An assessment by the European Central Bank (ECB) in 2004 found Ireland's systemically important payment system, the Irish Real-time Interbank Settlement (IRIS) to be largely compliant with the Core Principles for Systemically Important Payment Systems (CPSIPS) developed by the Committee on Payment and Settlement Systems of the Bank for International Settlements (BIS). The IRIS fully observes seven of the ten Core Principles (CPs), broadly observes two, and CP V is not applicable, since IRIS is a Real Time Gross Settlement system. A 2001 assessment by the International Monetary Fund (IMF) also acknowledged that IRIS observes all CPSIPS. IRIS is the only large value as well as systemically important payment system in Ireland. It commenced operations in March 1997 and is interlinked with the Trans-European Automated Real-time Gross Settlement (TARGET) system. As a participant in the TARGET, IRIS has already been tested under higher standards than many other countries. The Central Bank Act of 1997 provides the statutory basis for the regulatory role of the Central Bank and Financial Services Authority of Ireland (CBFSAI) in supervising the payment and securities settlement systems in the country. The Maastricht Treaty and the statute of the European System of Central Bank (ESCB) also govern the CBFSAI's oversight role. Ireland is expected to migrate to the Euro area payment system, TARGET2, on February 18, 2008. TARGET2 is the successor to TARGET and is a centralized system with a common technical platform which allows it to provide a harmonized level of service for its members.

General Overview

An assessment by the European Central Bank (ECB) in 2004 found Ireland's systemically important payment system (SIPS), the Irish Real-time Interbank Settlement (IRIS) to be largely compliant with the Core Principles on Systemically Important Payment Systems (CPSIPS) developed by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS). The IRIS fully observes seven of the ten Core Principles (CPs), broadly observes two, and CP V is not applicable to IRIS since it is a Real Time Gross Settlement (RTGS) system. Furthermore, according to a 2001 Report on the Observance of Standards Codes (ROSC) by the International Monetary Fund (IMF) "Ireland observes the CPSIPS core principles for systemically important payment systems."

A report published by the ECB in 2007 states that, in Ireland, large-value payments and interbank settlements are effected using a fully automated RTGS system known as IRIS, an acronym derived from the name of the company which owns the system, Irish Real-time Interbank Settlement Company Limited (IRISCo). IRIS commenced operations in March 1997 and is interlinked with the Trans-European Automated Real-time Gross Settlement (TARGET) system. According to a 2007 press release by the ECB posted on its website, TARGET2 was launched on November 19, 2007. Ireland is expected to migrate to TARGET 2, which is a centralized system in the Euro area with a common technical platform and with a harmonized level of service, on February 18, 2008 (ECB 2006).

There is no large-value netting system in Ireland, cash and checks are widely used for making retail payments, and credit and debit cards are increasingly used for making small-value payments. Two separately incorporated clearing companies, Irish Paper Clearing Company Limited (IPCC) and Irish Retail Electronic Payments Clearing Company Limited (IRECC), are responsible for, respectively, paper and bulk electronic retail payment clearing functions since they became operational in 1999. The systems settle on a multilateral netting basis, with end-of-day settlement payments being effected via the RTGS system.

According to the Central Bank and Financial Services Authority of Ireland (CBFSAI) website, the Central Bank Act of 1997 provides the statutory basis for the regulatory role of the CBFSAI in supervising the payment and securities settlement systems in Ireland. The Act provides for the Bank to authorize all systems and approve their rules. The CBFSAI oversight role also stems from Article 105(2) of the Maastricht Treaty and Article 3 of the statute of the European System of Central Banks (ESCB), which state that "The basic tasks to be carried out through the ESCB shall be...to promote the smooth operation of payment systems". The CBFSAI website further declares that one of the objectives of the CBFSAI in terms of payment system regulation and oversight is to ensure the smooth operation of the payments and securities settlement system, and that they are safe, effective, efficient, and easily accessible. Also, through its involvement in the payment system, the CBFSAI is uniquely placed to spot potential problems and take adequate measures to safeguard financial stability and minimize systemic risk.

Per the CBFSAI website, as of 2006, 21 institutions participated in the IRIS system, which is linked to the domestic RTGS systems of the 14 other European Union (EU) member states and to the ECB Payment Mechanism via TARGET. This linkage facilitates real-time processing of cross-border payments in euro between the 16 systems and can be accessed by over 35,000 banks (including branches and subsidiaries) across the EU. TARGET, according to the 2004 CBFSAI Annual Report, commenced operations on January 4, 1999, and is also the mechanism used to facilitate monetary policy implementation. The TARGET system, which operates from 06.00 until 17.00 (local time), facilitates payments on behalf of customers until 16.00, with inter-bank payments processed until 17.00.

