The Ecuadorian National Payments System (SNP) comprises mainly three systems, the Interbank Payment System (SPI); the On- line Payment System (SPL); and the Check Clearing System (SCC). The SPI is a low-value interbank retail payment system with a deferred net settlement. The SPL is a large-value real-time gross settlement system which processes transfers electronically and settles payments in real-time. The SCC, as the name suggests, clears checks. The creation of a reformed and modernized national payment system was made imperative by the dollarization of the Ecuadorian currency in 2000, notes a 2004 report jointly published by the Center for Latin American Monetary Studies and the World Bank. The reform process initiated in 2000 aimed at increasing the efficiency and security of payment mechanisms, reducing costs and time involved, integrating all the payment systems at the national level and standardizing their procedures, and introducing new payment instruments and financial mechanisms, thereby achieving compliance with international standards. However, none of the systems mentioned above have been clearly designated as systemically important by the country's central bank, which is responsible for administering, regulating, and overseeing the SNP. There is also scant recent information publicly available that directly addresses Ecuador's compliance with the Core Principles for Systemically Important Payment Systems promulgated by the Committee on Payment and Settlement Systems.

General Overview

In its 2006 annual report, the Central Bank of Ecuador (BCE) mentions that the National Payments System (Sistema Nacional de Pagos, or SNP) in Ecuador comprises three systems, the Sistema de Pago Interbancario (Interbank Payment System, or SPI); the Sistema de Pago en Línea (On-line Payment System, or SPL); and the Sistema de Compensación de Cheques (Check Clearing System, SCC). The SPL is the real time gross settlement (RTGS) system for electronic transfer of funds. Per the 2006 BCE report, in that year the system processed 57,317 transactions with a value of USD 4,438 million. In the same year, the SPI processed 10 million transactions with a value of USD 5,559 million, and the SCC processed 41 million checks in the amount of USD 44 million. However, the BCE report does not specify which system is of systemic importance to the financial sector in Ecuador.

A 2004 report by the Center for Latin American Monetary Studies (CEMLA) and the World Bank (WB) titled "Payments and Securities Clearance and Settlements Systems in Ecuador," provides detailed information on the payment system infrastructure, operations, legal framework, supervision and regulation, and past or future reform initiatives. The report notes that the dollarization of the Ecuadorian currency in 2000 made it imperative for the country to reform and modernize the national payments system. The reform process initiated in 2000 had the following general objectives: "increase the efficiency of payment mechanisms in the country by inducing a reduction of transaction and operational costs, as well as of the time needed to complete settlement; integrate all payment systems at the national level and achieve compliance with international standards; standardize operational procedures, conditions and possibilities for the financial institutions as well as for non-financial firms and individuals; and increase the levels of safety and effectiveness; [and] make the payments system more dynamic, facilitating the introduction of new payment instruments and financial mechanisms" (p. 40). The 2005 International Monetary Fund (IMF) Article IV report (published in 2006) also asserts that Ecuador has developed a work plan to implement the 2004 Financial Sector Assessment Program (FSAP) recommendations by the IMF, and it includes enacting a law to strengthen the payments system in the country. The FSAP is not publicly available, although it is mentioned in the IMF's 2005 Article IV report. The 2006 BCE annual report also reiterates the country's focus on reforming its payments system, stating that the BCE has been innovating its payments system since 2002 to make it more secure, timely, and efficient. The BCE integrated all financial systems into the payments system administered by it in the interest of financial stability of the dollarized economy. Different components of the National Payments System settle transactions of different categories of private and public sector entities. The functioning of the SNP falls under the ultimate oversight of the BCE, which is responsible for controlling and managing the systemic risk that may affect its participants.

The CEMLA/WB report described the key features of the then-pending RTGS system, the SPL, as follows: "(1) settlements are done on a gross basis, i.e., one by one; (2) in order for payments to be settled, the originator is required to have full availability of the necessary funds and there will be no possibilities for current account overdrafts or of BCE credit; (3) at the beginning of each day, the SPL participants' accounts are credited with the available balances in their current accounts at the BCE; (4) payments in the SPL are considered final once they are settled by the system; (5) the BCE is able to credit the current accounts of the participants as a result of direct transactions between the Central Bank and such participants (e.g., cash deposits, repos, settlement of clearinghouse balances, etc.; and (6) the balances of deferred net settlement systems are settled through the SPL" (pp. 42-43). An undated report by the BCE on the SPL reiterates that the SPL settles payments on a transaction-by-transaction basis, and in order for the payment to be processed, full and timely availability of funds is required. Settlements in the system are final and irrevocable.

The SPI became operational in August 2002 as the first "tangible product of the payments system reform efforts of the BCE (p. 35), notes the CEMLA/WB report. It is an electronic, retail, interbank, deferred net settlement system that does not accept transactions of more than US$10,000. It has a private communications network through which it sends standard credit-type payment transfer messages to the BCE where final settlement takes place on the basis of the current accounts of the participants. However, the SPI lacks a risk-management mechanism in that current account overdrafts are not allowed and the participants are not provided with regular credit facilities by the BCE. The establishment of a Liquidity Fund to support settlement by participants was being proposed at the time of the CEMLA/World Bank report's writing. The report also mentioned the projected implementation of the SCC, which would enable bilateral or multilateral netting of payments by non-banking institutions like stock exchanges, savings and loans cooperatives, and others that provide specialized payment services to commercial banks. Such institutions would be provided "specialized clearinghouse" status by the BCE for this purpose. As noted in the 2006 BCE Annual report, the SCC is a system presently operating in Ecuador.

