There are two systemically important payment systems in Brazil, as designated by the Central Bank of Brazil (BCB). The Reserve Transfer System (STR) is a real-time gross settlement (RTGS) system operated by the BCB. The Funds Transfer System (SITRAF), on the other hand, is a hybrid settlement system with characteristics both of a RTGS and a deferred net settlement system. According to a joint report issued by the Center for Latin American Monetary Studies and the World Bank in 2004, there are nine basic principles that apply to and govern all participants in the Brazilian payment systems. The implementation of these principles, per the report, and the accompanying legal framework and institutional architecture have brought about the compliance of Brazil's systemically important payment systems with international standards and best practices. The report further attests that the National Monetary Council (CMN) Resolution 2,882 strictly follows the Core Principles for Systemically Important Payment Systems (CPSIPS), except for Principle VI, which is implemented by BCB Circular 3,057. A 2006 BCB report also lauds the CMN Resolution 2,882 and the core principles it lays down for the operation of the Brazilian payment system and notes that they comply with the CPSIPS. Lastly, the November 2007 Financial Stability Review issued by the BCB remarks that the BCB complies with internationally established criteria by looking after the safety and efficiency of the Brazilian payment system through ongoing oversight of its systemically important payment systems.

General Overview

Various publicly available sources comment on the extent of compliance of the Brazilian payment systems with the Bank for International Settlement (BIS) Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems (CPSS) without giving Brazil explicit levels of overall compliance or compliance with individual principles. According to a joint report issued by the Center for Latin American Monetary Studies (CEMLA) and the World Bank (WB) in 2004, there are nine basic principles that apply to and govern all participants in the Brazilian payment systems. The implementation of these principles, per the report, "along with the changes in the legal framework and the institutional architecture brought about the reduction of systemic risk, a more appropriate sharing of the associated risks between the central bank and private market players, and the compliance of Brazil's systemically important payment systems with international standards and best practices" (p. 35). More specifically, the report mentions that the National Monetary Council (CMN) Resolution 2.882 "strictly follows the Core Principles for Systemically Important Payment Systems, except for Principle VI, which is placed in [the Central Bank of Brazil] Circular 3.057" (p. 85), implying that Principle VI is implemented by the Central Bank of Brazil (BCB) Circular 3.057. Further, Resolution 2.882 also provides a detailed exposition on the objectives of the BCB oversight of the payment systems. A 2006 report on the Brazilian Payment System published by the BCB also lauds the CMN Resolution 2.882 and the core principles it lays down for the operation of the Brazilian payment system by noting that they "comply with recommendations made by BIS/CPSS in the report 'Core Principles for Systemically Important Payment Systems'..." (p. 2). Lastly, the November 2007 Financial Stability Review issued by the BCB remarks that the BCB complies with internationally established criteria by looking after the safety and efficiency of the Brazilian payment systems through ongoing oversight of its systemically important payment systems.

A 2003 presentation by Mr. Eduardo Fernandes published on the World Bank website gives a detailed history of the Brazilian payment system. Per the report, "Brazil's efficient payment system is a legacy of the high inflation period that has reduced settlement lags" (p. 3). Other factors that spurred the reforms were the restructuring of the banking sector during 1995-1998 resulting in a sound financial system, the internationalization of financial markets, and macroeconomic stability. Before the reforms, there was an absence of a sound legal framework for payment systems, a secure large-value funds transfer system, risk control at clearinghouses, and final settlement. Contingency arrangements were also inadequate as were solutions to payment systems problems without their spilling to the monetary policy domain. Further, credit risk to the BCB was great due to unlimited and uncollateralized intraday availability of credit. The BCB also did not have adequate mechanisms to monitor intraday balances of payment system participants.

