The three systemically important payment systems (SIPS) in Mexico, as designated by the Central Bank of Mexico (Banco de México, or BdM), are the Banco de México Account Holders Service System (Sistema de Atención a Cuentahabientes de Banco de México, or SIAC), the Electronic Interbank Payment System (Sistema de Pagos Electrónicos Interbancarios, or SPEI), and the Interactive Security Deposit System (Sistema Interactivo para el Depósito de Valores, or SIDV). In 2001, the International Monetary Fund (IMF) assessed the SIAC, the Extended Electronic Payments System (Sistema de Pagos Electrónicos de Uso Ampliado, or SPEUA), and the SIDV and concluded that Mexico did not fully comply with the Committee on Payment and Settlement Systems' Core Principles for Systemically Important Payment Systems (CPSIPS). However, the IMF assessment acknowledged that reforms were underway in Mexico at the time, with the aim to make Mexican SIPS compliant with the CPSIPS. Subsequently, several reforms have been implemented such as the adoption of the 2002 Payment System Law and the replacement of the SPEUA with the SPEI. The IMF released a Financial Sector Assessment Program (FSAP) Update in 2007, in which it did not reassess the SIPS in Mexico but did review the reforms undertaken. According to the 2007 FSAP Update, most deficiencies reported by the IMF in its 2001 assessment of Mexico's payment systems that related to the legal framework and the management of credit and liquidity risks were eliminated through reforms undertaken after the 2001 report. For example, the 2002 Payment System Law addressed the issue of finality of payments in SIPS and gave the BdM more explicit powers to regulate the SIPS in accordance with the CPSIPS. Furthermore, the BdM on its website indicates that it undertook several operational and legal modifications that have enabled the Mexican SIPS to comply with international best practices. However, despite the rather positive outlook projected in various reports on payment systems in Mexico, there is insufficient information publicly available addressing Mexico's actual overall compliance with the CPSIPS.

General Overview

The 2007 Central Bank of Mexico's (Banco de México, BdM) Financial System Report notes that there are three large-value payment systems in Mexico. These are the Banco de México Account Holders Service System (Sistema de Atención a Cuentahabientes de Banco de México, or SIAC-Banxico), the Electronic Interbank Payment System (Sistema de Pagos Electrónicos Interbancarios, or SPEI), and the Interactive Security Deposit System (Sistema Interactivo para el Depósito de Valores, or SIDV). The report adds that all three are recognized as being systemically important payment systems (SIPS). The BdM is responsible for designating payment systems as SIPS, a task which it undertakes annually.

In 2001, the SIAC and the SIDV were assessed by the International Monetary Fund (IMF). The SPEI was not assessed at the time because it was not yet operational. Instead there operated another system, the Extended Electronic Payments System (Sistema de Pagos Electrónicos de Uso Ampliado, SPEUA. The SIAC was assessed against the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS). The SIDV, being a securities settlement system, was assessed against the CPSS/International Organization of Securities Commissions (IOSCO) recommendations. The 2001 IMF assessment concluded that the systems had several shortcomings, such as the lack of clear rules on liquidity risks, shortcomings in the legal framework for clearing and settlement, and a need for clarification of the BdM's responsibilities in payment systems. According to the 2001 IMF report, Mexico did not fully comply with the CPSIPS, but reforms were underway which would "lead to full observance of the Core Principles" (p. 36).

Since the 2001 assessment, per the IMF's 2007 Financial Sector Assessment Program (FSAP) Update, the Mexican authorities have adopted several reforms that have modernized payment systems in Mexico and significantly improved their safety and soundness. The Update noted that most deficiencies found in the 2001 assessment of Mexico's payment systems relating to the legal framework and the management of credit and liquidity risks had been eliminated. For example, the 2002 Payment System Law (Ley de Sistemas de Pagos) addressed the issue of finality of payments in SIPS and gave the BdM more explicit powers to regulate the SIPS. The BdM's website indicates that it undertook "several operational and legal modifications [that] have enabled Mexican systemically important payment systems to comply with international best practices." Despite all this information regarding the reforms and its positive implications on payment systems in Mexico, however, there is no actual assessment publicly available explicitly addressing Mexico's compliance with the CPSIPS. The 2007 IMF FSAP Update recommends that the BdM carry out self-assessments of the SIAC and the SPEI against the CPSS' CPSIPS.

According to the 2001 IMF assessment, the main laws governing the payment infrastructure in the country were the Commerce Code, Law of Credit Institutions, General Law on Operation and Credit Instruments, Business Reorganization Act, and Law on Bank of Mexico. Subsequently, however, several reforms were undertaken and in 2002 a comprehensive Payment System Law was enacted. Also, the Law for the Transparency and Regulation of Financial Services (Transparency Law) was enacted so as to improve transparency in payment services.

