CERTIS - the interbank payment system - description

What is the interbank payment system?

In the non-cash payment system money is transferred from a payer's account to a payee's account. This means that the operating of the non-cash payment system is reserved to financial institutions - banks with which clients deposit their money on accounts. Banks execute the payments based on their clients' instructions transmitted in the form of a written document (payment instruction forms, cheques, etc.), or by technical means (instructions transmitted on data media, electronically via computers linked with the bank, vocally by phone, or via a special banking applications by mobile phone, or using a payment card, which may also be considered an electronic payment instruction).

If both the payer and the payee have their accounts at the same bank, that bank will execute the money transfer (account settlement) in its own clearing centre. If the payer and the payee have accounts with different banks, the payer's bank has to use the "interbank clearing centre" for the transfer.

• The interbank clearing system in the Czech Republic
• Basic principles
• Participation in the system
• Types of transactions handled
• Operation of the system
• Transaction processing environment
• Accounting day, settlement procedures
• Credit and liquidity risk
• Pricing
• Business Continuity Plan

The interbank clearing system in the Czech Republic

The only interbank payment system in the Czech Republic, which handles interbank payments in Czech koruna, is the CERTIS system ( Czech Express Real Time Interbank Gross Settlement system). CERTIS started the live operation within the Clearing and Settlement Centre at the SBCS in the former Czechoslovakia on 8 March 1992. After the division of Czechoslovakia at the beginning of 1993, a new clearing centre was founded in Slovakia, while the former federal Clearing and Settlement Centre remained within the Czech National Bank.

Each participant in CERTIS is identified by a unique bank identifier code, which is an obligatory part of any payment transaction. Additional numerical codes (so-called payment symbols) are used to provide more detailed information about the payments.

The establishment and operation of CERTIS as well as the rights and obligations of the participants are set out in the Payment System Act. There are no specific rules for CERTIS compared with rules for other payment systems that can be created in the Czech Republic. The accounts used to settle interbank transactions are held at the Czech National Bank on the basis of the account agreements signed with participants in accordance with the Commercial Code. These agreements lay down uniform standards for all participants, as well as legal and technical conditions for keeping accounts and for the exchange and processing of interbank payment systems data.

Basic principles

The CERTIS system is based on the following principles:

• RTGS;
• settlement of interbank payments in Czech koruna irrespective of their values and of whether they are initiated directly by a customer's order or indirectly as a result of payment card or stock exchange transactions;
• settlement in central bank money on accounts held at the Czech National Bank (which also serve as the accounts on which minimum reserves are held);
• direct participation by banks holding a banking licence for operation within the territory of the Czech Republic and by savings and credit co-operatives;
• direct bilateral connections between the head offices of banks/savings and credit co-operatives and CERTIS;
• the irrevocability of all transactions accepted by the system;
• the processing of different types of transactions;
• uncovered transactions are neither settled nor rejected but held in a queue (with two priority levels);
• no overdrafts are permitted;
• fully collateralised intraday credit, which bears no interest, is provided by the Czech National Bank to the banks that are the SKD clients on the basis of collateralised securities to provide sufficient liquidity (depending on the bank's activities, its intraday credit can be increased or decreased arbitrarily at any time between the opening of the SKD accounting day 8.30 p.m. and the closing of the CERTIS accounting day 4 p.m.) the securities registered in the SKD are accepted as collateral;
• fully collateralised overnight credit is provided by the Czech National Bank to the banks (if intraday credit is not repaid by the banks until the closing of the CERTIS accounting day, securities serving as collateral for intraday credit are transferred to the Bank's account then serving as collateral for overnight credit).

Participation in the system

Direct participants

Banks holding a banking licence for operation within the territory of the Czech Republic can be direct participants in the interbank payment system. The CERTIS system, located at the Czech National Bank's head office, communicates only with the head offices of the banks. Each bank has only one interbank payment account with the Czech National Bank. This means that banks must first process all data from their own branches internally and then extract those data from these directed to other banks. Only the latter transactions can be handed over to CERTIS. Payments between customers of the same bank are processed in the internal system of this bank without any involvement of CERTIS. According to the 2005 amendment of the Act on the Czech National Bank, also savings and credit co-operatives can be, under the same conditions as in the case of banks, direct participants in CERTIS.

Ancillary systems (so called "third parties")

Under bilateral agreements with the Czech National Bank, certain financial institutions are allowed to participate in the system with a special status. These so-called "third parties" are non-bank financial institutions, for example card payment clearing houses and the securities clearing and settlement institutions, which play an important role in the market. They have no interbank payment account with the Czech National Bank but, with the permission of the direct participants concerned, can submit payment orders to CERTIS to transfer funds between direct participants (e.g. to settle the summarised positions arising from the card payment clearing or payments relating to stock exchange transactions).

Types of transactions handled

The following types of transactions are handled in the CERTIS system:

• credit transfers;
• direct debits;
• corrective settlement transfers (credit transfer cancellations);
• ancillary system transactions;
• information and technical transactions.

Credit transfers can be low priority transactions and two types of high priority transactions (bank-to-bank priority transfers, clients' priority transfers). Clients' priority transfers must be credited to the payee's account at the same day.

Operation of the system

For the operation of the interbank payment system, the Czech National Bank maintains accounts (interbank payment accounts) in Czech koruna for direct participants to settle their interbank payments. The Czech National Bank executes fund transfers from interbank payment accounts on the basis of instructions from the participants.