The CEMLA/WB report notes that the BCE is the "regulator, operator, and settlement agent" (p. 20) of the various payment and settlement systems in Ecuador: the check clearinghouse, the SWIFT closed user groups system, and the "window" and "diskette" facilities. The BCE is also the "official depository of public sector funds and of the banking reserve requirements" (p. 20), and administers the current accounts of financial institutions and other entities. The 1992 Organic Law on Monetary Regime and State Bank does not provide the BCE with specific oversight authority over the private-sector payments systems, and for retail payment systems, the BCE only acts as the settlement agent. The creation and functioning of the institutions that make up the payments system are governed by the General Law on the Institutions of the Financial System, which also lays down the types of operations they are allowed to undertake. The Superintendency of Banks and Insurance (SBS) is not authorized by the 2001 General Law on the Institutions of the Financial System to carry out oversight of the payment systems. It only has powers to "verify the accurateness of the information the financial institutions provide to the BCE upon request of the latter" (p. 22). The other organization with a significant supervisory role in payment systems in Ecuador is the Ministry of Economy and Finance (MEF). The CEMLA/WB report noted that, in 2002, cash and checks were the dominant means of payment in Ecuador.

The Principles

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

II

According to the CEMLA/WB report, the creation and functioning of the institutions that make up the payments system are governed by the General Law on the Institutions of the Financial System, which also lays down the types of operations they are allowed to undertake. The 2006 BCE annual report adds that the Organic Law on Monetary Regime and State Bank, and the Law on Electronic Commerce provide the legal framework for the National Payments System and the BCE's role and powers in providing the services of the SNP. Further, per the CEMLA/WB report, the Regulations Code of the BCE promulgates and regulates the operational role and responsibilities of the BCE with regard to the National Clearing System, the reserve requirement, interbank transactions, public sector current accounts, and conventional payment instruments. The 1975 General Law on Checks and the SBS Regulations and Manuals add to the overall legal framework for payments. However, this information is not sufficient to assign a level of compliance to Ecuador with respect to 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

There is insufficient information publicly available as to Ecuador'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 Ecuador's compliance with this principle. The 2006 BCE annual report, however, notes that the functioning of the National Payments System falls under the ultimate oversight of the BCE, which is responsible for controlling and managing the systemic risk that may affect its participants. As the CEMLA/WB report notes, the SPI lacks risk management mechanism in that current account overdrafts are not allowed and the participants are not provided with regular credit facilities by the BCE. The establishment of a Liquidity Fund to support settlement by participants was being proposed in 2002.

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

Per information available on SPL in an undated BCE report, as well as in the CEMLA/WB report, the system, a component of Ecuador's National Payments System, is a RTGS system and it settles transfers on a gross basis. Payments settle automatically (debit and credit occurring simultaneously) and are final and irrevocable. However, there is insufficient information publicly available as to Ecuador's actual 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

There is insufficient information publicly available as to Ecuador'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 noted in the CEMLA/WB report, in 2002 the then pending SPL system's participants were expected to hold current accounts with the BCE. However, there is little information publicly available as to Ecuador's actual 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

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

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

II

There is insufficient information publicly available as to Ecuador'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 CEMLA/WB report notes that the BCE is the "regulator, operator and settlement agent" (p. 20) of the various payment and settlement systems in Ecuador, viz., the check clearinghouse, the SWIFT closed user groups system and the "window" and "diskette" facilities. Per the 2006 BCE annual report, the responsibilities of the BCE are to regulate and administer payments systems as an alternative to the use of cash and checks. The CEMLA/WB report adds that the BCE is the "official depository of public sector funds and of the banking reserve requirements" (p. 20), and therefore administers the current accounts of financial institutions and other entities. The Organic Law on Monetary Regime and State Bank does not provide the BCE with specific oversight authority over the private sector operated payments systems, and for retail payment systems, the BCE only acts as the settlement agent. According to the CEMLA/WB report, the Regulations Code of the BCE, nevertheless, "sets and regulates its operational responsibilities towards the National Clearing System, the reserve requirement, interbank transactions, public sector current accounts and conventional payment instruments" (p. 12). The BCE is mandated to facilitate proper, timely, and safe settlement of payments, and to control the overall risks in the system. The report also observes that the BCE is in the midst of reforming Ecuador's payments system to achieve efficiency and reduce systemic risks in the system. There is, however, little further information publicly available regarding Ecuador's compliance with this principle.

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

II

The CEMLA/WB report indicates that the BCE is in the process of reforming the national payments systems by integrating all systems at the national level. The move is aimed at achieving "compliance with international standards" (p. 40). There is, however, little further information publicly available regarding Ecuador's compliance with this principle.

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

See Principle B.

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 Ecuador's compliance with this principle. Per the CEMLA/WB report, Ecuador is a member of the 12 country Latin American Association for Integration, which is "a system for the clearing and settlement of multilateral cross-border payments related to the intra-regional trade of 12 countries: Argentina, Brazil, Bolivia, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela" (p. 64).