As the 2006 BCB report mentions, the Brazilian payment system underwent massive reform in 2001-2002 with an emphasis on risk management. The reform resulted in the launch of a RTGS system in Brazil - the Reserves Transfer System (STR) on April 22, 2002. The new system enabled all inter-bank transfers to be made on a real-time basis, irrevocably and unconditionally. It went a long way in systemic risk reduction and reducing the domino effect caused by the bankruptcy of one bank. A complementary reform was the requirement of sufficient funds in the system to complete a transfer, so that overdrafts were no longer allowed. The launch of the STR was accompanied by concomitant legislative improvements to further reduce systemic risk. Law No. 10.214 of 2001 recognizes multilateral netting and stipulates that all systemically important multilateral netting systems in Brazil must have a corresponding clearinghouse to act as its central counterparty. The report also notes more recent reforms with the BCB actively promoting the development of the retail payment systems with increased use of electronic payment instruments, automated teller machine (ATM) and point of sale (POS) networks; and integration of the clearing and settlement systems.

Commenting on the legal framework governing the payment system in Brazil, the 2006 BCB report states that Law No. 10.214 is the main legal instrument. It stipulates, among other things, that the BCB has the sole authority to designate systemically important payment systems; multilateral netting is allowed; entities operating systemically important payment systems must act as their central counterparty and ensure certainty of settlement through effective safeguards; collateral posted to clearinghouses cannot be seized under any circumstances; and the fulfillment of payment obligations in a system is governed by the system's regulations and is not affected by bankruptcy laws.

Further, as the 2006 BCB report notes, the core principles under which the payment systems function are set out in CMN's Resolution 2.882. Under the Resolution, the BCB is empowered to authorize, regulate and supervise all clearing and settlement systems in Brazil. In the case of securities settlement system, the BCB shares these powers with the Securities and Exchange Commission (CVM), although aspects of security and systemic risks pertaining to these systems are under the sole authority of the BCB. The BCB has articulated its powers under Law No. 10.214 and CMN Resolution 2.882 in its Circular 3.057. The Circular stipulates, inter alia, that systemically important payment systems must effect final settlement with accounts held directly at the BCB. Further, systemically important payment systems are defined as those that settle operations with securities or financial assets, including foreign currency and financial derivatives, as also those that process payments exceeding Brazil Real (R$) 10 million or have a daily turnover higher than R$ 5 billion. In addition, settlement lag is restricted to end of the day for systemically important systems, one business day for spot operations in securities, except stocks, three business days for stock operations carried out in stock exchanges. For other situations, the settlement deadlines are set by the BCB. Lastly, clearinghouses are required to maintain funds corresponding to their risk exposure, which is R$ 30 million for systemically important payment systems and R$ 5 million for other systems.

Other pertinent laws relating to payment systems are Law No. 7.357 that regulates checks and is in line with the Geneva Convention; and the Civil Code (Law No. 10.406), the Commercial Code (Law no. 556), the Securities Exchange Law (Law No. 4.728) and the so called "White Collar" Law (Law No. 7.492), all of which regulate the financial relationship between economic agents. The Consumer Protection Law (Law No. 8.078) also regulates the relationship between financial institutions and their customers.

The principal institutional objectives of the BCB, as the 2006 BCB report notes, are ensuring the stability of the Brazilian currency and the soundness of its financial system. Within this broad framework, the CMN Resolution 2.882 makes it responsible to promote the smooth functioning, soundness and improvement of the national payment system. The BCB also provides final settlement service for all systemically important payment systems and in this role operates the STR and the Special System for Settlement and Custody (SELIC), the federal government securities settlement system. It provides mandatory bank reserves accounts for deposit taking banks and optional for investment banks to enable them to fulfill their reserve requirements and also to settle payment obligations. Since no other bank is allowed to provide reserve accounts to other banks, the BCB is the sole entity where final settlement of payments is executed. The BCB is also the exclusive depository of the National Treasury funds under the Federal Constitution. Lastly, the BCB extends fully collateralized, unlimited and free of charge intraday credit facility to reserve account holders to ensure smooth settlements in the RTGS system. As a 2008 presentation by Jose Antonio Marciano adds, the BCB oversight objectives include preventing systemic risks, promoting payment system and instrument efficiency, and safeguarding the transmission channel for the conduct of monetary policy.