The three large-value payment systems in Mexico today are the SPEI, the SIAC, and the SIDV. The average daily amount settled through these three systems totals around 2.3 trillion pesos, according to the 2007 BdM report. The SPEI system, which is operated by the BdM, came into use in 2004 and replaced the SPEUA. The BdM's 2007 report also notes that the SPEI, "was designed and developed by Banco de México in compliance with guidelines set out in the Core Principles for Systemically Important Payment Systems" (p. 111). The 2007 FSAP Update by the IMF refers to the SPEI as the "the central system for the settlement of large value payments and urgent client-to-client payments in Mexico" (p. 6). The SPEI is the main system that settles inter-bank transactions. The participants in the system are pension fund management firms (Afores), brokerage firms, foreign exchange firms, banks, insurance companies, non-bank financial entities (Sofoles), and investment firms.

The 2007 BdM report notes that SIAC is the system the BdM uses to administer the current accounts financial institutions hold at the central bank. The system's main function is to provide the payment system with liquidity, and its main users are banks and brokerage houses. According to the BdM's 2007 report, "SIAC processes fund transfers between financial institutions and receives settlements from the SPEI system, the SIDV system, the liquidity repo system (Sistema de Reportos de Liquidez, or RSP), and the check compensation house, as well as several other low value houses" (p. 110). SIDV is an interactive system for securities deposit and, according to the 2007 BdM report, accounts for 80 percent of the total value of operations carried out in payment systems in Mexico. SIDV is owned and operated by the Central Securities Depository (Instituto para el Depósito de Valores, or INDEVAL). However, this system is measured against the CPSS/IOSCO recommendations and not the CPSS' CPSIPS.

The BdM is the central bank of Mexico and in that capacity fulfills several functions in the payment system such as: (1) participation in the payment systems; (2) operator of the SPEI and the SIAC; (3) provider of liquidity in the systems; and most importantly (4) promoter, regulator, and overseer of payment systems operations. In Mexico, checks are the most used non-cash payment instruments, although debit and credit card transactions are steadily increasing, per the 2007 IMF report. The report also notes that progress has been made in the retail payment infrastructure and that "the clearing and settlement of checks and electronic fund transfers with deferred value date (EFTs), is now concentrated in CECOBAN, an automatic clearing house (ACH) owned by the banking sector" (p. 5).

The Principles

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

II

In terms of Mexico's legal framework, the IMF's 2007 FSAP Update, notes that the 2001 assessment recommended improvements in: "(i) the finality of payments; (ii) the legal basis for collateral arrangements and the possibilities to realize the collateral immediately in case of a default; (iii) the recognition of electronic payments and the use of electronic signature; (iv) the legal basis for check truncation and new payment instruments; and, (v) the oversight powers of the [BdM]" (p. 8). The 2007 FSAP Update observes that the 2002 Payment System Law addresses the 2001 IMF assessment's concerns with finality of payments. Similarly, the report notes that since the 2001 assessment, the BdM has improved its collateral arrangements significantly, alleviating the IMF assessors concerns on the issue. Electronic payments and the use of electronic signature are now recognized by Mexican law. The clarification on the BdM's responsibilities in payment systems is addressed by the 2002 Payment System Law. The 2002 Payment System Law grants the BdM the power and the instruments it needs to oversee all systemically important payment systems (SIPS) in the country. In short, the 2007 FSAP Update concludes that "all the observed deficiencies in the legal basis in the FSAP of 2001 are eliminated." (p. 9). The report also expects further improvements in the future, with the passage of several laws that are presently in the works. Despite this positive evaluation by the IMF, there is little information publicly available explicitly addressing Mexico'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

The 2001 IMF FSAP notes that the "the existing rules governing the payment systems define the roles of all the parties involved, and they set a limit to the credit lines granted by the [BdM] in the SIAC and the SIDV" (p. 58). Other than this, however, there is little further information publicly available addressing Mexico'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

According to the 2001 IMF assessment, the systems assessed -- SIAC and SPEUA -- had several shortcomings, including a lack of clear rules on liquidity risks. Particularly in the SPEUA, there was explicit settlement guarantee and a policy to allow uncollateralized overdrafts, among other things, resulting in the overexposure of the BdM to credit risks. As reported by the 2007 FSAP Update, the replacement of the SPEUA by the SPEI removed the explicit settlement guarantee. The report adds that "no overdrafts are allowed in SPEI, and if participants need liquidity to settle their payment obligation in this system, they have to conduct an intraday repo with the [BdM] and transfer the obtained funds via the existing liquidity bridges to their accounts in SPEI" (p. 9). Another 2001 recommendation was to improve the risk management of collateral. The 2007 Update reports that this has been achieved by the increased use of repos, renewing the list of assets used as collateral, and by setting sufficient margins. Thus, by incorporating the required changes, Mexican authorities, per the 2007 FSAP Update, have "eliminated almost totally the risk exposure of the [BdM] from explicit and implicit guarantees and inadequately collateralized credit lines" (p. 9). In addition, the 2007 FSAP Update notes that the risks in the payment infrastructure are more transparent as a result of the elimination of the loss-sharing arrangement that existed under SPEUA. Despite the above descriptive information, however, there is insufficient information publicly available as to Mexico's actual compliance with this principle.

