Regulation on the Insurance (Reserve) Fund for Interbank Retail Payment Systems

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Date of creation: 2021-11-03

Appendix to the Resolution of the Board of the National Bank dated October 27, 2021 No. 2021-P-14/59-5-(PS)

REGULATION "On the Insurance (Reserve) Fund for Interbank Retail Payment Systems"

Chapter 1. General Provisions

1. This Regulation on the Insurance (Reserve) Fund for Interbank Retail Payment Systems (hereinafter, the Regulation) establishes the procedure for the establishment and operation of the insurance (reserve) fund within the territory of the Kyrgyz Republic (hereinafter, the insurance (reserve) fund).

2. The insurance (reserve) fund is established to provide an additional mechanism for the timely and guaranteed final settlement of net positions of interbank retail payment systems based on clearing and bank card payment systems within the National Bank's large-value payments system (hereinafter, the National Bank), including in cases of liquidity shortages for one or more participants.

3. The formation of the insurance (reserve) fund for interbank retail payment systems within the National Bank is mandatory.

4. The insurance (reserve) fund may be formed in one of the following ways:

1. from the funds of the interbank retail payment system operator (hereinafter, the Operator) based on a corresponding contract/agreement with the National Bank;
2. by the interbank retail payment system operator from the funds of participants (hereinafter, Participant) of the interbank retail payment systems holding a correspondent account in the National Bank, excluding the Central Treasury under the Ministry of Finance of the Kyrgyz Republic and participants within a special regulatory regime, based on a corresponding contract/agreement with the National Bank;
3. from the funds of participants holding a correspondent account in the National Bank and having submitted an application to the National Bank for joining the corresponding contract/agreement on the insurance (reserve) fund. In this case, the insurance (reserve) fund account is cumulative for all participants of interbank retail payment systems whose fund is formed in this manner. The establishment of the insurance (reserve) fund is not mandatory for the Central Treasury under the Ministry of Finance of the Kyrgyz Republic and participants who joined the payment system within a special regulatory regime before the expiration of that regime.

5. The funds of the insurance (reserve) fund are used in exceptional cases solely for the timely and guaranteed final settlement of net positions of interbank retail payment systems, including when a participant is unable to ensure sufficient liquidity in its correspondent account at the National Bank at the time of final settlement.

6. If by 16:30 of the current operational day a participant has not ensured sufficient liquidity in its correspondent account required for the final settlement of net positions of clearing systems and card payment systems, the National Bank debits the insurance (reserve) fund account without prior consent and replenishes the participant's correspondent account in an amount sufficient to complete the settlement of net positions for the system.

7. The method of forming the insurance (reserve) fund is determined between the National Bank and the interbank retail payment system operator in bilateral contracts/agreements for final settlement. These contracts/agreements must also stipulate that the National Bank guarantees the timeliness of final settlement only within the limits of sufficient funds in participants' accounts and the insurance (reserve) fund.

8. The size of the insurance (reserve) fund must be sufficient to cover the average daily total net debit position for the system throughout the year.

9. To ensure sufficient funds in the insurance (reserve) fund, the National Bank continuously analyzes the sizes of participants' net debit and credit positions for each interbank retail payment system, queued payments, the timeliness of settlements in the Gross Real-Time Settlement System (hereinafter, GRTSS), and the sufficiency of funds in the insurance (reserve) fund.

10. In case of insufficient funds in participants' correspondent accounts at the National Bank and the insurance (reserve) fund on the settlement day to cover the net positions file for interbank retail payment systems, the National Bank rejects the net positions file and notifies the operator of this within the same working day.

Chapter 2. Procedure for the formation and operation of the insurance (reserve) fund from operator funds or by the operator from its participants' funds

11. The size of the insurance (reserve) fund under the methods described in paragraphs 1 and 2 of Article 4 of this Regulation is determined independently by the operator, taking into account Article 8 of this Regulation, and is transferred to the National Bank's account in accordance with a bilateral contract/agreement.

