Insufficient Information Summary

Taiwan has four payments systems: the Check Clearing House System, the Interbank Remittance System, the Central Bank of China (CBC) Interbank Fund-transfers Settlement System (CIFS), and the Central Government Securities Settlement System. According to the CBC website, the first three qualify as systemically important payment systems. Of these three, CIFS operates on a real-time gross settlement basis. Annual Reports from the CBC and two 2008 World Bank reports on payment systems provide some information regarding Taiwan's payment system infrastructure. According to a report by Massimo Cirasino and Jose Antonio Garcia based on a World Bank Survey of payment systems worldwide, Taiwan exhibits a “medium-low level of development” in the assessment's legal and regulatory component, a “high level of development” in its system design as it relates to safety, soundness, and efficiency, and a “medium-high level of development” in its oversight component. Although the World Bank assessment is loosely based on the Committee on Payment and Settlement Systems (CPSS) Core Principles for Systemically Important Payment Systems (CPSIPS), it does not directly address each individual principle or their requirements. Apart from the World Bank report there is no source publicly available that comprehensively addresses Taiwan’s compliance with the CPSIPS.

General Overview

According to the Central Bank of China's (CBC) 2008 Annual Report (published in 2009), Taiwan has four payment systems: the Check Clearing House System (CCHS), the Interbank Remittance System (IRS), the CBC Interbank Funds-Transfer System (CIFS) and the Central Government Securities Settlement System (CGSS). According to the CBC website, all systems but the CGSS are systemically important. Of those, only CIFS, which is run by the Central Bank, operates on a real-time gross settlement (RTGS) basis. The CCHS and IRS are Taiwan’s retail payment systems.

According to a A 2008 World Bank survey on worldwide payment systems by Massimo Cirasino and Jose Antonio Garcia, Taiwan exhibits a “medium-low level of development” (p. 23) in its legal and regulatory framework on payment systems, a “high level of development” (p. 31) in its system design as it relates to safety, soundness, and efficiency, and a “medium-high level of development” (p. 51) in its payment system oversight.

As noted on the CBC's website, the CIFS was established in 1995 as an online large-value funds transfer system and is operated and managed by the CBC. The system initially operated as a dual system, using both designated-time netting system and real time gross settlements. However, in 2002 the CBC stopped providing designated-time settlements in order to reduce risks. Presently, transactions are settled through the system individually and continuously during the day's operating hours, in real time. CIFS participants include banks, investment and trust companies, and bills finance companies. Per the CBC's 2008 annual report, by the end of 2008, there were 70 banks, ten bills finance companies, and five other companies participating in the CIFS. The daily average transaction value in the system for 2008 was Taiwan Dollar (NT$) 1,120.6 billion, with the daily average number of transactions at 3,376. The CBC also supervises the Check Clearing House System, whose participants are required to open reserve accounts at the central bank and usually include banks, credit co-operative associations, and the credit departments of farmers' and fishermen's associations.

Per the CBC's website, the IRS was launched in 1987 and, according to the CBC's 2006 Annual Report, is the largest retail electronic payment system in the country. The Financial Information Service Co., Ltd (FISC) operates the IRS, while the Ministry of Finance supervises it. The payments system's main function is to provide remittance services to the public, government agencies, and banks. The CBC observes in its 2006 annual report that the FISC processed settlements in the value of NT$111,853 billion, marking a 4% increase for the year 2006.

According to the CBC’s 2008 Annual Report, the Central Bank and other government agencies are dedicated to improving and monitoring Taiwan’s payment systems. A recently implemented plan allows the Taiwan Stock Exchange and GreTai Securities Market “to process net payment clearing of stocks and bonds through the CIFS” (p. 98). CIFS and CCHS are monitored by the central bank. This oversight takes the form of requiring clearing institutions to have contingency plans, holding regular discussions with other regulators on promoting better supervision, and generally following the Core Principles for Systemically Important Payment Systems.

