The goals of the Bank of Russia’s activity, its functions and powers related to the payment system and settle- ments define the Bank of Russia Payment System as a key mechanism for implementation of the country’s monetary and budgetary policy and ensure its predominant role in the payment system of the Russian Federation. The Bank of Russia Payment System accounts for a large share of payments made through the Russian payment system by volume and value. The payment system of the Bank of Russia is a systemically important payment system in the Russian Federation.
2.1.1. The Bank of Russia Payment System participants
At the end of 2009 the Bank of Russia Payment Sys- tem participants comprised 630 Bank of Russia branches (16% of the total number of participants) and 3,311 credit institutions (their branches) or 84% of the total number of participants.
In 2009 the number of participants in the Bank of Rus- sia Payment System continued to decrease. This was due to the liquidation of credit institutions and their branches as a result of their reorganisation through mergers and ac- quisitions, withdrawal of banking licences, transformation of credit institutions’ branches into their internal divisions and the liquidation of settlement cash centres whose op- erational results failed to comply with the criteria set by the Bank of Russia.
The number of the Bank of Russia’s non-bank custom- ers also decreased by 28.3% in 2009 year on year. This reduction occurred pursuant to Article 215.1 of the Budget Code of the Russian Federation, which required the trans- fer of the cash servicing of the federal, regional and mu- nicipal budgets to the Federal Treasury and also resulted from the improved procedure for servicing the accounts of Russia’s budget system.
2.1.2. General characteristics of the Bank of Russia Payment System
The Bank of Russia Payment System comprises the following settlement systems and settlement mecha- nisms which differ by regional coverage, payment value, rules and daily settlement schedules, categories of par- ticipants and payment instruments, transaction speed and technology:
the Banking Electronic Speedy Payment system (the
BESP system), designed for nationwide real-time set- tlements;
the systems for intraregional electronic payments (VER)
and interregional electronic payments (MER), the pay- ment system using letters of advice (paper-based pay- ments);
a number of specialized settlement mechanisms
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There weren’t any changes in the structure of the Bank of Russia Payment System and its components in 2009.
The efficient and uninterrupted operation of the Bank of Russia Payment System is ensured by a set of rules and procedures for making payments and settlements. These are based on the Bank of Russia’s own information and telecommunication infrastructure of the collective pro- cessing of payment data and the implementation of data security policy.
The measures and arrangements for the development of the Bank of Russia Payment System, including efforts to reduce risks and expand real-time settlements, have al- lowed the Bank of Russia Payment System to preserve its dominant role in the payment system of Russia.
One of the key indicators of the payment system’s ef- ficiency represented by the ratio of the value of payments made through the Bank of Russia Payment System to the GDP improved considerably in 2009. It grew from 12.4 in 2008 to 15.6 in 2009.
Payments effected using the VER and MER systems and settlement systems using letters of advice demonstrated downward tendency both in number and value while the increasing payments effected through the BESP system. Payments made through the VER systems accounted for 79.4% of the total number and 70.9% of the total value of payments made through the Bank of Russia Payment Sys- tem (in 2008 - 80.1% and 82.0% respectively). Payments made through the MER system made up 20.4% and 11.4% (in 2008 - 19.6% and 17.2%) and payments effected using letters of advice accounted for 0.2% and 0.1% (in 2008 - 0.3% and 0.4% respectively).
As in previous year, payments made by credit insti- tutions (their branches) prevailed in the total amount of payments effected through the Bank of Russia Payment System in 2009, both by volume and value. Their share reached 82.3% of the total volume and 74.5% of the total value of payments made through the Bank of Russia Pay- ment System (in 2008 - 83.6% and 84.8% respectively).
In 2009 the payments of the Bank of Russia’s cus- tomers - non-bank organizations accounted for 17.6% of the total volume and 9.6% of the total value of payments effected through the Bank of Russia Payment System (in 2008 - 16.1% and 10.1% respectively).
The share of the Bank of Russia own payments re- mained almost unchanged and amounted for 0.1% in the total number of payments made through the Bank of Rus- sia Payment System but increased threefold (from 5.0% to 15.9%) in value of payments as a result of the monetary policy operations of the Bank of Russia under the condi- tions of the global financial crisis.
