Resolution of the Board

of the National Bank

of the Kyrgyz Republic

of 31 March 2023
No. 2023-П-14/21-2-(ПС)

On approval of the Regulation

"On minimum requirements for a settlement bank"

In accordance with Articles 5, 9 and 64 of the Constitutional Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic resolves:

• 1. To approve the Regulation "On minimum requirements for a settlement bank" (attached).

• 2. To recognize as no longer in force the following resolutions of the Board of the National Bank of the Kyrgyz Republic:

  • "On approval of the Provisional Regulation 'On criteria for selecting a settlement agent for the project of integration of the National payment card system 'Elkart' with national/international payment systems of other countries'" of 16 August 2017 No. 2017-П-14/34-2-(НПА);

  • "On amendments to the resolution of the Board of the National Bank of the Kyrgyz Republic 'On approval of the Provisional Regulation "On criteria for selecting a settlement agent for the project of integration of the National payment card system 'Elkart' with national/international payment systems of other countries" of 16 August 2017 No. 2017-П-14/34-2-(НПА)'" of 26 February 2018 No. 2018-П-14/6-3-(ПС);

  • "On amendments to the resolution of the Board of the National Bank of the Kyrgyz Republic 'On approval of the Provisional Regulation "On criteria for selecting a settlement agent for the project of integration of the National payment card system 'Elkart' with national/international payment systems of other countries" of 16 August 2017 No. 2017-П-14/34-2-(НПА)'" of 7 December 2022 No. 2022-П-14/76-5-(ПС).

• 3. This resolution enters into force upon the expiry of 15 (fifteen) days from the day of official publication.

• 4. To the Legal Department:

  • from the day of receipt of the relevant documents, within 3 (three) working days, to publish this resolution on the official website of the National Bank of the Kyrgyz Republic;

  • after official publication, to send this resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Normative Legal Acts of the Kyrgyz Republic.

• 5. To the Payment Systems Department, from the day of receipt of the relevant documents, within 3 (three) working days, to bring this resolution to the attention of commercial banks, payment system operators, payment organizations, the Union of Legal Entities "Union of Banks of Kyrgyzstan" and the Union of Legal Entities "Association of Payment System Operators KG (K-J)".

• 6. To the "Secretariat of the Board" Division, within 3 (three) working days, to bring this resolution to the attention of the relevant structural subdivisions of the National Bank of the Kyrgyz Republic, regional departments and the Representative Office of the National Bank of the Kyrgyz Republic in Batken Oblast.

• 7. To entrust control over the execution of this resolution to the member of the Board of the National Bank of the Kyrgyz Republic supervising the Payment Systems Department.

Chairman K. Bokontaev

Annex
to the resolution of the Board of the National Bank of the Kyrgyz Republic of 31 March 2023 No. 2023-П-14/21-2-(ПС)

REGULATION

"On minimum requirements for a settlement bank"

Chapter 1. General provisions

1. This Regulation "On minimum requirements for a settlement bank" (hereinafter – the Regulation) defines the minimum requirements for a commercial bank to carry out activities as a settlement bank of a payment system operator/payment organization (hereinafter – the Settlement Bank), operating on the basis of licenses of the National Bank of the Kyrgyz Republic (hereinafter – the National Bank).

2. The purpose of this Regulation is to guarantee the conduct by settlement banks of final settlements for:

• payments in favor of third parties accepted by payment organizations and conducted through large-value and retail payment systems;

• payments of international payment systems made on the territory of the Kyrgyz Republic with settlement banks/data centers of international payment systems.

3. This Regulation applies to payment system operators, payment organizations – residents of the Kyrgyz Republic, as well as commercial banks connected to an international payment system.

The conduct of final settlements for electronic money systems is regulated by the regulation "On electronic money in the Kyrgyz Republic".

4. The decision on selecting a Settlement Bank is made by the payment system operator/payment organization in accordance with the requirements established by this Regulation, as well as internal documents.

5. On the basis of an concluded agreement between the Settlement Bank and the payment system operator/payment organization, the Settlement Bank, being a participant in interbank systems, ensures timely settlements for payments conducted in the large-value or retail payment system of the payment organization/payment system operator.

6. The Settlement Bank, in cases provided for in contractual relations, ensures the conduct of final mutual settlements in any currencies for payments within the framework of international payment systems made on the territory of the Kyrgyz Republic, through the system of its correspondent accounts and on the basis of an integration agreement concluded with the international payment system and/or the operator of the international payment system in accordance with the rules of the system.

7. A bank has the right to provide settlement bank services to several payment system operators/payment organizations on the basis of concluded agreements.

