According to the International Monetary Fund's (IMF) 2005 Financial System Stability Assessment (FSSA), the Norwegian systemically important payment system, Norges Bank's settlement system (NBO) is a real-time gross settlement system and is fully compliant with all the ten Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems. The 2006 Norges Bank's (NB) Annual Report on Payment Systems also assessed the three settlement systems in Norway supervised by the NB -- the NBO, the Norwegian Interbank Clearing System (NICS) and the DnB NOR Bank ASA's (DnB NOR) interbank system and concluded that they all met international standards, with very minor shortcomings. Per the 2005 FSSA, the oversight of payment systems in Norway is generally sound, and the law bestows on the NB the responsibility of oversight of payment systems in Norway. Also, the NB has the requisite resources and tools to carry out this role. However, the FSSA calls for transparency in oversight and recommends that the NB's Payment System Department be charged with monitoring the NBO's compliance with the CPSIPS. It also recommends that the rules governing payment systems supervision be codified and published on the NB's website. The NB has responded to these recommendations, as is evident from its 2006 Annual Report, according to which the oversight responsibility of the NB is spelled out in Section 1 of the Norges Bank Act. The bank's Annual Report adds that the NB's role as the supervisor of payment systems is to ensure that systems follow the ten CPSIPS. The same report also states that the NB is in the process of implementing a new settlement system to be named the New Interbank Settlement System (nytt interbank oppgjørssystem, or NIBO) to replace the NBO, and address concerns of potential operational risks in the aging NBO.

General Overview

According to the International Monetary Fund's (IMF) 2005 Financial System Stability Assessment (FSSA), the Norwegian systemically important payment system, Norges Bank's settlement system (Norges Bank Oppgjønsystem, or NBO) is a real-time gross settlement (RTGS) system and "complies with all 10 Core Principles" (p. 35). These are the Core Principles for Systemically Important Payment Systems (CPSIPS) promulgated by the Committee on Payment and Settlement Systems (CPSS). The FSSA also noted that some recommendations, though minor, could further improve the system. The 2006 Norges Bank's (NB), Norway's Central Bank, Annual Report on Payment Systems also assessed the three settlement systems in Norway supervised by the NB: the NBO, the Norwegian Interbank Clearing System (NICS) and DnB NOR Bank ASA's (DnB NOR) interbank system, concluding that they "satisfy international recommendations with only minor reservations" (p. 30). Further, the report notes that Core Principle V pertaining to multilateral netting is not applicable in Norway.

Per the 2005 FSSA, the oversight of Norway's payment systems, conferred by law on the NB, is "generally sound" (p. 19). Also, the NB has the requisite resources and tools to carry out this role. However, the FSSA calls for transparency in oversight. The FSSA recommends that the Payment System Department within the NB be charged with monitoring the NBO's compliance with the CPSIPS. It adds that the rules governing payment systems supervision should be codified and published on the NB's website. The NB's 2006 Annual Report discloses the NB's response to these recommendations, stating that the oversight responsibility of the NB is now spelled out in Section 1 of the Norges Bank Act, and specifying that the NB's role as the supervisor of payment systems is to ensure that systems follow the ten Core Principles.

Per the 2005 FSSA Norway also has all the preconditions for the effective functioning of payment systems. The infrastructure is sound. Relationships between the NB and participating banks and among the participants themselves are cooperative and well-defined. The three primary policy formulating and supervisory agencies with regard to payment systems in Norway are the NB and Norway's two Banking Associations: the Norwegian Savings Bank Association (NSBA) and the Financial Services Association (FNH). According to the 2005 IMF report, the NB is the operator and overseer of the systems and performs "a catalyst role inducing changes in the field of payments through supportive actions aiming at facilitating private sector initiatives and creating a platform for consultation and discussions with the financial sector" (p. 34). The two Banking Associations have a policy formulation role, including setting standards and issuing agreements of cooperation between banks in the systems.

The 2005 FSSA finds the legal framework to be sound and clear; dispute resolution and crisis management procedures in place; accounting practices up to standard; governance structure effective; collateral arrangements fully enforceable; and the infrastructure secure. The 2006 NB Annual Report on Payment Systems states that the oversight responsibility of the NB is spelt out in Section 1 of the 1985 Act Relating to Norges Bank and the Monetary System (Norges Bank Act), according to which the NB shall "promote an efficient payment system domestically as well as vis-à-vis other countries" (p. 28). In addition, the 1999 Act Relating to Payment Systems (Payment Systems Act) charges the NB with the responsibility of authorizing and supervising the interbank systems. The 2006 NB Annual Report on Payment Systems mentions that a European Union (EU) Directive on Payment Services has been passed to harmonize the payment system legislative framework throughout the EU countries, and speculates that the directive "will probably also apply to Norway" (p. 24). The 2007 IMF publication titled "Financial Integration in the Nordic-Baltic Region: Challenges for Financial Policies" states that Norway belongs to the European Economic Area (EEA) and is bound by its financial and economic policy decisions. Therefore, even though it is not an EU member, it is financially integrated with the EU framework of financial regulation and provision of financial services.

