Economic Governance and Management Chapter 4 Chapter 4 Basic principles of systemically important payment systems 411. 412. 413. 172 The basic principles of systemically important payment systems were established under the aegis of the Committee on Payment and Settlement Systems of the central banks of the G10 countries and the Bank for International Settlement based in Basel, Switzerland. They are intended to improve the security and efficiency of payment systems. The CSAR gave no information on whether Mauritius has subscribed to these principles. The CRM observed that the BoM, in consultation with the other primary banks, launched a process of improving payment systems in 1966. It resulted in the creation, in 1967, of a clearing house called The Port Louis Automated Clearing House. This has helped to strengthen the infrastructure of the banking system, to clear cheques and other similar securities, to reduce costs and payment delays, and to improve the security of financial operations. The BoM developed a real-time gross compensation system in 2000 to modernise payment systems for systemically important payments. It complies with the basic principles developed by the International Compensation Bank, based in Basel, Switzerland. It is the Mauritian Automated Clearing and Settlement System (MACSS). The BoM and the primary banks participating in the clearing house agreed to automate clearing operations in November 2002. They established standard cheques, recognised the use of Magnetic Ink Character Recognition (MICR) technology, and recognised electronic payment instruments through MACSS. The 2004 amendment to the Banking Act integrated the legal and regulatory requirements of this new system. 414. The operations cleared through this system have increased considerably in both volume and value. 415. The BoM, together with other primary banks and the Bankers’ Association, launched a cheque exchange project to transfer cheques electronically in order to strengthen systemically important payment systems further. The project will help to improve the speed and efficiency of the clearing process. 416. The CRM recognises that Mauritius has made rapid progress in modernising its payment systems. This builds confidence in capital markets and in the financial system. It also improves the sector’s Economic Governance and Management productivity and returns and stimulates investment growth. The CRM congratulates the government on these achievements and for the activities it introduced to disseminate information and to train stakeholders to ensure that they benefit from these innovations. Basic principles for effective banking supervision 417. The Basel Committee on Banking Control has developed the basic principles for banking control. There are 25 and they cover: (i) prior conditions for efficient control; (ii) authorisation and ownership structure; (iii) prudential regulations and requirements; (iv) methods of permanent banking control; (v) requirements for information; (vi) institutional power of the prudential authorities; and (vii) crossborder banking activity. 418. The Mauritian Banking Act gives full banking control and supervisory powers to the central bank, namely the BoM. A joint mission from the IMF and the World Bank, within the framework of the FSAP, assessed levels of conformity with the 25 principles in February 2007. It highlighted the strengths and weaknesses of the bank in exercising its supervisory role, mechanisms and methods. This mission helped to identify areas for improvement and strategies to be implemented to ensure efficient performance. 419. The CRM learnt about the IMF’s Evaluation of the Stability of the Financial Sector, conducted in December 2008. This report analysed the effect of the major reforms initiated since 2002 within the framework of the IMF’s Assistance Programme. The programme intended to strengthen financial infrastructure. It acknowledged that the financial sector has developed rapidly. It also recognised the rapid progress that has been made following the review of the Banking Act in 2004, in: (i) supervision and regulation; and (ii) improvements in the profitability and capitalisation of the banking sector. However, it also emphasised that: (i) organisational and administrative weaknesses of supervisory institutions persist; (ii) there is weak capacity to evaluate risk; (iii) some banks have poor capacity to assess risk; (iv) there are risks associated with the high levels of short-term public domestic debt; and (v) there is no monetary policy analytical base to help anticipate problems with inflation. The CRM encourages the authorities to implement the report’s specific recommendations that seek to ensure the credibility, efficiency and performance of banking and nonbanking intermediation, especially those dealing with strengthening the independence of the regulatory and supervisory institutions. 173