According to the National Bank of Ukraine (NBU) website, the national system of interbank settlements is the System of Electronic Payments (SEP). This is an automated, quasi-real-time, gross settlement system, but there is insufficient information publicly available as to the SEP's compliance with the Core Principles for Systemically Important Payment Systems. However, in 2003 the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of the Electronic Interbank Payment System (EIPS) which, at the time, was considered the only systemically important payment system in Ukraine. The IMF observed the EIPS to be generally secure, reliable, and efficient. The HSBC in its 2007 publication on payments and cash management in Ukraine states that, in addition to SEP, the NBU operates a system for high-priority, high value, and/or urgent, transfers, called the System of Instantaneous Transfers (SIT).

General Overview

On its website, the National Bank of Ukraine (NBU) identifies the System of Electronic Payments (SEP) as the national system of interbank settlements. The NBU states that the SEP effects settlements "between banks by orders of bank customers and by commitments of banks." According to the site, SEP does this by electronically transferring in both file-mode and in real-time mode. Elaborating on how this works, the NBU website states "initial payment in the file mode is compulsory, but in the real time mode [this is done] at the bank's option." Finally, according to the website, "a bank operating in SEP in the file mode shall secure receiving of payments in the real time mode."

In its 2003 Financial System Stability Assessment (FSSA), the International Monetary Fund (IMF) considered the old Electronic Interbank Payment System (EIPS) to be the only systematically important payment system, since it was the only system used by all banks. The EIPS was owned and operated by the NBU and settled all interbank transactions, regardless of their value. The EIPS also settled capital markets and payment-card transactions. Overall, the IMF found that the "the design and functioning of the EIPS made the system generally secure, reliable, and efficient. Areas for improvement identified through the assessment of CPSS core principles were narrowly focused" (p. 52).

The legal framework related to payment systems in Ukraine consists of laws, notices, decrees of the NBU, internal regulations of the NBU, contracts, agreements, and other regulations. The main laws governing this area are the Law on the National Bank of Ukraine, the Law on Banks and Banking, the Bankruptcy Law, the Law on Payment Systems and Money Transfers in Ukraine, and the Law on Restoration of Solvency of the Debtor or Application of Bankruptcy Procedures. This framework, according to the IMF's FSSA, "provides the NBU fully adequate powers to operate and regulate the system" (p. 52).

The IMF's 2003 FSSA also found that, by law, the NBU was the key actor in the regulation and oversight of payment-system functions. The NBU is also responsible for the development and implementation of modern electronic banking technology, provides coordination, security, and control for electronic payment and settlement systems. Moreover, the IMF found that the NBU develops the payment system in a safe and efficient way; and cooperates with its foreign counterparts and the Basel Committee on Payment and Settlement Systems.

In its 2007 publication on payments and cash management in Ukraine, the HSBC states that the automated quasi-real-time gross settlement system, SEP, consists of 26 regional clearing houses that are all electronically connected with the Central Clearing House. In addition to this, Ukraine has a system for high-priority, high value, and/or urgent, transfers. The EIPS and the System of Instantaneous Transfers (SIT) are both owned and operated by the NBU. According to the HSBC's figures, as of October 2006, the EIPS had 1,644 participants. From the 171 legal entities, 169 were banks. Other participants are the NBU and the State Treasury. The SIT, on the other hand, had approximately 14 participating banks.

According to the 2006 NBU Annual Report (published in 2007), the NBU introduced the second generation of the electronic payment system (SEP-2) on November 10, 2006 which was to replace the EIPS and the SIT. However, subsequent to this report, there is no further mention of SEP-2 on the NBU's website.

The Principles

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

II

There is insufficient information publicly available regarding the compliance of Ukraine's current payment system (SEP) with this Principle. However, according to the IMF's 2003 FSSA, the legal framework is based on laws, notices, decrees of the NBU, internal regulations of the NBU, contracts, agreements, and other regulations. This framework, according to the IMF, "provides the NBU fully adequate powers to operate and regulate the system" (p. 52).

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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle. In its 2003 FSSA, the IMF concluded that the legal and regulatory framework provides sufficient information that enables participants to understand the functioning of the system. Besides that, the NBU has established training programs and similar support services in order to guarantee that commercial banks are able to understand and manage all risks.