Per the 2006 NB Annual Report on Payment Systems, NICS is "both a clearing house and a transaction channel" (p. 27). The FNH website states that the NICS Operating Office was established by the NSBA and the FNH in accordance with the Payment Systems Act. The DnB NOR is the largest private settlement bank, and commenced operating its interbank settlement system in 2003, replacing two earlier systems. According to the 2005 FSSA, the NBO is a large-value payment system, and settles payments above Norwegian krone (NOK - currency of Norway) 25 million. NICS processes payments below that amount, and handles Society for Worldwide Interbank Financial Telecommunication (SWIFT) as well as retail payments. NICS' daily turnover amounts to NOK 200 billion. NICS is, however, not considered a systemically important payment system. This is why the FSSA assessed only the NBO against the CPSIPS. The 2006 NB Annual Report on Payment Systems states that the NBO is aging, and this could gradually leave it vulnerable to risks. Therefore, to address this concern, the NB is implementing a new settlement system, to be named the New Interbank Settlement System (nytt interbank oppgjørssystem, or NIBO). The 2007 IMF Article IV report finds in this context that Norway has also declared its intent to upgrade its retail payment system in 2008 in order to reduce risk and implement a key recommendation of the 2005 FSSA report.

As noted in the 2006 NB Annual Report on Payment Systems, Norway has continued its rapid trend towards electronic payment instruments. Internet banking and use of services such as electronic billing (eFaktura) and direct debits (Avtalegiro) are on the rise; while paper based and cash payments are declining. Use of payment cards, including debit, credit, and charge cards, also showed a steady increase. The Norwegian version of a debit card is called BankAxept, and it is "often combined with international cards with a debit function, often Visa" (NB 2007a, p. 14). Credit and charge cards are less frequently used. Even less popular are checks which have showed a steady decline since 1984 when their use peaked.

The Principles

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

FC

According to the 2005 IMF FSSA, the Norwegian systemically important payment system, NBO "complies with all 10 Core Principles" (p. 35). The FSSA also noted that some recommendations, though minor, could further improve the system. The 2006 NB Annual Report on Payment Systems also assessed the three settlement systems in Norway supervised by the NB - the NBO, the NICS, and the DnB NOR's interbank system, and similarly concluded that they "satisfy international recommendations with only minor reservations" (p. 30).

The 2005 FSSA found the legal framework to be sound and clear; dispute resolution and crisis management procedures in place; accounting practices up to standard; governance structure effective; collateral arrangements fully enforceable; and the infrastructure secure. The FSSA offers a small recommendation that Norway put in place rules requiring banks outside the EEA applying for participation in the system to "provide a legal opinion with respect to possible conflicts of law" (p. 38). The 2006 NB Annual Report on Payment Systems also seconds the FSSA observation that the framework of laws is updated and complete. The Payment Systems Act transposed the EU Settlement Finality Directive into Norwegian law, and the 2004 Act relating to financial collateral transposed the EU Directive on financial collateral arrangements into Norwegian law. Another relevant law is the 1999 Financial Contracts Act which regulates the agreements between participants in the system. Further, the participants are bound by agreements such as the "Account Maintenance and Settlement Agreement" and the "Agreement relating to financial collateral for loans in Norges Bank".

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 2005 IMF FSSA, the NBO complies with this principle. The FSSA recommends that the contractual arrangements and various rules and regulations of participation that were scattered throughout the Agreements could be brought together on the NB's website to enable easier access by the participants. In this context, the 2006 NB Annual Report on Payment Systems states that all rules and agreements are available to the participants and the public on the NB's website; however there are some minor inconsistencies in the NBO and the NICS rules which create confusion.

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 2005 IMF FSSA, the NBO complies with this principle. Since the system is an RTGS system with queuing arrangements and final settlement in the NB, it eliminates credit risk. Liquidity risk is also taken care of through collateral arrangements between the banks and the NB, wherein unlimited intraday credit can be extended. The FSSA also notes that the liquidity situation is fluid in Norway, and queuing time is short in the NBO. The 2006 NB Annual Report on Payment Systems observes that there could be a theoretical liquidity risk due to the gridlock system of transactions; however it appears remote given the turnover and liquidity in the NBO.

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 2005 IMF FSSA, the NBO complies with this principle. It is a RTGS system with queuing arrangements. The 2006 NB Annual Report on Payment Systems also notes that settlements are made continuously and in real time, and are also final and irrevocable.

