The basic, essential function of the Payment Systems Oversight function, like the activity of other oversight entities, is to regulate the activity of the controlled payment systems by setting standards for their activity in terms of stability and efficiency. The standards will be established regarding issues of the systems’ stability, such as business continuity, credit risk, liquidity risk, cyber, operational risk, legal risk, finality of payments, and settlement risk, as well as regarding issues of the systems’ efficiency, which are intended, among other things, to provide a response to the needs of the market and participants, and deal with issues such as open access, direct and indirect participation, transparency and disclosure to the public, and innovation.
To establish the oversight policy, the Payment Systems Oversight function consults with market players and leads advisory market committees and teams in various areas, with a range of stakeholders in the payments area. Examples include a Payment Cards Committee, a Faster Payments team, and an ATM Committee.
The regulation is based on, among other things, the international Principles for Financial Market Infrastructures (PFMI-CPMI) and is carried out using a range of regulatory tools, including:
1. Adopting international standards and adjusting them to the domestic market and imposing them on the controlled systems;
2. Updating legislation related to the oversight functions and to the obligations of controlled system operators;
3. Publishing oversight directives and guidelines for various entities in the payment systems:
- The operator of a controlled payment system—the function responsible for managing the payment system
- The participant in a controlled payment system—an entity defined as a participant according to the system rules
4. Publishing guidelines and disclosures of stances for the controlled systems.
An additional significant function of the Payment Systems Oversight function is assessing the stability and efficiency of the systems. Such an assessment is carried out for each system separately—among other things, by identifying the risks in the system and examining the gaps that exist in view of the domestic regulatory requirements and the international principles adopted in Israel. In accordance with the results of the assessment, the Payment Systems Oversight function carries out actions to reduce the gaps and publishes assessment reports, all with the goal of strengthening the stability and efficiency of the system and in order to increase the transparency for its participants and other entities in the field regarding the risks inherent in its operation.
An additional pillar in the activity of the payment systems oversight function is carrying out audits of the controlled payment systems. The audit tool enables the Payment Systems Oversight Division to check issues more comprehensively. The audit can be in real time, instead of after the fact. The examination can be based on additional information beyond what arrives from the system operator, but can also be based on additional sources. The examination can also be carried out on-site. The audit can be carried out on a specific payment system or can be carried out as a broad audit encompassing the issue at several controlled payment systems, or it can be an audit of specific issues, particularly in areas of business continuity, information technology and cyber, corporate governance, and information analysis.
The results of the audit of payment systems generally lead to the publication of guidelines and policy recommendations in the specific issue, and later on to carrying out enforcement activities and the publication of reports, within the framework of the audit in those areas.