Balances on interbank payment accounts are also used to fulfil the reserve requirements. The maintenance of minimum reserves is mandatory in the Czech Republic. Minimum reserves are set at explicit percentage points of deposits (2.0% as at 31 December 2007) and can be used for interbank payments.

Transaction processing environment

The CERTIS system has various means of safeguarding its availability and the correct execution of interbank payments. In October 1996, final acceptance tests for the new project to provide a real-time backup facility based on the technology of disk mirroring were successfully completed.

At the beginning of 1999, live operation of the new web based subsystem of CERTIS, called CERTIS Information System (CERTIS-IS), started. This subsystem provides the participants with information about the all important parameters of the processing, including current balances, individual transactions, queued payments and other operational aspects. The design is based on extranet technology using strong encryption features and authentication tokens.

Since 2001, two further subsystems of CERTIS, called CERTIS Data Security System (CERTIS-DSS) and CERTIS Message Transfer System (CERTIS-MTS) respectively, have been in live operation. CERTIS-DSS ensures electronic signature and encrypting of data. It is based on PKI with the certification authority operated by the Czech National Bank. CERTIS-MTS enables data to be submitted and processed automatically without the operators' intervention.

Accounting day, settlement procedures

A normal accounting day begins on the previous working day (D-1) at about 5 p.m. for acceptance of payment orders. The settlement starts at 0:00 on the working day (D). The cut-off time is on the working day (D) at 4 p.m. The time between 3.30 and 4 p.m. on day D is used for the fine-tuning of balances on the interbank payment accounts. Funds for this purpose can be obtained on the interbank money market.

During the accounting day, participants send data to CERTIS in electronic form in accordance with fixed rules and procedures set out by the Czech National Bank. Participants deliver data by using the telecommunications network. SWIFT is not used. When the control programs validate that all data are of the required quality, a payment order is accepted by the CERTIS system and the settlement process can begin. During that process the account of the sending bank is checked to see if it contains sufficient funds to cover the transactions submitted. If the result of the check is positive, the transfers are immediately settled by debiting the sending bank's account and crediting the receiving bank's account. The throughput of the system is about 1,500,000 transactions per hour. The processed transactions are transmitted to the respective participant in electronic form via the telecommunications network.

Credit and liquidity risk

CERTIS executes payments only if the sending bank's account has sufficient cover (no overdrafts are allowed on the accounts). If funds are insufficient to cover a transaction, the transaction is placed in the so-called "hold queue". Information about queued payments is accessible for the respective bank through CERTIS-IS.

Sufficient cover for the execution of queued payments may be obtained:

• through incoming funds transfers;
• through borrowing in the money market;
• from the Czech National Bank in the form of a fully collateralised intraday credit, the securities registered in the SKD are accepted as collateral;
• from the Czech National Bank by means of a fully collateralised overnight credit line.

If for any reason the bank is not able to obtain the required funds by the end of the accounting day, the transfer instructions in the hold queue will be rejected by the system and returned to the sending bank.

Pricing

The pricing policy is determined by the Czech National Bank to ensure cost recovery for CERTIS. At the same time, the pricing structure is designed to encourage participants to spread the delivery of the data to CERTIS optimally across the accounting day. The time schedule of the accounting day and the related charges are part of Price List which is available on www.cnb.cz. The aim has been not only to extend the operating hours, but also to support the Czech National Bank's efforts to finish the end-of-day procedure on time.

The Czech National Bank encourages the delivery of payment instructions as early as possible on the accounting day in order not to overload the system with a high transaction volume at the end of the accounting day. The current fee for participants is therefore set at a very low level at the beginning of the accounting day (CZK 0.15 €0.006) whereas, at the end of the day, when only high-value bank-to-bank transactions are expected, the transaction fee is considerably higher (up to CZK 100, €3.77).

For banks with higher volume of transactions, the discount of CZK 0.04 (for monthly volume over 250,000 transactions), CZK 0.08 (over 2.5 mil. transactions), and CZK 0.12 (over 5 mil. transactions) is provided.

The list of charges is provided in Part V of the CNB's Schedule of Charges for Financial and Business Services (pdf, 15 kB).

Business Continuity Plan

Article 13 of Act No. 240/2000 Coll. on Crisis Management and on the Amendment of Certain Acts, as amended, lays down the CNB’s obligations in preparing for crisis situations, in particular the obligation to prepare an business continuity plan for the area of monetary policy and the banking sector and to assist the ministries in preparing their business continuity plans.

Under the aforementioned Act, the CNB has drawn up the Business Continuity Plan aimed at preparing the CNB to deal with emergencies that might disrupt or damage its integrity and destabilise its key activities in the Czech financial market area. The implementing documentation for the Business Continuity Plan includes specific procedures for dealing with particular emergencies. This documentation includes, among other things, contingency plans for information systems.

The CERTIS’s Contingency Plan stipulates procedures for dealing with particular contingencies in the CERTIS information system. Key emphasis is placed on the possibility of restoring the system at the backup facility, which is located at a sufficiently remote location and is not subject to the same sets of threats as the primary party. Thanks to its technical solutions and real-time availability, the backup facility offers the same performance, capacity and functionality as the primary party.

The CERTIS Contingency Plan is tested periodically in the real environment. All users are involved in these tests. The plan is revised where necessary based on the experience gained during the testing.

The CNB, as a participant of the European System of Central Banks considers the business continuity in payment and securities settlement systems to be very important. It cooperates with the other central banks in sharing information in this area. As part of terminology unification, a glossary of major business continuity terms has been developed, providing a list of definitions for the terms covering this issue.

Links:

• ECB - Business Continuity Plan
• ECB - Glossary of major business continuity terms