20 Years of the Stability of the Central Bank of Bosnia and Herzegovina Payments Systems 1/5/2021 On January 5, 2021 the Central Bank of Bosnia and Herzegovina (CBBH) marks the 20th anniversary of the stable functioning of the payments systems. Stable functioning of payments systems implies a significant contribution to financial stability in Bosnia and Herzegovina, and in the past period, those systems have successfully responded to the tasks and obligations of the CBBH, when it comes to legal regulations and obligations in this area. The process of establishing payment systems of the CBBH implied a complete transformation of carrying out domestic payment transactions in Bosnia and Herzegovina. Until the period of reform and transformation, the domestic payments were under the jurisdiction of three Payment Bureaus (PBs), (ZPP and ZAP in the Federation and SPP in the Republika Srpska). By consensus of all relevant institutions in Bosnia and Herzegovina, it was decided to reform the payments in order to increase competitiveness, efficiency, speed of transactions and to reduce costs. The reform meant that instead of the a.m. Bureaus, the holders of payment operations were the commercial banks, licenced to perform payment operations, and the CBBH, which in the same time, have become participants in the payments systems. The CBBH had the task to establish payments and accounting systems that will enable the flow of transactions. The legal basis and obligation of the CBBH in the establishment of payment systems is reflected in Article 2, paragraph (3), point c) and Article 7, paragraph (1), point b) of the Law on the CBBH (Official Gazette of BiH, 1/97, 29 /02, 08/03, 13/03, 14/03, 9/05, 76/06 and 32/07). The CBBH prepared a project transformation plan. Taking into account the short deadline for the implementation of the project, in terms of establishing the payments systems and transferring of the payment operations to banks, the choice of so-called "Sudden transition to a new system" strategy was inevitable, in order to comply with the project plan. This choice of strategy is accompanied by many risks, but the short period of implementation was a key determinant to choose the one, considering the transition period strategy, which could have eventually slowed down the transition to the new system. Particularly important were the preconditions that the CBBH had to achieve in the introduction of the gyro clearing system and the RTGS system, and they are: Development of regulations on the systems’ operations, responsibilities of participants and the CBBH as the owner of the systems, Creating technical preconditions for implementation and Preparation of all necessary training and testing activities for all participants. Pursuant to the project plan and defined priorities for the establishment and operations of the systems, the following actions were performed for gyro clearing and RTGS systems: The Central Bank of BH passed the Operational Rules for RTGS, as well as the Operational Rules for Gyro Clearing; SWIFT membership has been completed, which is a precondition for the functioning of the RTGS system; The banking and telecommunication network for gyro clearing was developed, and the installation of gyro clearing equipment and necessary software was done, both for the needs of the CBBH and for the needs of commercial banks; The staff of all banks was educated in order to get acquainted with the way the systems works; Internal tests were performed, as well as, the tests of banks to work with the systems. Along with the activities of the CBBH, the necessary legal changes were adopted by the relevant institutions, which represented the formal preconditions necessary for the implementation of the reform. The procurement of the complete infrastructure necessary for the functioning of payment systems was funded by the USAID, which was one of the key reform partners. As a result of well-planned and performed preparatory actions and constant coordination of all participants in the process, on January 5, 2001, the operational functioning of the reformed system began. Since that day, the CBBH payments systems have been operating successfully and stably, specifically the Real Time Gross Settlement system (abbreviated RTGS system) and the Gyro Clearing system. The manner of work and functioning rules of both systems are defined by the Operational Rules adopted by the CBBH Governing Board, and published in the Official Gazettes and on the CBBH website, and by other enactments adopted on the basis of the Operational Rules. RTGS system Real Time Gross Settlement (RTGS) is a system performing the settlement of payment orders among participants in real time, per gross principle, i.e. the transactions processed through RTGS are carried out immediately. This is the system through which the payments amounting over 10,000.00 convertible marks are performed, and its use for lower amounts is optional. The system is operative each working day from 08:00 to 16:00 hours. RTGS uses the SWIFT communication network and thus SWIFT payment message formats, as it follows: MT102, MT103, MT202 and MT205. The settlement of net positions of Gyro Clearing participants is carried out in the RTGS system, and in addition the settlement of transactions of other legal entities, acting as clearing