The institutions participating in the country's payment systems are commercial banks, universal banks with commercial bank activities, savings banks and, to a lesser extent, cooperative banks and credit unions. As of December 2005, there were 1,574 such institutions with 17,400 branches and 95 million accounts. Banco do Brasil SA, a federal government bank, is an important player in the check clearing system in Brazil, since it operates the Centralizer for Clearing of Checks and Other Documents (COMPE). COMPE Group is the advisory body for COMPE and comprises of representatives of the BCB, Banco do Brasil SA, and other bank associations. It considers proposals for improvement of the system and other related issues. Credit and debit card organizations are also increasingly playing a major role in the country's payment systems. They include VISA, MasterCard, American Express and Credicard. Finally, the Brazilian Post Office (ECT) plays the role of "correspondente bancário" or an agent that acts on behalf of banks to receive payments and maintain savings deposit accounts for their customers who reside in areas that have no bank branches.

The BCB has designated two systemically important payment systems in the country - STR and the Funds Transfer System (SITRAF). Whereas the STR is a RTGS system, SITRAF is a hybrid settlement system. It is also an interbank funds transfer settlement system that allows intraday funds transfer. Other payment systems include the Deferred Settlement System for Interbank Credit Orders (SILOC), COMPE, and Tecnologia Bancária's (TecBan) Clearinghouse. They are all multilateral netting systems, although none of them are designated systemically important by the BCB in its 2007 Financial Stability Report (FSR). The 2008 Marciano presentation adds that the BCB uses quantitative criteria to classify systemically important payment systems. It takes into consideration the value of individual transactions in the system as well as the value of the daily turnover.

The STR is called the "hub of the Brazilian payment system" (p. 10) by the 2006 BCB report on account of three factors: (1) all banking financial institutions are required by law (Law No. 4,595) to keep reserves accounts with the BCB that operates the STR; (2) net positions of participants in the system have to be settled in the reserves accounts (as stipulated in BCB Circular 3,057); and (3) all funds transfers among reserves accounts, and between reserves accounts and clearinghouses' settlement accounts must be made through the STR. The importance of the STR is also underlined by the fact that the system "is of fundamental importance for the settlement of interbank transactions carried out in the monetary, foreign exchange and capital markets, including clearinghouses' net results" (p. 10). The STR only allows participants with funds in their reserves accounts with the BCB to transact on it. In the event of inadequacy of funds, the system queues the orders to be processed on the basis of priority set by the participants as funds get available. Participation in STR is mandatory for all BCB reserve accounts holders and operators of systemically important settlement systems. Operators of non-systemically important settlement systems can also participate in the STR upon express permission of all mandatory participants. Further, the National Treasury Secretariat (STN) is also a participant since funds transfers related to tax collection and federal government spending are settled in the STR. STR is a very large settlement system, notes the 2007 BCB's Financial Stability Report, processing amounts equaling the Brazilian GDP every 5.3 days, as of 2007. In the first half of 2007, the STR processed R$54.1 trillion, or a daily value of R$440 billion. Its turnover also increased 17 percent in the first half of 2007 over the previous half-year period. The 2003 Fernandes report asserts that the STR has adopted international best practices in its operations.

SITRAF, the hybrid settlement system that operates on a real-time gross basis as well as a multilateral netting basis, was launched on December 6, 2002 as noted in the 2006 BCB report. The 2007 FSR published by the BCB adds that the system has characteristics of a RTGS as well as a deferred net settlement system. With adequate funds in its account, the issuing bank can settle its transfers in real-time, whereas if funds are insufficient, the transfer is queued for a multilateral settlement. According to the 2006 BCB report, settlement in SITRAF is irrevocable and unconditional and risk management procedures are exactly the same as the STR. SITRAF is operated by the Interbank Payment Clearinghouse (CIP). SITRAF also uses funds solely from accounts maintained at the BCB. Settlement occurs either on the same day or on the beginning of the next day. Direct participation in SITRAF is also limited to institutions holding reserves accounts in the BCB. SITRAF processes transfers mainly in individual amounts of up to R$25,000, mentions the 2007 BCB's FSR. Further, 95 percent of the transfers in 2007 were made through the RTGS process.