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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle. According to the IMF's 2003 assessment, the old EIPS system offered well-defined "procedures for the management of credit risks and liquidity risks" (p. 53), as were the NBU and participant responsibilities. The report added that appropriate risk management incentives were in place, and that the system's features limited credit and liquidity risks to a large extent. Even though the inter-bank money market is the only source of liquidity for banks, the IMF did not consider this an issue because of the high liquidity in the banking system. The IMF pointed out, however, that "intra-day liquidity management measures (for example, credit facilities) could be introduced to improve risk management, especially in the context of a new on-line RTGS system" (2003, p. 54).

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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle. The IMF, in its 2003 FSSA stated that settlement under the EIPS system was usually handled with appropriate speed and dispatch, but cautioned that it was possible that a transaction could fail to be fully settled on the day of its acceptance. To avoid this, the IMF recommended implementing mechanisms that guarantee the final settlement of all payments at the end of the business day.

According to the 2007 HSBC publication on payments and cash management in Ukraine, the System of Electronic Payments (SEP), which is an automated quasi-real-time gross settlement system, and the System of Instantaneous Transfer (SIT), are both owned and operated by the NBU. The SEP settles all transactions on an end-of-day basis, via the participants' accounts held at the NBU. In the case of the SIT, all transactions are submitted online and therefore processed almost instantaneously.

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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle. The IMF, in its 2003 FSSA, stated that the old EIPS system was generally "prompt and reliable" in processing settlements. However, the IMF did caution that there were inadequate mechanisms in place to guarantee the final settlement of all payments by end-of-business on the day of acceptance. To remedy this, the IMF recommended that such mechanisms be implemented.

According to the 2007 HSBC publication on payments and cash management in Ukraine, the SEP, which is an automated quasi-real-time gross settlement system, and the newer SIT are owned and operated by the NBU. The SEP settles all transactions on an end-of-day basis, via the participants' accounts held at the NBU. In the case of the SIT, all transactions are submitted online and therefore processed almost instantaneously.

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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle. However, in its 2003 FSSA, the IMF stated that the assets used for settlement in the EIPS (old system) are claims on the central bank.

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 regarding the compliance of Ukraine's current payment system (SEP) 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 regarding the compliance of Ukraine's current payment system (SEP) 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 regarding the compliance of Ukraine's current payment system (SEP) with this Principle.

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

II

There is insufficient information publicly available regarding the compliance of Ukraine's current payment system (SEP) with this Principle. However, according to the 2003 FSSA, the NBU was highly transparent in its oversight and supervision of the old EIPS system. Objectives and responsibilities of the NBU are clearly defined in the legal and regulatory framework and made publicly available in the Annual Report of the NBU, the NBU Journal, and on the NBU website. Overall, the IMF concludes that the "process of formulating and implementing payment system policy and banking supervision policy, regulations and directives is generally open and transparent" (p. 46). The NBU issues press releases, organizes conferences, and publishes various reports and bulletins. Besides defining the responsibilities of the NBU, the NBU Law stipulates that the NBU is accountable to the President and the Supreme Council of Ukraine.

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

There is insufficient information publicly available as to Ukraine's compliance with this principle. According to the 2003 FSSA, the NBU shows a high level of transparency with respect to payment systems oversight and banking supervision. Objectives and responsibilities of the NBU are clearly defined in the legal and regulatory framework (the NBU Law and the Law on Payment Systems and Money Transfers in Ukraine) and are made publicly available in the Annual Report of the NBU, the NBU Journal, and on the NBU website. Overall, the IMF concludes that the "process of formulating and implementing payment system policy and banking supervision policy, regulations and directives is generally open and transparent" (p. 46).

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 Ukraine's compliance with this principle. The IMF's 2003 FSSA named the NBU as the principal player in formulating and applying payment system regulations. According to the IMF, the NBU is also responsible for developing and implementing modern banking technology systems, coordinating electronic banking functions across the system, and providing for bank-data security. The IMF judged that the NBU develops the payment system in a safe and efficient way and cooperates with its foreign counterparts and the Basel Committee on Payment and Settlement Systems.

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 Ukraine'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 Ukraine's compliance with this principle. According to the 2003 FSSA, the NBU develops the payment system in a safe and efficient way and cooperates with its foreign counterparts and the Basel Committee on Payment and Settlement Systems. The NBU Law governs the scope and limits of information sharing with domestic and international institutions.