Europe gets bank payment guide: Report seeks to minimise risks

GUIDELINES for the integration of bank payment systems have been published today which aim to minimise risks to the European banking system once regulatory barriers between countries are relaxed.

The report, made by the Working Group on European Community Payment Systems to the governors of the central banks of the European Union, establishes principles that will block 'regulatory arbitrage'. This is where banks shop around for the least onerous regime when they expand their payments systems abroad.

Guidelines are needed because over the next three years banks will be able to operate their own payment systems for very large transactions in any member state.

At the moment the bulk of very large cross-border transactions are routed through the central banks, with the balance with other EC member countries being 'netted off' daily.

This system will be replaced by real-time payment systems, which allow banks to undertake instantaneous transactions with banks in other countries but bypassing the central banks.

The report being published today says that such a system will increase the risk of default or fraud to the banking community unless principles for minimum common features of domestic payment systems are accepted.

The report says that non-credit institutions will not be allowed to operate such payment systems, as this would further increase the risk to the European banking sector. Postal organisations, however, will be allowed to participate.