The Central Bank of Nigeria (CBN) has issued regulations governing the operations of the in-direct participants in the payments system.
The apex bank in its latest circular titled, “Regulation for the operation of indirect participants in the payments system”, listed the minimum criteria to qualify as an indirect participant having a satisfactory risk-based rating from the CBN and secure a letter of recommendation from its direct participating bank, signed by the chief risk officer and an executive director of the direct participating bank.
The circular, which was signed by Director of Payment System Department, CBN, Sam Okojere, also stated that compliance with the NUBAN Standards is part of the criteria.
The apex bank said it was doing this in the exercise of the powers conferred on it under the CBN Act 2007 to promote the sound financial system in Nigeria, issue regulations to facilitate the development of an efficient and effective payments system in Nigeria.
Under the regulations guiding the operations of indirect participants, an indirect participant shall comply with the applicable provisions of the Nigeria Bankers’ Clearing System Rules (NBCS), and maintain a settlement account(s) with the direct participating bank wherein the net settlement position of the indirect participants shall be credited or debited as may appropriate after each settlement session (hereinafter called “the Settlement Account”)
“An indirect participant must pledge collateral in an amount as agreed with the direct participating bank which shall serve as security for settlement obligations; as well as indemnify and hold the direct participating bank harmless in respect of any liability or loss whether direct or indirect that may arise as a result of this agreement.
“Accordingly, indirect participants hereby undertake to be primarily responsible and liable for all instruments presented for processing; pay a settlement fee to the direct participating bank annually or as may be agreed by the parties, and make up any the shortfall in the clearing collateral before the commencement of the next settlement window in the event of a shortfall or re-discount to bring the aggregate value of the collateral up to the agreed minimum value as specified in the Settlement Agreement or subsequent review of the collateral amount”, the circular directed.
An indirect participant will also undertake to bear the cost of re-discounting the collateral necessitated by a need to recover the debit balance in the Settlement Account
The CBN further said only direct participating banks are permitted to settle payment obligations of indirect participants.
“An indirect participant shall settle all its payments obligations through only one direct participating bank per payment scheme at any given time”, the CBN said.
On the relationship between a direct participating bank and an indirect participant, the apex bank said it shall be governed by a settlement agreement.
The apex bank (Central Bank of Nigeria (CBN) ) explained that where the account of an indirect participant with a direct participating bank is not adequately funded, the direct participating bank may decline further settlement services to the indirect participant and inform the payment processor accordingly.
“Except as otherwise agreed, a direct participating bank or an indirect participant shall give at least thirty (30) days’ notice to the other party before terminating the settlement agreement for any other reason apart from the circumstances in”, it said.