CBN unfolds guidelines for indirect payment system

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Charles Okonji

The Central Bank of Nigeria (CBN) has issued new operating guidelines for Indirect Participants in Payments System.

In a circular to Deposit Money Banks and Other Financial Institutions, the apex bank said the plan was in exercise of the powers conferred on the CBN under the CBN Act 2007 to promote sound financial system in Nigeria, issue regulations to facilitate the development of an efficient and effective payments system in Nigeria, the CBN hereby issues the Regulation for the Operation of Indirect Participants in the Payments System (this Regulation).

The plan was to set out the procedures for effective integration of indirect participants in the payments system in Nigeria; standardise the operation of indirect participants in the payments system, taking into cognisance their operational risks; provide mechanism and framework for the clearing and settlement of indirect participants payment instruments through the direct participating banks; and strengthen indirect participants for effective contribution to digital financial services in Nigeria.

To qualify as an indirect participant, an institution shall have a satisfactory risk-based rating from the CBN and secure a letter of recommendation from its direct participating bank, signed by the Chief Risk Officer and an Executive Director of the direct participating bank; and comply with the NUBAN Standards.

The report said 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.

Continuing, it said that except as otherwise agreed, a direct participating bank or an indirect participant shall give at least 30 days’ notice to the other party before terminating the Settlement Agreement for any other reason apart from the circumstances in 3.4. The terminating party shall notify the Payments Service Provider (PSP) of its intention to terminate.

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