The 2004 CBFSAI Annual Report notes that, within the Eurosystem, the ECB takes the necessary actions to ensure that the national payment systems participating in TARGET embody all features necessary for smooth functioning of cross-boarder transactions. As such, IRIS has been tested under very high standards. The 2006 CBFSAI Annual Report mentions that, during 2006, the CBFSAI was involved in the National Payments Implementation Program (NPIP), a program aimed at improving Ireland's payment systems infrastructure. In this regard, a National Payments Advisory Group comprising representatives of IPSO, the Departments of the Taoiseach and Finance, and the CBFSAI was formed to examine a number of Irish payment systems issues, including encouraging a move away from paper payment instruments such as checks, moving toward electronic alternatives such as direct debits, and making payment systems accessible to all groups in Ireland.

The ECB reports that, in 2006, the IRIS system processed 1,217,628 transactions, with a total value of €6,656.4 billion. Of these totals, 731,824 transactions were domestic and 485,804 were cross-border; with a value of €3,539.6 billion for domestic and €3,116.8 billion for cross-border payments. The CBFSAI website adds that transactions processed by IRIS represented 1.2 per cent by value and 1.5 per cent by volume of total transactions processed by the TARGET system in 2006.

The Principles

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

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle I. When assessing compliance with this principle, the ECB paid particular attention to the adequacy and completeness of the legal basis, the enforceability of rights and obligations arising from participation in the system, the clarity of irrevocability and finality, the enforceability of collateral, the availability of legal opinions, and the designation of the system under the Settlement Finality Directive.

The 2007 ECB report gives a detailed account of the legislative framework governing payment system oversight in Ireland. According to the report, the Central Bank Act of 1997 rests the overall responsibility for the regulation and oversight of payment and securities settlement systems with the CBFSAI. Under the 1997 Act, the CBFSAI is authorized to approve the operations and rules of all payment and securities settlement systems in Ireland. The CBFSAI may impose conditions on approval; revoke approval and issue directions to payment and securities settlement systems or their members in the interest of orderly regulation of the systems concerned, and of competition between such systems. Further, the Central Bank Act of 1971 gives the CBFSAI statutory responsibilities for ensuring access to check-clearing facilities by non-clearing credit institutions and other entities. The Central Bank Acts of 1942 and 1971 also provide the CBFSAI with powers to operate accounts for credit institutions and for the Irish government. The European Communities (Finality of Settlement in Payment and Securities Settlement Systems) Regulations of 1998, which took effect on January 4, 1999, transposed the Settlement Finality Directive into Irish law. Finally, payment and securities settlement systems are subject to ongoing monitoring by the CBFSAI, particularly with regard to the acceptability of their rules and of any proposed rule changes.

The 2004 Annual Report by the CBFSAI adds that, along with its domestic mandate, the legal basis for the CBFSAI's oversight role is enshrined in the Treaty establishing the European Community and also in the Statute of the ESCB and the ECB. Article 105 (2) of the Treaty and Article 3 of the Statute state that ''the basic tasks to be carried out through the ESCB shall be... to promote the smooth operation of payment systems.'' This is reflected in Section 7 of the Central Bank and Financial Services Authority of Ireland Act of 2003, which includes the objective of ''promoting the efficient and effective operation of payment and settlement systems." (CBFSAI 2004)

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.

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle II. The 2004 Annual Report by the CBFSAI adds that in its oversight capacity, the CBFSAI promotes a payment systems environment in the country which is safe, effective, and efficient; ensuring that all approved credit institutions can access the systems on a fair and equitable basis. The CBFSAI further seeks to ensure that Ireland's payment systems themselves do not cause, or add to, instability in the operation of the country's financial markets. The CBFSAI believes that the efficient and effective operation of payment systems is a core requirement for maintaining financial stability, and for meeting both the business needs of the economy generally and the personal banking requirements of the public at large. The 2001 IMF ROSC also found that rules are available to participants as well as applicants.

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.

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle III, providing prompt settlement on the day of value. The observance of this principle was verified with a particular focus on the existence of management of credit exposures between participants, incentives to manage this risk, the irrevocability and finality of payments, and the management of liquidity risk.

The CBFSAI's 2006 Annual Report notes that the CBFSAI accords particular oversight to the IRIS due to its systemic importance. In order to minimize overall systemic risk, the IRIS employs a mechanism for participants to effect all large-value interbank payments in Ireland, both on participant banks' own accounts and on behalf of their customers, in real-time (i.e., continuously throughout the day), gross (i.e., on an individual basis), and in central bank money. IRIS is linked to the TARGET system, which allows cross-border payments to be made on the same basis. No credit institution can participate in IRIS without the CBFSAI's approval. Criteria for participation include financial strength and the technical ability to meet the requirements of the system. Further, the IRIS system is subject to regular ESCB risk analysis, which reviews the system's security features on a regular basis.

