The International Monetary Fund, in 2004, conducted a Financial Sector Assessment Program of Chile's financial sector in which it conducted an informal assessment of the payment systems in the country. However, the findings of this assessment were not published. A 2007 (published in 2008) annual report by the Central Bank of Chile (BCCh) notes that there are two high-value payment systems in the county, namely, the Real-Time Gross Settlement (RTGS) system owned and operated by the BCCh, and the High-Value Payment Clearing House, managed and run by ComBanc S.A. A 2004 Financial Stability Report by the BCCh noted that at the time of the launch of the RTGS system, the system met the standards recommended internationally for payment systems of systemic importance. A 2004 report by the Central Bank of Guatemala also states that the Chilean payment systems fulfill international standards on systemically important payment systems and provide a modern, efficient and secure payment system to the financial system. However, the information in the above reports is too sparse, random, and insignificant to provide an authoritative assessment of Chile's compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems. Besides, neither the above reports nor the information on the BCCh website explicitly cite which systems in Chile are of systemic importance to the Chilean financial system.

General Overview

In its 2007 annual report (published in 2008), the Central Bank of Chile (BCCh) notes that there are two high-value payment systems in the county, namely, the real-time gross settlement (RTGS) system owned and operated by the BCCh, and the high-value payment clearing house (HVPCH), managed and run by ComBanc S.A. In its 2004 Financial System Stability Assessment (FSSA), the International Monetary Fund (IMF) noted that an "informal assessment of [Chile's] observance of the CPSS' [Committee on Payment and Settlement Systems] Core Principles for Systemically Important Payment Systems...[was] conducted as part of the FSAP [Financial Sector Assessment Program]" (p. 27). However, the assessment has not been published. In a one-sentence observation in the FSSA report, the IMF recommended improvements in the payment systems so as to provide sufficient protection to investors. The FSSA made mention of the now operational RTGS system, which the report noted would enhance the safety and transparency of the transactions.

The 2004 (first half) Financial Stability Report by the BCCh announced the launch of the country's RTGS system on April 2, 2004 and noted that, at the time, it "met the standards recommended internationally for payment systems of systemic importance" (p. 49). The 2005 annual report of the BCCh (published in 2006) goes on to say that the country embarked on a payment system modernization program in late 2000 that was completed in 2005. An October 2004 report by the Central Bank of Guatemala (BdG) also reiterates that the Chilean payment systems "fulfill the current international standards and Core Principles of the Systemically Important Payment Systems promoted by the BIS [Bank for International Settlements] and provide a modern, efficient and secure payment system to the financial system, that guarantee quality and credibility in the settlement of financial transactions" (p. 32). Though it is implied by the BCCh reports, and stated in the BdG report, that the RTGS system launched in 2004 is systemically important, none of the above sources have explicitly mentioned the designated systemically important payment systems in Chile. Despite the above random statements from the BCCh's annual reports, there is insufficient information publicly available addressing Chile's actual compliance with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems.

The 2007 annual report of the BCCh states that "as per Section 3 of its Basic Constitutional Act, the Central Bank of Chile's objectives include ensuring the normal functioning of domestic payments, which is directly related to administer and operating a Real Time Gross Settlement system (RTGS)" (p. 83). According to the BCCh's 2004 annual report (published in 2005), Chile's RTGS system is an electronic interbank payment system that achieves gross settlement in real time, and operates by transferring funds between the accounts that participants (banking entities) maintain at the BCCh In its 2007 annual report, the BCCh notes that all the banks in the country participate in the RTGS system. Before the RTGS system came into existence, there were four clearinghouses comprising the payment systems in Chile. They included the clearinghouses involving (1) inter-financial operations; (2) checks and other paper instruments in domestic currency; (3) automatic teller machine (ATM) operations; and (4) checks and other paper instruments in foreign currency. The launch of the RTGS system and the CHIPS (Large value Clearing House Interbank Payment Systems) by the BCCh, per its 2004 report, was designed to gradually transition large-value payments (equal to or greater than 50 million Chilean pesos) from the clearinghouses to the new systems, leaving the former to process only small-value payments. The 2005 BCCh annual report adds that in December 2005, the RTGS system was connected to the HVPCH in Chilean Pesos (CLP), operated and managed by Combanc S.A. This "expanded the range of possibilities open to participants for liquidating high-value transactions" (BCCh 2006, p. 18), including a mechanism to ensure punctuality of final settlement notwithstanding insufficient resources at the disposal of the participant posting the largest outstanding balance. The 2007 BCCh annual report adds that the HVPCH is a deferred net settlement (DNS) system. The functioning of the two high value payment systems, the RTGS system and the HVPCH has, per the 2007 BCCh report, allowed the implementation of the delivery versus payment models for the settlement of securities, and thus reduces participants' risk and enhances efficiency of transactions "as per international recommendations and standards in this field" (p. 85).