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

The 2006 NB Annual Report on Payment Systems states that Principle V is not applicable to NBO.

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.

FC

According to the 2005 IMF FSSA, the NBO complies with this principle, since all settlements are done with central bank money.

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

FC

According to the 2005 IMF FSSA, the NBO complies with this principle. The NB has adequate policies in place to ensure security and operational reliability; takes proactive measures to assess and control risks; and has appropriate contingency planning. The FSSA finds that the NICS "is not able to cope with a wide area disaster, and it could be considered whether this forms a vulnerability of the infrastructure" (p. 36). The 2006 NB Annual Report on Payment Systems also notes that the NBO is aging and this could gradually leave it vulnerable to risks. The report notes that, to address this concern, the NB is implementing a new settlement system, the NIBO.

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

FC

According to the 2005 IMF FSSA, the NBO complies with this principle. The system is modern, user friendly, risk resistant, and cost efficient. The FSSA observes that NBO has benchmark transaction fees, and aimed at achieving full cost recovery by 2006. The 2006 NB Annual Report on Payment Systems notes that the users of the system were "well-satisfied" and found it practical and "well-suited to their needs" (p. 45).

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

FC

According to the 2005 IMF FSSA, the NBO complies with this principle. Access rules are "clear, publicly disclosed, fair, objective...[and] do not have a restrictive impact on competition" (p. 37). The 2006 NB Annual Report on Payment Systems also informs that entry into the system is open as long as agreements - which are public information - are honored.

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

FC

According to the 2005 IMF FSSA, the NBO complies with this principle. Further, the NBO's "governance arrangements are effective, accountable, and transparent" (p. 37). Also, the NB's decision making is consultative, and its payment system role and objectives are public knowledge. The public is informed of new developments and envisaged changes in the payments area. However, the FSSA finds that the NB has no formal arrangements in place to ascertain and monitor the NBO's compliance with the CPSIPS. The 2006 NB Annual Report on Payment Systems mentions that an "important part of Norges Bank's role as an overseer is to ensure that international recommendations for interbank systems are followed. The most important recommendations in this area are the ten Core Principles" (p. 28). The report adds that this role is in accordance with the Payment Systems Act.

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

According to the 2005 IMF FSSA, the oversight of payment systems is "generally sound" (p. 19). By law, the NB is responsible for oversight of the payment systems. The NB has the requisite resources and tools to carry out this role. The FSSA calls for transparency in oversight. In particular, the FSSA recommends that the Payment System Department within the NB should be charged with monitoring the NBO's compliance with the CPSIPS; and the rules governing payment systems supervision should be codified and published on the NB's website. The 2006 NB Annual Report on Payment Systems, however, states that the oversight responsibility of the NB is spelled out in Section 1 of the Norges Bank Act, according to which the NB shall "promote an efficient payment system domestically as well as vis-à-vis other countries" (p. 28).

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

FC

The 2005 IMF FSSA finds that the NB has no formal arrangements in place to ascertain and monitor the NBO's compliance with the CPSIPS. The FSSA recommends that the Payment System Department within the NB should be charged with monitoring the NBO's compliance with the CPSIPS. However, the 2006 NB Annual Report on Payment Systems mentions that an "important part of Norges Bank's role as an overseer is to ensure that international recommendations for interbank systems are followed. The most important recommendations in this area are the ten Core Principles" (p. 28). The report adds that this role is in accordance with the Payment Systems Act.

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.

FC

According to the 2005 IMF FSSA, the oversight of payment systems in Norway is "generally sound" (p. 19). The NB is legally charged with the responsibility of oversight of the payment systems. The NB has the requisite resources and tools to carry out this role. The FSSA calls for transparency in oversight. The 2006 NB Annual Report on Payment Systems mentions that an "important part of Norges Bank's role as an overseer is to ensure that international recommendations for interbank systems are followed. The most important recommendations in this area are the ten Core Principles" (p. 28). The report adds that this role is in accordance with the Payment Systems Act. Further, the oversight role of the NB extends to systems that are authorized, the NICS and the DnB NOR interbank system, as well as to systems that are not authorized, i.e. those of the Sparebank 1 Midt-Norge and other private settlement banks.

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.

FC

The 2005 IMF FSSA notes that the NB cooperates with the FSAN domestically and has Memoranda of Understanding (MoUs) with the central banks of Denmark, Finland, Iceland, Norway, and Sweden on the oversight of payment systems, information sharing, and crisis management. It also participates in international consultations pertaining to payment systems. The 2007 IMF publication "Financial Integration in the Nordic-Baltic Region: Challenges for Financial Policies," mentions a specific MoU on the Management of a Financial Crisis in Banks with Cross- Border Establishments between the five Nordic central banks.