The Principles

III. The system should have a well-founded legal basis under all relevant jurisdictions.

A 2008 World Bank report by Massimo Cirasino and Jose Antonio Garcia observes that Taiwan exhibits a “medium-low level of development” (p. 23) in its legal and regulatory framework on payment systems. A 2008 World Bank report on payment systems worldwide notes in its appendix that legal provisions in Taiwan include: (1) clear timing of final settlement especially when there is an insolvency; (2) recognition of electronic processing payments; and (3) the non-existence of any zero hour or similar rules. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIII. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

There is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIIII. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

The World Bank’s 2008 payment systems report notes in its appendix that sources of liquidity in CIFS are provided by: (1) opening balances and funds received from other participants during the day; and (2) a part of participants’ reserve requirements during the day. Furthermore, CIFS allows current account overdrafts. To control credit risk exposure in the system, high quality collateral is required in all cases. In the case that intraday liquidity is not repaid at the end of the operational day, the CBC transforms intraday credit into overnight credit at penalty rates. If a participant does not have enough balance (and/or credit) in its current account to process new payments, the payment order will go into a queue for later processing. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIIV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

There is insufficient information publicly available regarding Taiwan's compliance with this principle. Transactions are settled through the CIFS individually and continuously during the day's operating hours, in real time.

IIV. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

Of Taiwan’s three systemically important payments systems, the Clearing House System and IRS are deferred net settlement systems. However, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIVI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

The World Bank’s 2008 payment systems report notes in its appendix that the CBC is the operator and settlement agent for CIFS. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIVII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

The World Bank’s 2008 payment systems report indicates in its appendix that for Taiwan’s payment systems, routine procedures are in place for periodical data backups. Data storage media is kept in sites other than the main processing site, backup servers are deployed at the main processing site, and a fully equipped alternate processing site exists. The report also notes that the CBC has documented a formal business continuity plan, which includes procedures for information dissemination and for crisis management, and that the business continuity arrangements are regularly tested. The 2008 World Bank report by Cirasino and Garcia observes that Taiwan exhibits a “high level of development” (p. 31) in its system design as it relates to safety, soundness, and efficiency of the system. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIVIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

The World Bank’s 2008 payment systems report indicates in its appendix that Taiwan’s payment system fees aim to fully recover operational and investment costs, and that the investment costs are estimated to be recovered in five years. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIIX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

According to the appendix of the World Bank’s 2008 payment systems report, there is an explicit access/exclusion policy for the system. Access is granted on the basis of institutional standing and on the fulfillment of a set of objective criteria. According to the CBC’s 2008 Annual Report, in 2008 “participants of the CIFS included 70 banks, 10 bills finance companies, and 5 other institutions” (p. 97). Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIX. The system's governance arrangements should be effective, accountable and transparent.

There is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIA. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

The World Bank’s 2008 payment systems report indicates in its appendix that the CBC has declared its objectives for payment systems oversight in a regulation/policy document, and that these objectives include the pursuit of a higher level of competitiveness among system participants, consumer protection, and the avoidance of collusive practices. However, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIB. The central bank should ensure that the systems it operates comply with the Core Principles.

The World Bank’s 2008 payment systems report indicates in its appendix that oversight is performed over all systemically important funds transfer systems in Taiwan. Meanwhile, the 2008 World Bank report by Cirasino and Garcia observes that Taiwan exhibits a “medium-high level of development” (p. 51) in its payment system oversight. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IIC. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

Of the three systemically important payment systems in Taiwan, the CBC operates CIFS and the Clearing House System. The IRS is operated by the Financial Information Service Company and is supervised by the MoF. However, there is insufficient information publicly available regarding Taiwan's compliance with this principle.

IID. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

The World Bank’s 2008 payment systems report indicates in its appendix that Taiwanese cooperation with relevant authorities is ensured through a formal mechanism, such as a Memorandum of Understanding, or is required by law. Such cooperation involves regular meetings, exchanges of information and opinions, prior notice of regulatory action, and joint inspections. Overall, however, there is insufficient information publicly available regarding Taiwan's compliance with this principle.