The regulations governing the RTGS system were approved by the BCCh in early 2004 to ensure the modernization of the payment system in Chile, as noted by the BCCh's 2004 annual report. The regulations govern the transfer of funds in CLP, and stipulate that the transfers be effected when the issuing bank has adequate funds in its peso checking account with the BCCh. All established banking organization in Chile uses the system. The BCCh, which administers the RTGS system, provides the participating banks with intraday credit facility to complete their transactions within the day. The 2004 annual report of the BCCh observes that "since start-up, the RTGS system and the liquidity facility have functioned well, as per expectations, ensuring payments are settled smoothly and safely" (p. 16). Regulations establishing the conditions and requirements for the HVPCH were also approved and they ensure safe and efficient settlement of inter-bank transfers through privately managed clearinghouses. The 2007 BCCh annual report provides the latest statistics of the use of the two high value payment systems as of December 2007. The volume and value of transactions in both systems rose steadily in 2007, per the report. The average daily payments numbered 4,036, of which three-fourths passed through the HVPCH. However, of the average daily value transacted that reached CLP 7.43 trillion, CLP 4.46 trillion were settled in the RTGS system and the remaining CLP 2.97 in the HVPCH system.

The Principles

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

II

There is insufficient information publicly available as to Chile's compliance with this principle. The regulations governing the RTGS system were approved by the BCCh in early 2004 to ensure the modernization of the payment system in Chile, as noted by the BCCh's 2004 annual report. The regulations govern the transfer of funds in Chilean currency, and stipulate that transfers be effected when the issuing bank has adequate funds in its peso checking account with the BCCh. The report further observes that regulations establishing the conditions and requirements for the High Value Payment Clearing Houses were also approved in 2004 and they ensure safe and efficient settlement of inter-bank transfers through privately managed clearinghouses .

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

There is insufficient information publicly available as to Chile's compliance with 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

There is insufficient information publicly available as to Chile's compliance with this principle. Payments in the RTGS system are made on the basis of deposits in the accounts of participating banks with the BCCh, per the 2004 BCCh report. Lack of funds in the accounts leads to the payment message being put in a waiting queue in anticipation of sufficient funds being transferred into the account. The waiting list can be prioritized or eliminated by the instructing participant. The RTGS also has automatic mechanisms to resolve potential gridlocks. In addition, participating banks can make use of the Intraday Liquidity Facility provided by the BCCh to have access to liquid funds and facilitate system operation. Liquidity risk is controlled by procedures established by rules that ensure punctuality of final settlement of net results at the end of each settlement cycle notwithstanding insufficient resources at the disposal of the participant posting the largest outstanding balance . The 2007 BCCh annual report adds that in the operation of the Intraday Liquidity Facility, the BCCh provides intraday funds in lieu of securities with a buy-back arrangement within the day free of cost. However, if the participant cannot return the funds within the day, the unreturned fund takes the form of a Permanent Liquidity Facility that matures in one business day and charges interest on the balance .

The 2005 annual report of the BCCh declares that "the RTGS system and liquidity facilities worked flawlessly in 2005, making it possible to settle payments quickly and securely, offering modernization through improved efficiency" (p. 17). The computer program supporting the RTGS system was completely updated, and the process of connecting the Centralized Securities Depository (DCV) to the new delivery versus payment platform was carried forward. These advances further minimized operational risks and risk of principal loss .