8. A payment system operator/payment organization has the right to choose several settlement banks and bear independent responsibility for managing liquidity in accounts with settlement banks to fulfill its obligations for payments in favor of third parties.

9. Operators of a significant payment system (hereinafter – SPS) and a systemically important payment system (hereinafter – SIPS) must have a primary and a reserve Settlement Bank.

In the event of a change in the significance criterion of a payment system participant for the PS and the SPS, the payment system participant, within a period not later than 6 (six) months from the moment of receiving notification from the National Bank regarding the significance criterion, must ensure the availability of a backup Settlement Bank.

10. The Settlement Bank carries out its activities in accordance with this Regulation, regulatory legal acts of the National Bank, including legislative requirements on countering the financing of terrorism and the legalization of proceeds obtained by criminal means (hereinafter – CFT/AML), the rules of the payment system, as well as agreements concluded with the payment system operator/payment organization and the settlement bank of the international payment system/operator of the international payment system.

11. The Settlement Bank and the payment system operator/payment organization shall ensure the primary and backup communication channels and integration between their systems in accordance with the requirements for ensuring information security in commercial banks of the Kyrgyz Republic.

Chapter 2. Requirements for the Settlement Bank

12. A Settlement Bank may be a commercial bank that has a license from the National Bank for the right to conduct banking operations for:

• carrying out settlements and payments on behalf of clients and correspondent banks and their cash servicing;

• issuing, purchasing, paying, accepting, storing and confirming payment documents (checks, letters of credit, bills of exchange and other documents), including credit and payment cards;

• carrying out operations on foreign currency accounts for clients and on the purchase (exchange) of foreign currency on behalf of the client.

13. A Settlement Bank for payment system operators/payment organizations must meet the following requirements:

• 1) is a participant of the Real-Time Gross Settlement system (hereinafter – RTGS) and the Batch Clearing System (hereinafter – BCS), while for the Settlement Bank of an interaction operator it is sufficient to be a direct participant only of the RTGS;

• 2) is a participant of the international interbank financial messaging system (for example, SWIFT) and/or has financial messaging channels with the settlement bank of the operator of local/international payment systems of other countries;

• 3) for the last reporting year complies with the economic standards and requirements established by the National Bank, as well as the requirements of the Law of the Kyrgyz Republic "On Countering Terrorist Financing and Legalization (Laundering) of Criminal Proceeds";

• 4) has no debt on tax and other mandatory payments to the state budget of the Kyrgyz Republic, as well as on insurance contributions for state social insurance as of the last reporting date;

• 5) has no outstanding overdue debts to the National Bank as of the last reporting date;

• 6) is not in the process of liquidation, under temporary administration, and/or no enforcement measures have been applied to the bank by the National Bank that restrict the ability to conduct operations as a Settlement Bank at the time of signing the agreement.

14. The Settlement Bank of a payment system operator integrated with an international system, in addition to the requirements established in paragraph 13 of this Regulation, must meet the following requirements:

• 1) has been carrying out banking activities in the market of the Kyrgyz Republic for at least 5 (five) years.

• 2) is a direct participant of the international system for which it plans to become a Settlement Bank and/or is a participant of a local payment system within the framework of which an inter-system integration project with national/international payment systems of other countries has been implemented;

• 3) is a participant of the Automated Trading System of the National Bank;

• 4) has existing correspondent relationships with settlement banks/agents of operators of international payment systems (advantage);

• 5) has an external auditor's report confirming that accounting and reporting comply with established accounting and financial reporting standards for the last two years;

• 6) is a participant of the Real-Time Gross Settlement system.

Chapter 3. Functions of the Settlement Bank

15. The Settlement Bank that has concluded an agreement with the payment system operator/payment organization performs the following functions:

• ensures sufficient liquidity on the correspondent account opened with the National Bank for conducting its own payments and payments conducted by participants of the system of the payment system operator/payment organization;

• in the calculation of the reserve for retail payment systems, established in the RTGS system daily on the correspondent account with the National Bank, includes a reserve for the payment system operator/payment organization on a daily basis;

• in the calculation of the reserve for the insurance (guarantee) fund includes a reserve for payment organizations with which the bank has concluded agreements on performing the functions of a Settlement Bank;

• opens a settlement account, the main one for the system of the payment system operator/payment organization, on which funds for payments in favor of third parties are accumulated, and the debiting of funds from this account is carried out exclusively in favor of third parties, recipients of payments and/or for conducting final settlements on debit net positions. The payment system operator/payment organization is not entitled to conduct any other operations on this account;

• establishes, if necessary, the requirement to open a backup account and create a reserve on this account in case of insufficiency of funds on the main settlement account of the system of the payment system operator/payment organization. The amount of the reserve may be calculated based on an assessment of the required liquidity for a certain period;

