Payment and settlement systems are a crucial part of the financial and real infrastructure in Israel, and their efficient operation is essential to the economy’s stability. Smooth and continuous operation of the payment systems is a required condition for efficient supply of funds by the central bank in order to meet the goals of monetary stability and orderly financial activity in the economy. If the payment systems do not operate in an orderly, reliable and secure manner, they are liable to be a source of significant risk to the financial entities participating in the systems, and even to serve as a source of contagion to other financial systems and entities that are active in the payments array. As such, similar to central banks around the world, in Israel as well there is a payment systems oversight function. This function is carried out by the “Payment Systems Oversight” function at the Bank of Israel.
The Payment Systems Oversight Division regulates the payment and settlement systems in the economy, with the goal of ensuring their stability, efficiency and orderly activity, and within that, their safety, reliability, and compliance with the needs of the market and participants, all through regulation, assessment and audit.
The Bank of Israel has adopted the definition and roles of the payment systems oversight in accordance with globally accepted standards, and in particular the definition of Oversight as determined by the BIS in its "Oversight of Payment and Settlement Systems" report.
Responsibilities of central banks
A payment system is considered stable when the systemic risk it creates is low, and when the system’s operator and participants understand the risks inherent in it and implement tools to deal with them.
Payment system stability is measured in line with a range of characteristics, including:
- Corporate governance that supports the system’s stability;
- The existence of terms of access that protect the systems’ stability;
- Reliability of the system, including the system’s ability to meet the load of the instructions, the scope of malfunctions in it, and its ability to recover rapidly;
- The system’s business continuity ability ;
- Completeness and reliability of the information in the system, and its security;
- The existence of procedures for the management of financial risks, such as operating risk, cyber risk, and information security;
- The existence of a robust legal basis and legal risk management;
- In a designated controlled payment system—the existence and content of rules regulating the finality of payment instructions.
The efficiency of payment systems is measured in line with a range of characteristics, including:
- Compliance of the services provided by it with market requirements
- Speed of activities carried out in the system;
- The overall cost of participation in the system and fairness in dividing costs among the participants;
- Broad and fair access for participants;
- The possibility of advancing competition and innovation in products and services dependent on its activity;
- Transparency and disclosure to the public.