12. The system operator independently determines the procedure for interaction with its participants.

13. The National Bank notifies the operator in case of a shortage in participant account(s) and the use of insurance (reserve) fund funds to complete the final settlement of the system's net positions file.

14. In case of non-compliance with Article 8 of this Regulation or a shortage of insurance (reserve) fund funds to cover the net debit positions file, the National Bank notifies the system operator.

15. In case of insufficient funds in a participant's correspondent account, as well as insurance (reserve) fund funds to cover the net debit position of participant(s), the operator must replenish the insurance (reserve) fund with funds sufficient to cover the net debit position of participant(s) after receiving the corresponding notification from the National Bank by 16:30 of that operational day.

16. In case of termination of the contract/agreement concluded between the National Bank and the operator, funds contributed by the operator to the insurance (reserve) fund account at the National Bank are subject to refund after the settlement of all obligations and receipt of corresponding notification from the operator. The refund is made by transferring funds in national currency to the correspondent account of the commercial bank servicing the operator.

Chapter 3. Procedure for the formation and operation of the insurance (reserve) fund from participants' funds

17. During the initial formation stage of the insurance (reserve) fund, the operator submits to the National Bank for analysis information on the daily net positions of direct and indirect system participants for the previous calendar year.

18. To ensure uninterrupted fulfillment of its obligations within participation in interbank retail payment systems, a participant must maintain sufficient liquidity in its correspondent account at the National Bank, including through monetary and credit instruments of the National Bank for providing liquidity.

19. During the initial formation of the insurance (reserve) fund, the contribution of a direct and/or indirect participant must be at least 20% of the size of its insurance deposit placed in this system. If the size of the insurance deposit of a direct and/or indirect participant in interbank retail payment systems is zero or if insurance deposits are not provided for in the system, the participant's contribution size equals the participant's average daily debit position for the previous calendar year. The contribution size of new participants must equal the minimum size of the average daily debit position of participants in this system for the previous calendar year.

20. To ensure sufficient funds in the insurance (reserve) fund, the National Bank once a year by January 15 analyzes the sizes of net debit and credit positions of direct and/or indirect participants for each system for the reporting year, cases of use of the insurance (reserve) fund, queued participant payments and timeliness of GRTSS settlements, and the sufficiency of the participant's contribution to the insurance (reserve) fund.

21. The size of participants' contributions is determined by the National Bank for each retail payment system, based on the size of the participant's average daily debit position in each system for the reporting year.

22. The size of participants' contributions to the insurance (reserve) fund account is reviewed if the volumes of the average daily total net debit position for the system have increased and/or if there has been an increase in the size of participants' insurance deposits in the system.

23. A participant must transfer the corresponding funds to the insurance (reserve) fund in the amount established by the National Bank, according to Articles 8, 19, and 22 of this Regulation, no later than 5 (five) working days from the date of receiving notification from the National Bank regarding the contribution size and the necessity of transferring funds to the insurance (reserve) fund.

24. In case of termination of participation in the system and/or termination of the corresponding contract/agreement concluded between the National Bank and the operator/participant, the participant's contributions deposited to the insurance (reserve) fund account at the National Bank are subject to refund after the settlement of all obligations and receipt of corresponding notification from system operators. The refund is made by transferring to the participant's correspondent account at the National Bank.

25. A participant whose correspondent account was replenished using insurance (reserve) fund funds must repay these funds through the GRTSS on a term-based, paid, and refundable basis no later than 16:00 of the next operational day. In this case, repayment must be made in full; partial repayment is not permitted.

26. A participant whose correspondent account was replenished using insurance (reserve) fund funds in an amount not exceeding the sum of its contribution to the insurance (reserve) fund uses these funds free of charge until 16:00 of the next operational day.

27. For a participant whose correspondent account was replenished using insurance (reserve) fund funds for more than one calendar day, interest is accrued for each day of non-repayment of the insurance (reserve) fund funds. Interest is calculated in accordance with Article 32 of this Regulation.