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

According to the 2007 FSAP Update, all payments in SIPS are final and irreversible. Chapter II of the 2002 Payment System Law regulates the timely and final settlement of payments in SIPS. Nonetheless, there is no explicit compliance level in any of the publicly available information addressing Mexico's observance of 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 Mexico's compliance with this principle. Both the SPEI and SIAC are RTGS systems. The 2007 FSAP Update notes that SPEI is a hybrid system that combines the characteristics of a RTGS system with that of a multilateral netting system. The 2007 BdM report notes that the SPEI processes fund transfer orders between financial institutions and their customers instantaneously. The 2007 FSAP Update indicates that, in recent years, the BdM has significantly increased its collateral arrangements.

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

According to the 2001 IMF assessment, the settlement assets for the SIAC are claims on the BdM. The 2007 BdM report states that "every participating institution [in the SPEI] has a money account where it can deposit payments from other participants or with its own resources transferred from SIAC or SIDV. Overdrafts are not allowed in the accounts and, at the end of the day, balances are transferred to each participating institution's current account in the SIAC system" (p. 111). However, there is insufficient information publicly available addressing Mexico'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

All the systems assessed by the IMF in 2001 -- SIAC, SPEUA and SIDV -- had a "good level" (p. 59) of security and operational reliability. There is insufficient information publicly available regarding the SPEI's compliance with this principle. However, a 2003 report on payment systems in Mexico by the CEMLA and the World Bank referred to the BdM's comprehensive reform at the time. This included the creation of the SPEI and was intended to achieve a high degree of operational security and reliability in payment clearance and settlement.

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

II

In its 2001 assessment, the IMF reported that the BdM's large-value payment systems have a "cost recovery policy, and the cost of processing payments is very limited for the participants" (p. 60). The 2007 BdM report indicates that as part of their reforms, the authorities have encouraged the use of efficient mean of payment. For example, non-bank financial institutions now have direct access to SPEI so as to improve efficiency and quality of services. However, there is insufficient information publicly available addressing Mexico's actual compliance with this principle.

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

II

In its 2001 assessment the IMF noted that participation in the SIPS in Mexico is determined by objective rules. According to the 2007 BdM report, SIAC's main users are banks and brokerage houses, whereas the SPEI processes fund transfer orders between financial institutions and their customers. The BdM report also notes that non-bank financial intermediaries are also allowed to participate in the SPEI. Nevertheless, there is little information publicly available regarding Mexico's actual compliance with this principle.

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

II

The BdM owns and operates both the SIAC and the SPEI. The IMF's 2001 assessment noted that, at the time, there was no formal decision process. Subsequently, in its 2007 FSAP Update, the IMF reports that under the 2004 Law for the Transparency and Regulation of Financial Services, the BdM "has been charged to enlarge transparency and competition and to regulate commissions and interchange fees charged by financial institutions. A broad package of measures was taken by the BOM [Bank of Mexico] to remove barriers for interbank transactions, enlarge the transparency of fee and commissions charged, and promote competition" (p. 6). Despite the above information, none of the reports publicly available addresses Mexico's actual 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

According to the BdM's website, the Law on the Bank of Mexico mandates that the BdM "foster the optimal functioning of the payment systems." In its 2007 FSAP Update, the IMF notes that the enactment of the 2002 Payment System Law has strengthened the BdM's power to oversee all SIPS in the country. The BdM is responsible for designating payment systems in the country as SIPS and undertakes this responsibility every year. The 2007 FSAP Update states that the Payment System Law provides the BdM with effective oversight tools, "such as the power to approve the internal rules of the designated systems, request information, and impose adjustment programs or sanction the system provider" (p. 8). The 2007 IMF report also recommends that the BdM "build out [its] oversight role in order to be compliant with the standards set out for oversight in the CPSS Core Principles for Payment System (Responsibilities A-C)" (p. 10). Nonetheless, there is scant information publicly available as to Mexico's compliance with this principle.

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

II

The IMF's 2007 report recommends that the BdM "build out [its] oversight role in order to be compliant with the standards set out for oversight in the CPSS Core Principles for Payment System (Responsibilities A-C)" (p. 10). Nonetheless, there is scant information publicly available as to Mexico's compliance with this principle. The BdM on its website states that the SIAC and the SPEI are required to comply with the CPSIPS.

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

The IMF in its 2007 report recommends that the BdM "build out [its] oversight role in order to be compliant with the standards set out for oversight in the CPSS Core Principles for Payment System (Responsibilities A-C)" (p. 10). Nonetheless, there is scant information publicly available as to Mexico'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 Mexico's compliance with this principle.