Lastly, the 2006 BCB report talks about the National Financial System Network (RSFN), which is a messaging network that issues messages relating to funds transfers, collateral agreements, and securities operations in the Brazilian payment system. It inter-links the BCB, the STN, clearinghouses, and reserves account holders, in real time and is mainly used as a technological platform to access the STR and CIP. Its two independent telecommunication networks meet strict security, availability, and operational reliability requirements set by the BCB. Participation is mandatory for all STR and SITRAF participants. The BCB coordinates the monitoring and development work done by the three technical working groups set up for RSFN - network, messages, and security.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

II

Commenting on the legal framework governing the payment system in Brazil, the 2006 BCB report states that Law No. 10.214 is the main legal instrument. It stipulates, among other things, that the BCB has the sole authority to designate systemically important payment systems; multilateral netting is allowed; entities operating systemically important payment systems must act as their central counterparty and ensure certainty of settlement through effective safeguards; collateral posted to clearinghouses cannot be seized under any circumstances; and the fulfillment of payment obligations in a system is governed by the system's regulations and is not affected by bankruptcy laws.

Further, as the 2006 BCB report notes, the core principles under which the payment systems function are set out in CMN Resolution 2.882. These principles "comply with recommendations made by BIS/CPSS in the report 'Core Principles for Systemically Important Payment Systems'..." (p. 2). The 2004 CEMLA/WB report attests that CMN Resolution 2.882 "strictly follows the Core Principles for Systemically Important Payment Systems, except for Principle VI, which is placed in [the BCB] Circular 3.057" (p. 85), implying that Principle VI is implemented by BCB Circular 3.057. Under the Resolution, continues the 2006 BCB report, the BCB is authorized to regulate and supervise all clearing and settlement systems in Brazil. In the case of securities settlement system, the BCB shares these powers with the CVM, although aspects of security and systemic risks pertaining to these systems are under the sole authority of the BCB. The BCB has articulated its powers under Law No. 10.214 and CMN Resolution 2.882 in its Circular 3.057.

Other pertinent laws of the payment systems are Law No. 7.357 that regulates checks and is in line with the Geneva Convention; the Civil Code (Law No. 10.406), the Commercial Code (Law No. 556), the Securities Exchange Law (Law No. 4.728) and the so called "White Collar" Law (Law No. 7.492), all of which regulate the financial relationship between economic agents. The Consumer Protection Law (Law No. 8.078) also regulates the relationship between financial institutions and their customers. Despite the above information, none of the publicly available sources directly address Brazil's compliance with this principle.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

II

As the 2006 BCB report mentions, there are two systemically important payment systems designated by the BCB - the STR and SITRAF. The 2004 CEMLA/WB report remarks that "the STR rules and procedures are intended to define fully and clearly the main rights and responsibilities of all involved parties, including the BCB, as well as to address all the details relative to operation of the system" (p. 47). Further, funds transfers can be monitored and controlled by the originating participants. The participants are also obliged to ensure, to the greatest possible extent, the security and proper functioning of the system and to report misuse promptly to the BCB. This information is insufficient in terms of assigning a level of compliance to the STR with respect to this principle. There is also little publicly available information as to SITRAF's observance of this principle.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

II

The publicly available information on Brazil with regards to this principle, although informative, fails to provide an explicit compliance level of Brazil's adherence to this principle and this is evident from the below descriptive information. The CEMLA/WB report notes that credit risk in the STR is limited due to the fact that it is a RTGS system, whereas liquidity risk is addressed by the free and unlimited intraday credit provided by the BCB through intraday repo operations collateralized by federal government bonds. Another liquidity risk mitigating factor is the reserves requirement with the BCB that all STR participants are subject to. These reserves can be used for intraday settlement purposes. The report also finds liquidity in the BCB reserves adequate to meet simulated intraday requirements. The BCB avoids principal risk by requiring full collateralization of intraday credit. Replacement cost risk is hedged against by charging a haircut to the price of the repo transaction. The prohibitive pricing structure on overnight overdrafts (600 basis points above the market rate) also discourages borrowers from extending the credit overnight. Further, granting intraday credit is discretionary and the BCB is not obliged to extend it, even in abnormal circumstances. Additionally, the BCB operates a monitoring center to monitor liquidity flows and settlement and an Account Balance Monitoring System to monitor participants' reserve account balances. Lastly, the STR has robust centralized queuing mechanisms that envisage steps to prevent gridlocks, attests the report.