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

There is insufficient information publicly available as to Chile's compliance with this principle. In its 2007 annual report, the BCCh notes that in the RTGS system "transfers are individually settled, that is without netting debits and credits, with the sole consideration being whether the issuing bank has enough of a balance in its account. Once settled, using money from the Central Bank, the transfer is final and irrevocable" (p. 84)

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

There is insufficient information publicly available as to Chile's compliance with this principle. The 2004 BCCh report notes that netting systems operating in the country also serve a useful purpose and hence must also meet international standards .

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

There is insufficient information publicly available as to Chile's compliance with this principle. In its 2007 annual report, the BCCh notes that in the RTGS system "transfers are individually settled, that is without netting debits and credits, with the sole consideration being whether the issuing bank has enough of a balance in its account. Once settled, using money from the Central Bank, the transfer is final and irrevocable" (p. 84)

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

There is insufficient information publicly available as to Chile's compliance with this principle. The 2004 BCCh report nevertheless comments that "the RTGS system operates under conditions guaranteeing security and reliability" (p. 49). They include a messaging system for participants to communicate with the system, a backup processing site, and procedures necessary to solve operating contingencies . The 2005 annual report of the BCCh also declares that "the RTGS system and liquidity facilities worked flawlessly in 2005, making it possible to settle payments quickly and securely, offering modernization through improved efficiency" (p. 17). The computer program supporting the RTGS system was completely updated, and the process of connecting the DCV to the new delivery versus payment platform was carried forward. These advances further minimized operational risks and risk of principal loss. The provision by the BCCh of high-value payment services and liquidity facilities to the financial system also ensures quality, reliability and operational security . To the above information, the 2007 BCCh annual report adds that in the year 2007, "continuity plans expanded to additional low probability/high impact scenarios" (p. 84). One of the advances was the establishment of an external contingency room to provide services in the event of barriers to access the regular facilities. Further, to respond to an untoward event affecting the RTGS system and preventing normal recovery measures, the BCCh has developed a tool using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system to duplicate components so as to reinforce operations, prioritizing the recovery of participants' funds and manual startup of the system. The report notes that the tool will become fully operational in 2008. In addition, the computer software on which the RTGS system is based was being further upgraded to improve security and operational reliability of the system .

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 as to Chile's compliance with this principle.

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

II

There is insufficient information publicly available as to Chile's compliance with this principle. The 2004 FSSA mentions that there are barriers to entry, especially in the retail payments services, that limit the scope for competition .

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

II

There is insufficient information publicly available as to Chile'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.

II

The 2007 annual report of the BCCh states that "as per Section 3 of its Basic Constitutional Act, the Central Bank of Chile's objectives include ensuring the normal functioning of domestic payments, which is directly related to administer and operating a Real Time Gross Settlement system (RTGS)" (p. 83). The annual report adds that the BCCh enjoys many regulatory and supervisory powers to fulfill its payment system objectives and to ensure and facilitate the security and efficiency of the systems. The standards of security and efficiency promoted by the BCCh are, per the report, "approach[ing] those applied internationally and consistent with best practices" (p. 83). Notwithstanding this information, there is insufficient information publicly available that directly addresses Chile's compliance with this principle.

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

II

There is insufficient information publicly available as to Chile's compliance with this principle. The 2004 BCCh report announced the launch of the country's RTGS system on April 2, 2004 and adds that it "meets the standards recommended internationally for payment systems of systemic importance" (p. 49). The October 2004 BdG report also reiterates that the Chilean payment systems "fulfill the current international standards and Core Principles of the Systemically Important Payment Systems promoted by the BIS and provide a modern, efficient and secure payment system to the financial system, that guarantee quality and credibility in the settlement of financial transactions" (p. 32).

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.

II

There is insufficient information publicly available as to Chile's compliance with this principle.

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

There is insufficient information publicly available as to Chile's compliance this principle.