agents, such as card transactions operators (currently, the one card transactions operator - Bamcard) is performed. The RTGS Operational Rules, in the part related to the execution of payment orders, read: „Payment orders, having been executed in RTGS, are final and irrevocable“. Also, RTGS Operative Rules define that participants in RTGS system are responsible for providing coverage in the settlement account. Payment orders will be settled if coverage is provided in the settlement account. If coverage is not provided, payment orders will be classified and carried out by priorities. If the participant fails to provide sufficient funds in its settlement account by the end of the day, the Central Bank of BH will cancel the order. The basic part of the RTGS system is CAS (Central Accounting System), which includes settlement accounts of member banks of domestic payment system, where the settlement of payment orders is carried out. Overall scheme of the RTGS system SWIFT Y FIN Copy is incorporated in the system, as one of possible ways of the financial message flow from the sender to the receiver including the settlement in the Central Bank. In practice, Y FIN Copy mode means that the sender's message addressed directly to the receiver, on its way, comes to the Central Bank, where the message part, important for the settlement, is copied in the mentioned Y-Copy and it goes to CAS, where the sender's account is automatically debited and the receiver's account is credited, if there are sufficient funds in the sender's account. When this operation is done, the system generates a new message, which is returned to Y-Copy and it lets the original message continue its way to the final destination – the receiver bank. Such bank, when it receives a message from the sender bank, can credit the funds for the customer promptly, as by receiving the message it has automatically received the funds in its account for the settlement in CAS. The Gyro Clearing system The Gyro Clearing system is an interbank clearing system for transactions in the amounts lower or equal to 10,000.00 convertible marks. The clearing of payment orders of all the Gyro Clearing participants is carried out by defining the net position of each individual participant for each clearing cycle. Since the beginning of the functioning of the system, the CBBH has been increasing the number of clearing cycles during the day, all with the aim of faster and more efficient flow of funds (now, there are four clearing cycles during the day). A decentralized Gyro Clearing network is used in Bosnia and Herzegovina. It means that there are three Gyro Clearing branches (the Gyro Clearing of the Sarajevo Main Unit – Gyro Clearing Sarajevo Branch, the Gyro Clearing of the Main Bank of RS CBBH – Gyro Clearing Banja Luka Branch, and Gyro Clearing of Mostar Main Unit - Gyro Clearing Mostar Branch), and the central Gyro Clearing – Gyro Clearing Centre, located in the CBBH Head Office. Recognizing the trends and being harmonized with European standards, in 2019, the Gyro Clearing system was harmonized with the EU way of operations, i.e., it became compliant with the SEPA standard. This means that the SEPA message format has been used in gyro clearing, being in accordance with ISO 20022 and with the Rulebook of the European Payments Council, whose version is determined by the CBBH to be an actual version for internal credit payments, on which the CBBH informs the participants. In that way, a precondition was created for faster integration of the CBBH payments systems and participants in the EU flows. In the earlier years of the systems operations, it has never happened that the payment transactions could not be executed via the CBBH payments systems on the days when the systems had to be operative. In order to provide the availability and functioning of the payment systems, the Central Bank of BH has prepared contingency plans and has operational dislocated backup systems at Disaster Recover Site (DR site) in the Main Bank of Republika Srpska of the Central Bank of BH in Banja Luka (MBRS CBBH). Even in periods of natural disasters, such as floods in 2014, and ongoing pandemics, the CBBH successfully responded to all tasks when it comes to the stable functioning of the systems, and through those systems, all transactions were performed during their working hours. Survey of the number and value of transactions carried out via the CBBH payments systems in the past 20 years is as below: In addition to introducing the payment systems, the CBBH has actively contributed to strengthening of financial stability and the adherence to the legally prescribed obligations, thus it has established: 1. THE CBBH REGISTRIES • Single Registry of Accounts of Business Entities in Bosnia and Herzegovina and • Central Registry of Credits of Legal Entities and Natural Persons in Bosnia and Herzegovina 2, INTERNATIONAL PAYMENT CLEARING SYSTEM 3, ELECTRONIC INTERBANKING MONEY MARKET REGISTRIES OF THE CENTRAL BANK OF BOSNIA AND HERZEGOVINA Single Registry of Accounts of Business Entities in Bosnia and Herzegovina Adhering to its legal obligations and the powers it has, aiming to support the operations of the payments systems, and to underpin its other lawful duties and tasks, the Central Bank has established the Single Registry of Accounts of Business Entities