In a bid to facilitate the efficiency of the payments system, the Central Bank of Nigeria (CBN) has given a new directive for Indirect Participants in Payments System.
This was revealed in a circular from CBN to Deposit Money Banks and Other Financial Institutions. The CBN said that the plan was in line with the powers conferred on the CBN under the CBN Act 2007 which read that, to promote sound financial system in Nigeria, issue regulations to facilitate the development of an efficient and effective payments system in Nigeria.
Hence, the bank has issued the Regulation for the Operation of Indirect Participants in the Payments System to set out the procedures and standardise the operation of indirect participants in the payments system.
The CBN is aware of the operational risks involved and as such is providing mechanism and framework for the clearing and settlement of indirect participants’ payment instruments through the direct participating banks. This will help in strengthening the indirect participants so as to contribute effectively to digital financial services in Nigeria.
Steps to qualify as an indirect participant: To qualify, the organization or institution must have a satisfactory risk-based rating from the CBN. A letter of recommendation from its direct participating bank must also be signed by the Chief Risk Officer and an Executive Director in compliance with NUBAN Standards.
More details: According to the circular, only direct participating banks are permitted to settle payment obligations of indirect participants.
“An indirect participant shall settle all its payments obligations through only one direct participating bank per payment scheme at any given time. The relationship between a direct participating bank and an indirect participant shall be governed by a Settlement Agreement.
Where the account of an indirect participant with a direct participating bank is not adequately funded, the direct participating bank may decline further settlement services to the indirect participant and inform the payment processor accordingly,” it said.
On termination, CBN said that a notice of at least 30 days shall be given by a direct participating bank or an indirect participant to the other party before terminating the Settlement Agreement except as otherwise agreed.