According to the IMF's 2001 ROSC, to fund overdraft positions, banks may avail themselves of free-of-charge intra-day liquidity facilities from the CBFSAI, subject to provision of adequate collateral under the terms of repurchase agreements. Collateral provided must also meet ESCB requirements and the operation is conducted under the terms of a Master Repurchase agreement entered into by the CBFSAI with the credit institution. The EU Directive on Settlement Finality provides that collateral be readily realizable even in the event of insolvency of the collateral provider.

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.)

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle IV, providing prompt settlement on the day of value. The CBFSAI's 2006 Annual Report notes that, in order to minimize overall systemic risk, the IRIS employs a mechanism for participants to effect all large-value interbank payments in Ireland, both on participant banks' own accounts and on behalf of their customers, in real-time (i.e., continuously throughout the day), gross (i.e., on an individual basis), and in central bank money. IRIS is linked to the TARGET system, which allows cross-border payments to be made on the same basis. According to the 2001 ROSC by the IMF, the IRIS system does not permit negative balances. Settlement is in central bank money and is unconditional, irrevocable and final at the moment when the sending member's account is debited in the Central Accounting System.

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.)

FC

As noted by the ECB in 2004, this Principle is not applicable to Ireland's payment system, as the IRIS is an RTGS system.

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.

CP

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle VI as it settles in the books of the central bank. According to the 2001 ROSC by the IMF, the IRIS system does not permit negative balances. Settlement is in central bank money and is unconditional, irrevocable, and final at the moment when the sending member's account is debited in the Central Accounting System. This precludes liquidity risk in the system. The CBFSAI website also reiterates the same fact. Accordingly, all operations are settled via IRIS, with no funds being advanced prior to the transfer of ownership of collateral to the CBFSAI under the terms of a Master Repurchase Agreement signed between the counterparty and the CBFSAI.

The 2007 ECB report details how the system works. It notes that liquidity is provided to participants each morning when the system opens for business by means of account transfers by the CBFSAI based on the amount of collateral deposited with the CBFSAI by each participant. The CBFSAI can provide additional intraday liquidity, subject to the condition that such credit is fully collateralized, through an intraday repo. Liquidity is withdrawn from participants at the close of business each day by using the same account transfer mechanism. Participants' settlement accounts at the CBFSAI are also their minimum reserve accounts. Participants may also access the deposit facility on request at an interest rate set by the ECB. In the event of any IRIS participant having insufficient funds to repay its intraday liquidity, the shortfall is treated as a request for access to the marginal lending facility. This lending attracts overnight interest at the rate set by the ECB. Payments can only be made out of available funds. A technical feature prevents participants from maintaining negative balances on the IRIS system under any circumstances, thereby avoiding credit risk for participants.

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

CP

According to the 2004 ECB assessment, Ireland's payment system broadly observes this Principle. According to the 2001 ROSC by the IMF, based on the common performance features of TARGET, the IRIS system is secure and reliable. It observes that if a technical failure occurs, on-site recovery within one hour is required and achievable because of on-site system replication. Also, in the event that both on-site systems fail during the business day, the system has the capacity to revert to end-of-day aggregate gross settlement with recovery of the remote site on opening for business the next day. The IMF further notes the CBFSAI was moving towards having the remote site operational within four hours. The contingency plans were found to be reviewed and tested regularly.

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

CP

According to the 2004 ECB assessment, Ireland's payment system broadly observes Core Principle VIII. When performing the assessment, particular attention was paid to the business objectives, to the balance between the system's capacity and demand for it, as well as to the existence of a pricing policy and a cost methodology and to the level of cost efficiency. The assessment found that Ireland allows participants to be involved in the determination of the domestic pricing policy for its payment system. The 2007 ECB Report finds that IRISCo, the system owner of the IRIS, recovers its costs annually from IRIS participants by dividing the total costs incurred by both IRISCo and the CBFSAI, including salaries, overheads, hardware, software, maintenance, depreciation, etc., among all participants, each making a payment in proportion to its shareholding in the company. Further, the CBFSAI separately bills IRIS participants for the TARGET fees applicable to cross-border payments.