As the CEMLA/WB report continues, SITRAF, for its part, ensures that multilateral balances never go into negative, and transfers resulting in negative balances are queued. Balances of SITRAF participants also have an upper limit to optimize liquidity utilization. Accounts going over limit are debited to a queue for the excess funds to be transferred by the participant.

In its 2006 FSR, the BCB states that under Law No. 10.214 and CMN Resolution 2.882, all systemically important payment systems are required to maintain appropriate risk management mechanisms and guarantee settlement of all transactions. The 2008 Marciano presentation also adds that the BCB has legislation and other facilities to mitigate risk. Legal risk is mitigated by specific laws supporting finality, netting, collateralized transactions, etc. Liquidity risk is mitigated by intraday repurchase agreements for government bonds. Credit risk is eliminated by the use of central bank money. Lastly, intraday finality is ensured by the operation of the STR, which is an RTGS system.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

II

The STR, being a RTGS system, fulfils this criterion; however, SITRAF is a hybrid settlement system, which operates on a real-time gross basis as well as a multilateral netting basis. The 2007 FSR published by the BCB notes that SITRAF has the characteristics of a RTGS as well as a deferred net settlement system. With adequate funds in its account, the issuing bank can settle its transfers in real-time, whereas if funds are insufficient, the transfer is queued for a multilateral settlement. The 2006 BCB report mentions that settlement in SITRAF occurs either on the same day or on the beginning of the next day. The 2007 BCB FSR mentions that "risk management mechanisms are identical to those of a RTGS system and settlement is carried out irrevocably and unconditionally during the course of the day" (p. 91). Despite the above information, none of the publicly available sources explicitly address Brazil's compliance with this principle.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

This principle is not applicable to the STR, since it is a RTGS system. However, SITRAF is a hybrid settlement system in which multilateral netting takes place. The 2006 BCB report mentions that settlement in SITRAF occurs either on the same day or on the beginning of the next day. However, the 2007 BCB's FSR mentions that "risk management mechanisms are identical to those of a RTGS system and settlement is carried out irrevocably and unconditionally during the course of the day" (p. 91). Despite the above information, none of the publicly available sources explicitly address Brazil's compliance with this principle.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

II

As the 2007 BCB's FSR notes, all settlement in the STR occurs in Central Bank money, based on funds maintained by participants in the BCB reserve accounts. Further, as the 2004 CEMLA/WB report points out, all operators of systemically important payment systems in Brazil are required to hold settlement accounts in the BCB. Therefore, net balances are settled in Central Bank money. The operators are required to act as central counterparty and guarantee final settlement of all transactions. Despite the above information, none of the publicly available sources explicitly address Brazil's compliance with this principle.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

II

As the 2007 BCB's FSR states, "the systems used in large-value transfers have proven to be safe, efficient and of smooth operation" (p. 99). The 2004 CEMLA/WB report elaborates that the BCB has established a formal contingency and business continuity plan for the STR that secures its business so as to avoid losses to the participants. This contingency plan is required to be tested and fully documented at least annually. Further security is maintained by giving each participant in the systems a digitally certified sole-user identity. At the application level, security is maintained by digital and cryptographed signatures, common security protocol of outgoing messages, and traceable transactions. Overall, the report notes, "the computer-based systems and related data communication networks are secure, reliable, and subject to independent audit by security specialists once a year" (p. 49). System reliability is further bulwarked by two independent and internally redundant technologies that guarantee 99.8 percent up time for the whole system. All service providers of the system must also have back up sites and data replication capability, and includes the BCB, clearinghouses, and connection providers.

