International Settlements’ report calls for more alignment on APIs and money laundering rules to support easier international payments. (Photo by Wladyslaw Sojka).

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.”

About Ian Hall

Ian is editor of Global Government Fintech a sister publication to Global Government Forum. Ian also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo. Ian has an MA in Urban and Regional Change in Europe and a BA in Economics, both from Durham University.

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