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

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle IX. The assessment focused on the access criteria, their fairness and public availability, on the justification for any limitations restricting access to the system, on the fee schedule and its impact on access to the system, on exit criteria and on the continued compliance of participants with the access criteria. The 2007 ECB Report also observes that access criteria for the IRIS system comply with the ECB's TARGET Guideline. In addition to credit institutions, the CBFSAI may also allow the national treasury (the NTMA, Ireland's national debt management agency) as well as investment firms established in the European Economic Area (EEA) and organizations providing clearing and settlement services access to the system,. There are currently 21 direct participants in IRIS: 19 credit institutions, the NTMA, and the CBFSAI. The CBFSAI participates both on its own behalf and on behalf of the public sector and international customers. There are no indirect participants in the IRIS system.

The CBFSAI's 2006 Annual Report notes that no credit institution can participate in IRIS without the CBFSAI's approval, based on its financial strength and its technical ability to meet the requirements of the system. Further, the IRIS system is subject to regular ESCB risk analysis, which reviews the system's security features on a regular basis. According to the IMF's 2001 ROSC, access to membership of IRIS is set out in the Memorandum and Articles of Association of the company, which are publicly available documents. There is also a set of operating rules that are available to members and applicants. Access costs are subject to CBFSAI approval. Legislation does not prevent insolvent financial institutions from participating in the RTGS. However, the requirement of a settlement account at the CBFSAI makes it unlikely that an insolvent financial institution could continue participating in a payment system.

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

FC

According to the 2004 ECB assessment, Ireland's payment system fully observes Core Principle X. According to the 2001 ROSC by the IMF, the systems' governance arrangements are effective, accountable and transparent.

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

According to the CBFSAI website, the Central Bank Act of 1997 provides the statutory basis for the regulatory role of the CBFSAI in supervising the payment and securities settlement systems in Ireland. The Act provides for the Bank to authorize all systems and approve their rules. The CBFSAI's oversight role also stems from Article 105(2) of the Maastricht Treaty and Article 3 of the statute of the ESCB, which states that "The basic tasks to be carried out through the ESCB shall be... to promote the smooth operation of payment systems". This is reflected in Section 7 of the CBFSAI Act of 2003, which includes the objective of ''promoting the efficient and effective operation of payment and settlement systems." The CBFSAI website further declares that one of the objectives of the CBFSAI in terms of payment system regulation and oversight is to ensure the smooth operation of the payments and securities settlement system, and that they are safe, effective, efficient, and easily accessible. Also, through its involvement in the payment system, the CBFSAI is uniquely placed to spot potential problems and take adequate measures to safeguard financial stability and minimize systemic risk. However, there is insufficient information directly addressing Ireland's compliance with this Principle.

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

FC

According to the 2001 ROSC by the IMF, Ireland observes the core principles for systemically important payment systems. The only systemically important payment system in Ireland is IRIS. This is facilitated by the ECB actions to ensure that national payment systems participating in TARGET embody all the features necessary for the smooth functioning of cross-border transactions. The IMF also notes that, as a participant in TARGET, IRIS has already been tested under higher standards than many other countries, as the design of TARGET was based on a number of minimum common performance features to ensure the continuity of cross-border payments between TARGET participants. The CBFSAI, in its 2004 Annual Report, informs that it completed a full review of the IRIS system against the CPSIPS in 2004 and was adapting the Committee on Payment and Settlement Systems recommendations.

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

According to the IMF's 2001 ROSC, the only systemically important payment system in Ireland is IRIS, and it is a component of TARGET, the RTGS system which processes the euro through the national RGTS systems of the ESCB and the ECB payment mechanism. However, there is insufficient information directly addressing Ireland'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

The 2007 ECB report observes that CBFSAI maintains ongoing contact with the operators of payment and securities settlement systems in Ireland. It also cooperates with the Nationale Bank van België/Banque Nationale de Belgique in relation to the oversight of Euroclear, where transactions in Irish government bonds are settled. Further, the CBFSAI cooperates with the relevant government departments in relation to the drafting of legislation in the area of payment and securities settlement systems. It is also an active member of both the Committee of European Securities Regulators and the International Organization of Securities Commissions (IOSCO).

The 2004 Annual Report by the CBFSAI adds that the CBFSAI's Policy and Oversight Unit monitors payment systems developments in Ireland. The CBFSAI also held regular review meetings with the IPSO, which acts as the representative body for the payments industry in Ireland. The CBFSAI was also represented in its capacity as payment systems regulator at board meetings of IPSO, IPCC, IRECC and IRISCo throughout 2004. At the European level, the CBFSAI participates in the ECSB's Payment and Settlement Systems Committee and its associated subgroups. Through these bodies, the Bank contributes to the work of the ECB's Payment Systems and Market Infrastructure Directorate. However, there is insufficient information directly addressing Ireland's compliance with this Principle.