The share of free of charge payments made by the customers of the Bank of Russia increased from 46.9% in 2008 to 49.6% in 2009. It is explained by the growth of the volume of payments effected through the Bank of Russia by non-bank organizations. The share of budget- ary payments in total volume of free of charge payments amounted for 92.5%37.1
37 Under the Russian legislation, operations with federal budget
funds are effected by the Bank of Russia on free of charge basis.
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The above-mentioned characteristics define the Bank of Russia Payment System as interbank fund transfer sys- tem with minimum financial risks. These characteristics also make it possible to conclude that the payments of the customers of the Bank of Russia and the Bank of Rus- sia own payments will gradually transfer from the systems of intraregional and interregional electronic payments and the payment system using letters of advice to the BESP system.
The potential of the working services offered by the re- gional subsystems of the Bank of Russia Payment System, taking into account regulations stipulated in the “Concept of the Development of the Bank of Russia Payment System until 2015” in perspective will be realized through a single, centralised on the federal level system of multiple-service settlement system. At the same time all the regional sub- systems of the Bank of Russia Payment System will be integrated into a single federal component of the Bank of Russia Payment System.
2.1.3. The technology for making payments through the Bank of Russia Payment System In 2009 the overwhelming majority of payments in the payment system of the Bank of Russia were effected elec- tronically. The share of electronic payments came to 99.8% of the total volume and 99.9% of the total value of pay- ments at the end of the year.
The number of the Bank of Russia customers - credit institutions involved in the exchange of electronic docu- ments with the Bank of Russia rose. At the end of 2009 their share in the total number of customers exchanging electronic documents with the Bank of Russia reached 96.9%. The share of payments that were entered into the payment system of the Bank of Russia by communication channels was stable and came to 98.7% in 2009.
The average monthly accessibility ratios of the Bank of Russia Payment System (that is, the system’s ability to ac- cept payment documents from the Bank of Russia custom- ers) ranged between 99.99% and 100% in 2009 (the same in 2008) regarding paper-based documents. The same fig- ure was between 99.49% and 99.94% (in 2008 - between 98.76% and 99.92%) regarding electronic documents.
The average settlement terms decreasing were a posi- tive factor in the development of the Bank of Russia Pay- ment System. In particular, the average settlement terms decreased to 0.61 days for the Bank of Russia technology used for making intraregional payments (0.62 days in 2008) and were unchanged at the interregional level (0.97 days).
2.1.4. The Banking Electronic Speedy Payment (BESP) system
The BESP system that was put into operation in Decem- ber 2007, continued to develop in 2009. As compared with other electronic settlement systems, the BESP is central- ized on the federal level, which enables its participants to effect settlements using a single procedure, irrespective of their location in Russia, and gives them equal access to services of the system.
In the process of creation of the BESP system the Bank of Russia addressed complex tasks in order to:
ensure its continuous operation in nine time zones and
among a large number of settlement participants; ensure its interaction with more than 70 regional sub-
systems of the payment system of the Bank of Russia operating according to local time schedules;
ensure its interaction with other systems, such as the
liquidity management system and the securities settle- ment system.
The BESP system participants are:
the Bank of Russia branches – head settlement cash
centres, settlement cash centres, operational depart- ments, cash servicing departments for the customers of the Bank of Russia (its special participants);
the Bank of Russia customers – credit institutions (their
branches) that may be direct or associated participants, the Federal Treasury and its regional offices across Russia (its associated participants).
The BESP system functionality allows direct participants to manage their liquidity and settlements within the BESP system.
The settlements management system includes the fol- lowing mechanisms:
payments’ priority mechanism;
limits of payment setting mechanism;
mechanism of the centralized keeping and manage-
ment of intraday payment queues of delayed electronic payment messages at the Bank of Russia level; the offsetting of payments and
multilateral optimization of intraday queued electronic
payment messages.
Besides, the BESP system provides its participants all necessary information during the business day to monitor settlements and make payments within the system.
An important factor behind the successful implementa- tion of the BESP system is the maximum usage of the ex- isting technical infrastructure and the accumulated experi- ence. Additionally, the system has proven to be successful due to its application of modern approaches to ensure sound and robust technology decision-making framework while maintaining a high level of security and reliability.