in Bosnia and Herzegovina, The above mentioned has been established pursuant to the Article 2, paragraph (3), point c) and Article 7, paragraph (1) point b) and Article 70 of the Law on the Central Bank of Bosnia and Herzegovina (Official Gazette of BiH, 1/97, 29/02,08/03, 13/03, 14/03, 9/05, 76/06 and 32/07), Single Registryof Accounts of Business Entities in Bosnia and Herzegovina contains the accounts of business entities in Bosnia and Herzegovina that perform payment transactions in Bosnia and Herzegovina through accounts opened in a commercial bank and accounts in the CBBH, Business entities whose accounts are kept in the Registry include: institutions, administrative bodies, local self-government communities, other forms of organization whose establishment is registered with the competent authority or established by law, legal entities or parts of legal entities, companies, public enterprises, banks and other financial organizations, associations, natural persons who independently perform a registered business activity and other business entities to which a unique identification number (UIN) has been assigned, The Registry of accounts originally contained only transaction accounts of business entities, By upgrading the Registry of accounts to the new platform in 2019, it contains all the accounts of business entities, Also, the CBBH enabled the real time updating of the data sent by banks, In addition to supporting the operations of payment systems, the Registry assists commercial banks, tax authorities, police and other levels of government in detecting financial structures and transactions that companies and individuals can exploit illegally, such as tax evasion and money laundering, and others actions that may cause the breach of the laws in Bosnia and Herzegovina, Also, the Registry provides insight into the information to all legal and natural persons who collect their receivables by force through authorized institutions, Data from the Registry can be accessed: By direct insight via the Internet and in the form of individual reports, Pursuant to the Decision on the Single Registry of Accounts of Business Entities in Bosnia and Herzegovina, free of charge direct insight into the data from the Registry via the Internet is provided to: the CBBH, Entities’ Banking Agencies, institutions, administrative bodies, local self-governing communities, banks and users to whom the CBBH issued approval, Central Registry of Credits of Legal Entities and Natural Persons in Bosnia and Herzegovina In order to strengthen financial stability in Bosnia and Herzegovina, and recognizing the legal obligations and powers it has, the CBBH has established the Central Registry of Credits of Legal Entities and Natural Persons in Bosnia and Herzegovina, The above mentioned has been established pursuant to Article 2, paragraph (3), point i), Article 7 paragraph (1) point b) and Articles 59 and 70 of the Law on the Central Bank of Bosnia and Herzegovina (Official Gazette of BiH, 1/97, 29/02, 13/03, 14/03, 9/05, 76/06 and 32/07), as well as Article 6 paragraph (1) point a) and d) of the Law on Personal Data Protection (“Official Gazette of BiH”, 49/06, 76/11 and 89/11, Central Registry of Credits of Legal Entities and Natural Persons in Bosnia and Herzegovina is a unique database of credit and other indebtedness of legal entities and natural persons, The information in the Registry is extremely useful for participants in the preparation of credit capacity analyses and monitoring, for the Entities’ Banking Agencies and the Central Bank for analysis, as well as, for the courts, prosecutors' offices, attorneys' offices, internal affairs authorities and police departments for performing tasks within their jurisdiction established by the Law, By upgrading the Registry in 2019, the CBBH made it possible to update the banks sent data in real time, The manner of work and the rules related to the CBBH Registries are defined by the CBBH Governing Board Decisions, which are published in the Official Gazettes and on the CBBH website, INTERNATIONAL PAYMENT CLEARING SYSTEM The CBBH and the National Bank of Serbia concluded the Agreement on Clearing of International Payments in 2007, as a basis for establishment of international payments clearing between Bosnia and Herzegovina and the Republic of Serbia, The system enables efficient, fast and cheap carrying out of payment transactions between natural persons and legal entities, Six banks from Bosnia and Herzegovina currently participate in the international payment clearing system, ELECTRONIC INTERBANKING MONEY MARKET Recognizing the needs of the market, the CBBH has also introduced an electronic interbanking money market, which includes three platforms for real-time trading between commercial banks, more specifically: trading in KM deposits, trading in foreign currency and trading in cash, The platform of the electronic interbank money market is also used for the purchase and sale of KM, and the announcement of the transport of cash between commercial banks and the CBBH, As before, the CBBH will continue to work to keep existing systems stable and secure, to monitor trends, to harmonize with new European standards ,when it comes to operating principles and new services, and to contribute to financial stability in Bosnia and Herzegovina,
