Payment and securities settlement systems are critical to the effective functioning of financial systems worldwide. They provide the channels through which funds are transferred among banks and other institutions to discharge payment obligations arising in the financial markets and across the entire economy.

This system, in contrast, if not efficient, secure and reliable can adversely affect the financial system, and can contribute to systemic crises. If the risks inherent in its design and operation are not adequately contained, a financial shock—initially in the form of a liquidity shortfall, which may be followed by default and even bank insolvency—can be passed from one participant to another. Since a bank’s liquidity problems will typically first become visible in the payment systems in which it participates, those systems are by definition vulnerable to a wide range of shocks.

An efficient payment system, promotes orderly economic development and growth. In particular, a wide and cost-effective range of payment instruments is essential for supporting customers’ needs in a market economy. Some transactions simply do not take place in absence of certain payment instruments.

A fair retail payment system has also important social implications. For example, interoperable networks for processing payments at low cost are essential to guarantee appropriate coverage of payment instruments in a country.

Close attention has been paid since the mid-1980s, initially by central banks and then by other regulators, to the design and operation of payments and securities settlement systems. This was in response to both technological developments, which reduced the cost and increased the speed of the automated processing of payment instructions.

The Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlement (BIS) has published several reports and is the standard setter in the area. Its focus has ranged from large value to retail systems, from foreign exchange transactions to securities settlement systems.