CERTIS – the interbank payment system – description
What is the interbank payment system?
Cashless interbank payment system is used to transfer funds from the payer's bank to the beneficiary's bank. Banks and the other providers of payment services execute the payments based on their client's instructions transmitted in the form of a written document (payment instruction forms, direct debit forms, etc.), or by technical means (via internet banking, vocally by phone, or via a special banking applications by mobile phone, or using a payment card, which may also be considered an electronic payment instruction).
If both the payer and the payee have their accounts at the same bank, that bank will execute the money transfer (account settlement) in its own clearing centre. If the payer and the payee have accounts with different banks, the payer's bank has to use the "interbank clearing centre" for the transfer.
- The interbank clearing system in the Czech Republic
- Basic principles
- Participation in the system
- Types of transactions handled
- Operation of the system
- Accounting day, settlement procedures
- Credit and liquidity risk
- Business Continuity Plan
The interbank clearing system in the Czech Republic
The only interbank payment system in the Czech Republic, which handles interbank payments in Czech koruna, is the CERTIS system (Czech Express Real Time Interbank Gross Settlement system). CERTIS started the live operation within the Clearing and Settlement Centre at the SBCS in the former Czechoslovakia on 8 March 1992. After the division of Czechoslovakia at the beginning of 1993, a new clearing centre was founded in Slovakia, while the former federal Clearing and Settlement Centre remained within the Czech National Bank.
Each participant in CERTIS is identified by a unique bank identifier code, which is an obligatory part of any payment transaction. Additional numerical codes (so-called payment symbols) are used to provide more detailed information about the payments.
The establishment and operation of CERTIS as well as the rights and obligations of the participants are set out in the Act on payment system. The accounts used to settle interbank transactions are held at the Czech National Bank on the basis of the account agreements signed with participants. These agreements lay down uniform standards for all participants, as well as legal and technical conditions for keeping accounts and for the exchange and processing of interbank payment systems data.
Interbank payments in foreign currency are not provided by CERTIS. These payments are provided by foreign payment settlement systems or by correspondent banking.
The CERTIS system is based on the following principles:
- settlement of interbank payments in Czech koruna irrespective of their values;
- settlement in central bank money on accounts held at the Czech National Bank (which also serve as the accounts on which minimum reserves are held);
- direct participation by banks holding a banking licence for operation within the territory of the Czech Republic, by savings and credit co-operatives and by foreign bank branches; the CERTIS does not allow the participation of indirect participants;
- the irrevocability of all transactions accepted by the system – pursuant to Directive on settlement finality in payment settlement systems;
- the processing of different types of transactions;
- Real Time Gross Settlement (RTGS);
- no overdrafts are permitted;
- uncovered transactions are neither settled nor rejected but held in a queue and they are settled at the moment of sufficient funds on the account;
- fully collateralised intraday credit, which bears no interest, is provided by the Czech National Bank to the banks that are the SKD clients on the basis of collateralised securities to provide sufficient liquidity (depending on the bank's activities, its intraday credit can be increased or decreased arbitrarily at any time between the opening of the SKD accounting day 8.30 p.m. and the closing of the CERTIS accounting day 4 p.m.) the securities registered in the SKD are accepted as collateral;
- if intraday credit is not repaid by the banks until the closing of the CERTIS accounting day, securities serving as collateral for intraday credit are transferred to the Bank's account then serving as collateral for overnight credit.
Participation in the system
Banks holding a banking licence for operation within the territory of the Czech Republic can be direct participants in the interbank payment system. The direct participants of CERTIS are savings and credit co-operatives and foreign bank branches, too. The CERTIS system communicates only with the head offices of the banks. Each bank has only one interbank payment account with the Czech National Bank. Payments between customers of the same bank are processed in the internal system of this bank without any involvement of CERTIS.
Ancillary systems (so called "third parties")
Under bilateral agreements with the Czech National Bank, certain financial institutions are allowed to participate in the system with a special status. These so-called "third parties" are non-bank financial institutions, for example card payment clearing houses and the securities clearing and settlement institutions, which play an important role in the market. They have no interbank payment account with the Czech National Bank but, with the permission of the direct participants concerned, can submit payment orders to CERTIS to transfer funds between direct participants (e.g. to settle the summarised positions arising from the card payment clearing or payments relating to stock exchange transactions).
Types of transactions handled
The following types of transactions are handled in the CERTIS system:
- credit transfers;
- direct debits;
- corrective settlement transfers (credit transfer cancellations);
- ancillary system transactions;
- information and technical transactions;
- instant payments.