The Bank of Russia has created a subsection “The Bank of Russia Payment System” in the section “The Payment System of the Russian Federation” on its website. It al- lows the potential participants in the BESP system to have access to the regulatory framework and its changes and information concerning the inclusion of the Bank of Russia customers into the list of the BESP participants38. 2
According to the “Basic Guidelines for the Unified Gov- ernment Monetary Policy”, the arrangements to develop the BESP system are among the efforts undertaken by the Bank of Russia annually to improve the payment system of Russia as a whole.
In 2009 the Bank of Russia continued its work to ex- tend the BESP participants structure: number of partici- pants increased 1.5 times over the year. The BESP par- ticipants accounted for 27% of the total number of credit
38The Bank of Russia website at: http://cbr.ru/today/
institutions involved in the exchange of electronic docu- ments with the Bank of Russia, including 14 out of Russia’s 30 biggest banks.
Taking into account the BESP system is primarily in- tended for effecting large-value urgent payments, related to the implementation of the monetary and budgetary pol- icy and financial market transactions, Clearing Chamber of the Moscow Interbank Currency Exchange (the MICEX Clearing Chamber) and its 5 (out of 6) branches, the St. Petersburg Clearing Chamber and the National Clearing Chamber were included in the BESP system as direct participants Furthermore the Federal Treasury and its 79 regional offices were included into the BESP system par- ticipants list as well . Including the biggest financial market participants into the BESP system intends to concentrate in it a considerable part of the payment turnover passing through the payment system of the Bank of Russia.
The analysis of the structure of the BESP participants allows tracking changes in the trend of their choice of the form of participation. Participants chose associate form of participation more frequently in 2008, whereas in 2009 the number of the BESP participants that chose the direct form of participation increased considerably. Thus, the number of direct participants grew by 82%, while the number of associ- ated participants rose by 66% in 2009. Therefore, despite the fact that the processes of inclusion as a direct partici- pant into the BESP system objectively requires considerably larger financial expenditures and time as compared with the inclusion as an associated participant, a prevailing number of credit institutions used to choose direct form of partici- pation which ensures that the BESP system provides them with full range of services. This choice can be explained by the experience of credit institutions in effecting payments through the BESP system and the assessment of advan- tages and disadvantages of each form of participation39. 3
The established trend in the change of the structure of the BESP system participants’ in the country as a whole remained in the Russian regions too. This was the result of activity carried out by the regional branches of the Bank of Russia with credit institutions and their branches located in territories other than the credit institutions’ head offices were located.
The share of direct and associated participants also in- creased in the total number of customers involved in the exchange of electronic payment documents with the Bank of Russia.
Analysis of the dynamics of payments effected through the BESP system makes it possible to reveal a stable ten- dency of their growth in volume and, to a greater extent, in value, evident to high demand for the BESP system ser- vices. In 2008 the BESP participants made 9,000 payments
39 In 2010 the situation has changed. The number of the BESP
participants choosing the associated form of participation grew more rapidly than the number of its participants opting for direct participa- tion. This could be largely attributed to the enactment of the Bank of Russia Instruction No. 2468-U dated June 15, 2010 “On Amend- ing the Bank of Russia Regulation No. 303-P dated April 25, 2007 ‘On the Real-Time Gross Settlement System of the Bank of Rus- sia,’ that since August 27, 2010 stipulated the incorporation of credit institutions (their branches), which were not the BESP participants, into the BESP system as associated participants.
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totalling 2.3 trillion rubles whereas in 2009 the BESP system processed over 63,000 payments worth 106.6 trillion rubles, of which payments exceeding 1 million rubles accounted for more than 86% in volume and almost 100% in value.
At the same time, the BESP system accounted for 17.5% of the total value and 0.007% of the total volume of payments made through the Bank of Russia Payment System in 2009 compared with 0.4% and 0.003% in 2008 respectively.
Thus, the BESP system which was originally designed for the transfer of urgent priority payments initiated by the financial markets (interbank, foreign exchange and securi- ties markets) is gradually developing into a full-scale in- strument of effecting large-value payments in real-time. The BESP is beginning to serve its main purpose aimed at enhancing the efficiency of the country’s financial sys- tem processing large-value payments in real-time.
In the coming years the Bank of Russia will continue to implement the measures designed for further com- prehensive development of its own payment system, in- cluding the development and improvement of the BESP system in compliance with the “Concept the Development of the Bank of Russia Payment System until 2015”.