Introduction

This Wholesale Payment Systems Booklet (Booklet) is one of several that comprise the Federal Financial Institutions Examination Council (FFIEC) Information Technology (IT) Examination Handbook (IT Handbook). It provides guidance to examiners and financial institution management regarding the risks and risk-management practices when originating and transmitting large-value payments. It replaces and rescinds Chapter 18 of the 1996 Information Systems Examination Handbook.

This booklet is organized into the following four sections describing the various aspects of wholesale payment systems, followed by examination procedures, a glossary, a discussion of the legal framework for interbank payment systems, a discussion of the Federal Reserve Board's Payments System Risk (PSR) Policy, and a discussion of the "Interagency Paper on Sound Practices to Strengthen the Resiliency of the U.S. Financial System." Management action summaries are included in each of the four sections providing a snapshot of the risks and risk management practices described in the text.

  • Interbank Payment and Messaging Systems - The first section includes a discussion of interbank funds transfer and messaging systems, and interbank clearing and settlement systems. This section concludes with a discussion of Internet-based wholesale payment systems.
  • Intrabank Payment and Messaging Systems - The second section provides an overview of the funds transfer and messaging systems employed by typical financial institutions.
  • Securities Settlement Systems - The third section provides an overview of the major securities markets and securities settlement systems. Securities settlement generates a large volume of wholesale payments typically processed by financial institutions. The information presented in this section describes these settlement processes. While securities settlement generally involves both the delivery of a security and the corresponding payment, this section focuses on the wholesale payments generated by these transactions, and does not cover the complete range of activities associated with securities processing, including the transfer and delivery of securities, custodial arrangements, and related trading activities.For further information on these topics, refer to the Committee on Payment and Settlement Systems (CPSS) "Recommendation for Central Counterparties," at www.bis.org.
  • Wholesale Payment Systems Risk Management - The fourth section describes the risks associated with wholesale payment systems, using various risk categories, including reputation, strategic, credit, liquidity, legal/compliance, and operational/transaction risk. This section also describes the risk management measures management should establish to mitigate the risks described.

The booklet references a number of other IT Handbook booklets, including the "Information Security Booklet," "Business Continuity Planning Booklet," "Outsourcing Technology Services Booklet," and the "FedLine Booklet."FedLine® is a registered trademark of the Federal Reserve Banks. In addition to describing the information technology risks and controls, the booklet also describes certain credit and liquidity risks that may be present when conducting wholesale payment services. A full review of a financial institution's wholesale payment system environment may require the use of examiners with experience in credit, liquidity, and compliance issues and additional agency-specific examination procedures.

Examiners should use the examination procedures (detailed in Appendix A) for reviewing risks in wholesale payment systems. These procedures address services and products of varied complexity, and examiners should adjust the procedures for the scope of the examination and the size and risk profile of the institution. Examiners may use the procedures independently or in combination with procedures from other IT Handbook booklets and agency specific handbooks and guidance.

For financial institutions whose primary method for originating, transmitting, and receiving large-value payment orders is the use of the FedLine Funds Transfer (FT) application, examiners should use the "FedLine Booklet" to assess the wholesale payment systems and funds transfer environment. In addition, examiners should also review the "Legal Framework" and "PSR" discussions in Appendices D and E, respectively, if an expanded evaluation of the funds transfer operation is necessary.

 

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Interbank Payment and Messaging Systems