Credit transfers can be low priority transactions and two types of high priority transactions (bank-to-bank priority transfers, client's priority transfers). Priority transfers are settled preferably. Instant payments are not standard type of credit transfers and they are settled on the base 365/7/24.
Operation of the system
For the operation of the interbank payment system, the Czech National Bank maintains accounts (interbank payment accounts) in Czech koruna for direct participants to settle their interbank payments. The Czech National Bank executes fund transfers from interbank payment accounts on the basis of instructions from the participants.
Balances on interbank payment accounts are also used to fulfil the reserve requirements. The maintenance of minimum reserves is mandatory in the Czech Republic. Minimum reserves are set at 2.0 % percentage points of deposits and can be used for interbank payments.
Accounting day, settlement procedures
A normal accounting day begins on the previous working day (D-1) at about 5 p.m. for acceptance of payment orders. The settlement starts at 0:00 on the working day (D). The cut-off time is on the working day (D) at 4 p.m. During the accounting day, participants send data to CERTIS in electronic form in accordance with fixed rules and procedures set out by the Czech National Bank. Participants deliver data by using the telecommunications network. SWIFT is not used. When the control programs validate that all data are of the required quality, a payment order is accepted by the CERTIS system and the settlement process can begin. During that process the account of the sending bank is checked to see if it contains sufficient funds to cover the transactions submitted. If the result of the check is positive, the transfers are immediately settled by debiting the sending bank's account and crediting the receiving bank's account. The throughput of the system is about 1,500,000 transactions per hour. The processed transactions are transmitted to the respective participant in electronic form via the telecommunications network.
Credit and liquidity risk
CERTIS executes payments only if the sending bank's account has sufficient cover (no overdrafts are allowed on the accounts). If funds are insufficient to cover a transaction, the transaction is placed in the so-called "hold queue". Information about queued payments is accessible for the respective bank through AMOS.
Sufficient cover for the execution of queued payments may be obtained:
- through incoming funds transfers;
- through borrowing in the money market;
- from the Czech National Bank in the form of a fully collateralised intraday credit, the securities registered in the SKD are accepted as collateral;
- from the Czech National Bank by means of a fully collateralised overnight credit line.
If for any reason the bank is not able to obtain the required funds by the end of the accounting day, the transfer instructions in the hold queue will be rejected by the system and returned to the sending bank.
The pricing policy is determined by the Czech National Bank to ensure cost recovery for CERTIS. Schedule of the accounting day and related service prices have been changed several times over the life of the system. The aim has been not only to extend the operating hours, but also to support the Czech National Bank's efforts to finish the end-of-day procedure on time.
The current fee for participants is CZK 0.09, €0.003.
For banks with higher volume of transactions, the discount of CZK 0.04 (for monthly volume over 250,000 transactions), CZK 0.06 (over 2.5 mil. transactions), and CZK 0.08 (over 5 mil. transactions) is provided.
The list of charges is provided in Part V of the CNB's Schedule of Charges for Financial and Business Services.
Business Continuity Plan
Article 13 of Act No. 240/2000 Coll. on Crisis Management and on the Amendment of Certain Acts, as amended, lays down the CNB’s obligations in preparing for crisis situations, in particular the obligation to prepare an business continuity plan for the area of monetary policy and the banking sector and to assist the ministries in preparing their business continuity plans.
Under the aforementioned Act, the CNB has drawn up the Business Continuity Plan aimed at preparing the CNB to deal with emergencies that might disrupt or damage its integrity and destabilise its key activities in the Czech financial market area. The implementing documentation for the Business Continuity Plan includes specific procedures for dealing with particular emergencies. This documentation includes, among other things, contingency plans for information systems.
The contingency plan stipulates procedures for dealing with particular contingencies in the information system. Key emphasis is placed on the possibility of restoring the system at the backup facility, which is located at a sufficiently remote location and is not subject to the same sets of threats as the primary party. Thanks to its technical solutions and real-time availability, the backup facility offers the same performance, capacity and functionality as the primary party.
The contingency plan is tested periodically in the test environment. The plan is revised where necessary based on the experience gained during the testing.
The CNB, as a participant of the European System of Central Banks considers the business continuity in payment and securities settlement systems to be very important. It cooperates with the other central banks in sharing information in this area.
The CNB realized an evaluation of operational reliability of the CERTIS on the base of the Business Continuity Oversight Expectations for SIPS. The system CERTIS is in compliance with this standard.