RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of March 25, 1999 No. 20/7

About basic provisions on the organization of payment system in the Kyrgyz Republic

Having considered the draft document "About Basic Provisions on the Organization of Payment System in the Kyrgyz Republic" taking into account the arrived notes and offers, the Board of National Bank of the Kyrgyz Republic decides:

1. Approve the document "About Basic Provisions on the Organization of Payment System in the Kyrgyz Republic" it (is applied).

2. To management of payment systems to develop regulating documents and to carry out work on the organization of payment system in the Kyrgyz Republic according to this Provision.

3. To management of payment systems to bring this Resolution to the attention of commercial banks till April 10, 1999.

4. To impose control over execution of this Resolution on the Vice-chairman of National Bank of the Kyrgyz Republic - Omorova Zh. D.

Approved by the Resolution of Board of National Bank of the Kyrgyz Republic of March 25, 1999 No. 20/7

Basic provisions on the organization of payment system in the Kyrgyz Republic

This provision represent the main requirements to the organization and regulation of payment system of the Kyrgyz Republic which are intended for increase in efficiency of payment system and decrease in risks in payment system.

The organization of payment system of the Kyrgyz Republic, policy of National Bank on risk management in payment system and development planning of payment system of the Kyrgyz Republic shall be developed and be carried out according to these Provisions.

The terms and determinations used in payment system of the Kyrgyz Republic are provided in Section 4 of this document.

1. Efficiency of payment system

1.1 General provisions

1.1.1 Concerning efficiency of payment system the bilateral analysis shall be carried out. From the members of payment service provider using services in carrying out payments and from the National Bank organizing and regulating payment system.

1.1.2 For members of payment service provider efficiency of payment system means that benefits from use of certain payment instrument exceed the related costs. For National Bank efficiency of payment system means that payments and calculations between members of payment service provider are made reliably, safely and in acceptable time limits.

1.1.3 Payment instruments shall be acceptable for members of payment service provider. The efficiency evaluation of use of certain payment instrument for particular purposes is based on the analysis of its characteristics. Key characteristics in addition to the cost of services are among:

- probability of financial losses as a result of theft, fraud, mistakes or counterfeits of the payment instrument;

- probability of financial losses as a result of default on obligations of the payment instrument by the member of payment service provider;

- compatibility of the payment instrument with systems and practice of conducting financial accounting;

- speed and predictability of calculation;

- complexity of use of the payment instrument;

- physical properties of the payment instrument, including its paper or electronic form;

- psychological perception of the payment instrument.

Also the possible expenses connected with insurance and other precautionary measures for the purpose of decrease in risk to acceptable level shall be considered. The expected benefits and costs connected with use of various payment instruments are estimated depending on payment amounts, distances between the payer and the receiver of payments, and also ratios of regular and one-time payments.

1.1.4 The National Bank regulates terms of passing of payments. The National Bank aims at reasonable ratio of efficiency and safety of payment system.

1.2 Establishment of standards

1.2.1 The National Bank of the Kyrgyz Republic establishes all standards for the payment instruments used in payment system within the Kyrgyz Republic. Establishment and application of standards for cross-border payments makes a reservation in the corresponding international agreements. By means of standards the National Bank regulates use of payment instruments.

1.3 Competition development

1.3.1 For the purpose of satisfaction of various requirements of use of payment instruments the National Bank promotes development and use of various payment instruments and functional components of payment system and their specialization. The National Bank regulates and exercises supervision of use of payment instruments and functional components of payment system and promotes development of the competition among payment service providers.

1.4 Legal basis

1.4.1 Development of the legal basis for payment system is one of the main priorities of National Bank. In the field of development of the legal basis the National Bank aims at perhaps bigger transparency and clarity of legal acts and regulating documents on payment system. The rights of the parties participating in payment system shall form strong basis for creation of payment system, controling mechanisms risks and practice of their use. Development of legal acts and regulating documents on payment system shall promote increase in efficiency of payment system.

1.5 Monetary control

1.5.1 The National Bank carries out monetary control based on the analysis of impact on liquidity of banks and use of money on correspondent accounts in National Bank for carrying out calculations for payments. Monetary control shall not complicate or raise the price of process of carrying out payments which as a result will increase costs of users of payment system.

1.6 Carrying out final settlements

1.6.1 For the purpose of ensuring certainty and irrevocability of payments all calculations in payment system of the Kyrgyz Republic are made only by means of the money which is on accounts in National Bank.

2. Risk management in payment system

2.1 General provisions

2.1.1 Under the organization and regulation of payment system special attention is paid to problems of decrease in risks. Broad set of risks to which payment instruments, functional components, and also members of payment service provider are exposed enters this area.

2.1.2 Subject of the main attention in payment system are financial risks. Treat financial risks: liquidity risk, credit risk and systemic risk.

2.1.3 Treat number of the non-financial risks connected with payment system: counterfeit of financial records, theft, fraud, mistakes, operational risks, and also failures of the equipment, electric utility service and communication systems. Various natural disasters also affect payment system: floods, fires and earthquakes.

2.2 Restriction of financial risks in clearing system

2.2.1 The clearing system is used by members of payment service provider for carrying out payments on the average and small amounts on which immediate carrying out final settlement is not required.

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