• on behalf of the payment system operator/payment organization ensures the timely transfer of funds to banks where accounts of recipients of funds are opened, through interbank payment systems;

• timely informs about the conduct/non-conduct of final settlements for payments made in the system of the payment system operator/payment organization;

• for payments of international payment systems made in the territory of the Kyrgyz Republic, carries out mutual settlements with the Settlement Bank/agent of the international payment system in any currency in accordance with the terms of contracts/agreements. In turn, receives, for transferred funds from other participants of the system of the payment system operator/payment organization in accordance with the Rules of the systems of the payment system operator/payment organization, reimbursement in the equivalent in national currency through the GSRRV;

• receives from the Settlement Bank of the payment system, including the Settlement Bank of a local/international payment system of another country, funds for operations of this payment system in the territory of the Kyrgyz Republic and ensures timely crediting of the corresponding amounts in accordance with the Rules of the systems of the payment system operator/payment organization to the correspondent accounts of participants of this system in the National Bank through the GSRRV;

• assumes currency risks in the event of an unfavorable change in foreign currency exchange rates.

Chapter 4. Obligations of the Settlement Bank

16. The Settlement Bank is obliged:

• to comply with the requirements established in Chapter 2 of this Regulation, and also to ensure compliance with all obligations assumed;

• to prevent a shortage of liquidity in the correspondent account with the National Bank, as well as delays and queues of payments, in accordance with the requirements of the GSRRV (if applicable);

• to have a valid plan approved by the board of the Settlement Bank for ensuring business continuity in terms of ensuring uninterrupted settlements;

• to ensure the main and backup channels for transmitting messages with the settlement banks of payment systems integrated with the systems of payment system operators;

• to guarantee timely mutual settlements with the banks participating in the payment system, as well as with the Settlement Bank of a local/international payment system integrated with this system;

• to set tariffs not higher than the rates of tariffs in effect at the bank for settlement and cash services for legal entities.

• to develop and approve a Methodology for calculating and maintaining sufficient liquidity in the correspondent account with the National Bank and in other banks, in fulfillment of the requirements of paragraph 6 of this Regulation, for conducting final settlements, as well as a step-by-step Procedure for carrying out mutual settlements with another Settlement Bank of a local/international payment system integrated with this system, as well as with participants of this system;

• to conduct an external audit of information systems in accordance with the requirements of the Regulation "On Minimum Requirements for External Audit of Banks and Other Non-Bank Financial and Credit Organizations Licensed by the National Bank of the Kyrgyz Republic", approved by the resolution of the Board of the National Bank of 15 June 2017 No. 2017-P-12/25-2-(NPA);

• The Settlement Bank of a ZPS or SZPS integrated with an international payment system must provide to the payment system operator/payment organization, as a guarantee, a portfolio of government securities or securities of the National Bank with a maturity of not less than 3 (three) months (excluding the pledged portfolio) or a bank guarantee or another instrument for the timely conduct of payments and settlements of the payment system operator/payment organization. At the same time, the above-listed guarantee instruments in aggregate must constitute not less than the average daily value of turnover in the integrated payment system with the local system of the payment system operator (the sum of turnover for each day of the previous month/number of days in the previous month when there were payments) for which contracts for the provision of services of the Settlement Bank have been concluded.

The calculation of the average value of turnover for the month is carried out by the payment system operator/payment organization 1 (one) time per month on the basis of data for the previous month, and by the 5th day of the month following the reporting month the corresponding information is sent to the National Bank and the commercial bank for further use by the commercial bank – the Settlement Bank during the reporting month.

Chapter 5. Requirements for the Contract

17. The contract between the payment system operator/payment organization and the Settlement Bank, in addition to the terms of contracts for settlement and cash services, must contain at least the following information:

• the rights and obligations of the parties;

• the liability of the parties;

• the procedure and timeframes for conducting settlements;

• the procedure for information exchange during settlements;

• by agreement of the parties, the amount of the deposited sum held by the payment system operator/payment organization to guarantee final settlements and the procedure for its use;

• the procedure for notification when emergency situations arise, the procedure and timeframes for conducting mutual settlements when emergency situations arise;

• the procedure for resolving disputes;

• the terms of payment (tariffs, commissions and fees, etc.);

• the procedure for terminating the contract and conducting final mutual settlements;

• the contract may contain other terms.

Chapter 6. Final Provisions

18. The parties have the right to terminate the contract at any time in the cases and in the manner provided for by the contract, as well as in the event of detection of non-compliance with the established requirements of the legislation of the Kyrgyz Republic and concluded contracts, provided that all settlement obligations are repaid.