28. For replenishing a participant's correspondent account with insurance (reserve) fund funds in an amount exceeding the sum of its contribution, a penalty is imposed on the participant. The penalty size is calculated in accordance with Article 31 of this Regulation.

29. In case of non-repayment of insurance (reserve) fund funds by a participant by 16:00 of the next operational day, the GRTSS operator debits the participant's correspondent account for the amount of funds used from the insurance (reserve) fund account (including penalties and interest) and credits it to the insurance (reserve) fund account.

30. In case of insufficient funds in a participant's correspondent account at the time of submitting the payment for repayment of insurance (reserve) fund funds (including penalties and interest) and absence of necessary funds for 3 (three) operational days, including the day on which funds were attracted from the insurance (reserve) fund, the National Bank, in order to minimize financial risks and ensure stable payment system operation, notifies the operator of this fact and the necessity of excluding this participant from the net positions file, as well as the structural subdivisions of the National Bank responsible for banking supervision.

31. The accrual of penalties to a participant for using insurance (reserve) fund funds exceeding the sum of the participant's contribution is determined by a simple interest formula at 1 (one) percent of the amount used in excess of the participant's contribution for the actual usage period of insurance (reserve) fund funds, based on 365 days in a year, according to the following formula: P = ((S – C) x I x T)/365, where: P – penalty amount; S – funds used from the insurance (reserve) fund (som); C – participant's contribution amount (som); I – daily interest rate 1 (one) %; T – usage period of insurance (reserve) fund funds (in calendar days).

32. In case a participant cannot repay the used insurance (reserve) fund funds by 16:00 of the next operational day, the participant pays 1 (one) percent of the amount of used insurance (reserve) fund funds for each calendar day of usage, based on 365 days in a year. In this case, payment is charged on the entire amount of used funds, regardless of the participant's contribution, and is calculated by the following formula: P = (S x I x T)/365, where: P – interest amount; S – funds used from the insurance (reserve) fund (som); I – daily interest rate 1 (one) %; T – usage period of insurance (reserve) fund funds (in calendar days).

33. The calculation of actual days during which a participant used insurance (reserve) fund funds includes weekends and holidays established by legislation or declared by the Cabinet of Ministers of the Kyrgyz Republic.

34. Funds accumulated as penalties and interest for the use and/or untimely repayment of insurance (reserve) fund funds in accordance with Articles 31 and 32 of this Regulation are accounted for in a separate account at the National Bank and distributed once a year proportionally to the share of contributed funds among participants who did not use insurance (reserve) fund funds during the year.

Chapter 4. Final Provisions

35. Within the framework of payment system oversight, the National Bank monitors the GRTSS system and the timeliness of payments and settlements in the system, including participants' use of insurance (reserve) fund funds.

36. In case of a participant's non-compliance with the requirements of this Regulation, the National Bank has the right to apply impact measures against the participant as provided for by regulatory legal acts of the National Bank.

37. Operators of interbank retail payment systems must send a notification to the National Bank within 5 (five) calendar days in case of changes to the size and terms of the insurance deposit placed in the system.

38. Settlements in the procedure of bankruptcy and/or liquidation of a commercial bank are carried out in accordance with regulatory legal acts of the National Bank.

Contacts Public Reception: +996 (312) 61-04-86, +996 (312) 66-90-15, ext. +1257, +1256 Consumer Rights Protection Department: +996 (312) 66-90-15, ext. +1671, +1666 Report Corruption: +996 (312) 66-90-15, ext. +2120; +996 (312) 61-04-00 Official Exchange Rates Auto-Information: +996 (312) 61-07-11 Numismatic Museum: +996 (312) 66-90-15, ext. +1232; +996 (312) 61-24-14 E-mail: mail@nbkr.kg Media Relations: press@nbkr.kg 720010, Kyrgyz Republic, Bishkek city, Kievskaya st., 189