SITRAF, per the 2004 CEMLA/WB report, also has a hot standby back-up site that can be operationalized in two hours to cover a disruption to the main site. The up time for SITRAF is also 99.8 percent every year - standard requirement for all systemically important systems in Brazil. Its contingency plan is tested once every year at the least. Further, as the 2008 Marciano presentation mentions, the regulation has also been improvised upon to ensure business continuity management in the systems. The BCB has also established three technical working groups in partnership with the market to handle network, messages, and security, respectively in an effort to monitor and promote the development of the systems' operating networks, the 2003 Fernandes report notes. The BCB coordinates their activities and the process of network monitoring follows international best practices. Despite the above information, none of the publicly available sources explicitly address Brazil's compliance with this principle.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

II

There is insufficient information publicly available that directly addresses Brazil's compliance with this principle.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

II

The 2004 CEMLA/WB report explains in detail the access criteria of the STR. Per the report, Law No. 4.595 requires all deposit-taking institutions to maintain a reserve account with the BCB. The STN also has an account in the BCB. All reserve account holders are mandated to participate in the STR, although the STN's participation is discretionary. Investment banks have the option, but are not required, to participate in the STR. Non-bank financial institutions are not allowed to participate in the STR or maintain accounts in the BCB. Institutions ineligible to participate in the STR directly may access it indirectly through the direct participants. However, the direct participant may charge a fee to the former to use the STR. Further, "rules governing the reserve accounts cover the legal power of a contractual agreement as well as the conditions for access to the STR" (p. 50). In addition, operators of systemically important payment system are required to maintain a settlement account in the BCB to transfer the net balances of their respective participants. These accounts must have a zero balance at the end of each day.

The report continues by adding that the STR has formal exclusion and exit rules. A participant can write in to the BCB to have its reserve account terminated. Also, in the event of a bankruptcy or a banking crisis, the BCB is obliged to close the reserve account of the pertinent bank. The BCB is also authorized to prevent a bank from accessing the STR in extreme situations. Orderly exit of participants is facilitated by the established rules. The payment system oversight unit of the BCB also has a sub-unit to control access to the reserve accounts as well as their termination. As for pricing, participants in the STR must pay a monthly fixed connection fee to access the system. This fee is charged fairly, regardless of whether the participant is small or big.

SITRAF participants also hold reserve accounts at the BCB and are authorized to participate in the CIP. As the CEMLA/WB report finds, "prerequisites for participation include connection to the RSFN and compliance with the conditions laid down in the SITRAF's operational regulations" (p. 53). Capital subscription to the CIP is also a requirement. Despite the above information, none of the publicly available sources explicitly address Brazil's compliance with this principle.

X. The system's governance arrangements should be effective, accountable and transparent.

II

The 2004 CEMLA/WB report notes that the BCB board of directors, the main governing body of the STR, oversees the system. Daily operations of the system are performed by the Department of Banking Operations and Payment Systems (DEBAN) through a specifically created sub-division. Although the managing bodies do not comprise all of the participants in the STR, the BCB does consider their views before reaching any decision, and in fact, most past BCB decisions were taken with a consensual approach. The BCB meets regularly with leading representatives from the financial sector to discuss relevant issues relating to the payment system evolution and development, and the CEMLA/WB report avers that this discussion group may evolve into an official Payment System Council in due course. As for SITRAF, the CEMLA/WB report notes that "thirteen bank representatives participate in the board of governors, the CIP's supreme body, which counts on four advisory committees (accountability and budget; services and products; risk; and technology)" (p. 53). Further, as the Marciano presentation mentions, the regulation has also been improvised upon to strengthen system governance. Firstly, risk management and non-risk management areas have been segregated. Second, there are ownership limits for all SIPS. The above descriptive information notwithstanding, there is little information that directly addresses Brazil's compliance with this principle.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

FC

The Payment System Law (Law No. 10.214) "clearly defines the major objectives for the BCB's payment system" (p. 84) as well as "the specific responsibilities of the BCB toward payment systems" (p. 12), observes the 2004 CEMLA/WB report. It also reinforces the broad mandate granted to the BCB by Law No. 4.595 to regulate payment and settlement systems in the country. Further, CMN Resolution 2.882 also sets out the BCB's objectives with regard to payment system oversight, "namely, efficiency, safety, integrity, and reliability" (p. 12). It defines the scope of the BCB's oversight and requires that supervised institutions observe nine general rules that per the report, "resemble the Core Principles for Systemically Important Payment Systems" (p. 12). Additionally, the BCB itself sets out its role, objectives, and policies in the area of payment systems in its policy statements that are publicly disclosed. The reform of 2001-2002 was also a very transparent process, wherein each document issued went through a public hearing exercise. As the 2008 Marciano presentation adds, the BCB oversight objectives include preventing systemic risks, promoting payment system and instrument efficiency, and safeguarding the transmission channel for the conduct of monetary policy.

B. The central bank should ensure that the systems it operates comply with the Core Principles.

FC

The 2004 CEMLA/WB report mentions the CMN Resolution 2.882 and attests that it "strictly follows the Core Principles for Systemically Important Payment Systems, except for Principle VI, which is placed in [the BCB] Circular 3.057" (p. 85), implying that Principle VI is implemented by BCB Circular 3.057. Further, CMN Resolution 2,882 also sets out the BCB's objectives with regard to payment system oversight, "namely, efficiency, safety, integrity, and reliability" (p. 12). It defines the scope of the BCB's oversight and requires that supervised institutions observe nine general rules that per the report, "resemble the Core Principles for Systemically Important Payment Systems" (p. 12).

The 2007 BCB's FSR also adds that "complying with internationally established criteria, the [BCB] looks after the safety and efficiency of the Brazilian payments system, through constant oversight and evaluation of systemically important systems" (p. 99). Further, the 2008 Marciano presentation maintains that as part of its oversight, the BCB verifies the compliance of the SIPS with principles and the legal framework of payment and settlement systems.

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

EN

The Payment System Law (Law No. 10.214) defines "the specific responsibilities of the BCB toward payment systems" (p. 12), observes the 2004 CEMLA/WB report. It also reinforces the broad mandate granted to the BCB by Law No. 4.595 to regulate payment and settlement systems in the country. Further, CMN Resolution 2.882 also sets out the BCB's objectives with regard to payment system oversight, "namely, efficiency, safety, integrity, and reliability" (p. 12). The 2004 CEMLA/WB report mentions the CMN Resolution 2.882 and attests that it "strictly follows the Core Principles for Systemically Important Payment Systems, except for Principle VI, which is placed in [the BCB] Circular 3,057" (p. 85), implying that Principle VI is implemented by BCB Circular 3.057. Further, CMN Resolution 2.882 also sets out the BCB's objectives with regard to payment system oversight, "namely, efficiency, safety, integrity, and reliability" (p. 12). It defines the scope of the BCB's oversight and requires that supervised institutions observe nine general rules that per the report, "resemble the Core Principles for Systemically Important Payment Systems" (p. 12). The 2007 BCB's FSR also adds that "complying with internationally established criteria, the [BCB] looks after the safety and efficiency of the Brazilian payments system, through constant oversight and evaluation of systemically important systems" (p. 99). Further, the 2008 Marciano presentation maintains that as part of its oversight, the BCB verifies the compliance of the SIPS with principles and the legal framework of payment and settlement systems.

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

Law No. 10,214, per the 2004 CEMLA/WB report, provides the framework of cooperation between the BCB and the CVM in payment system matters. This framework is also complemented by a publicly available memorandum of understanding signed between the two on July 5, 2002 to exchange information and maintain discussions on issues and entities involved in the country's settlement systems. Further, as the report notes, the BCB "aims to cooperate with other central banks, other foreign authorities, and international organizations" (p. 85). This information, however, is insufficient in terms of assessing Brazil's compliance with this principle.