BOJ penalises use of old clearing system
Published:Friday | September 30, 2011 | 12:00 AM
- BOJ cracks whip on JamClear
Avia Collinder, Business Reporter
Jamaica's financial houses have been slow to migrate to a new clearing system implemented by the Bank of Jamaica (BOJ), leading the central bank to impose a fee structure that punishes use of the old automated clearing house (ACH).
The BOJ began phasing in the new JamClear Real Time Gross Settlement System (JamClear-RTGS) two years ago for faster clearance of cheques and other financial transactions, as part of a wider payments and settlement system modernisation plan that separately included a depository for fixed-income securities.
It takes up to three days to clear cheques under the ACH, whereas JamClear's turn-around time is measured in minutes up to a maximum of two hours.
Its design was completed in 2008, and the system went live in 2009 with graduated goals for retail participation.
This year, commercial banks were set a target by the BOJ for migrating at least 50 per cent of all payments and transfers that are above J$5 million to JamClear-RTGS.
A charge of J$5,000 for each transaction over the threshold settled by the ACH is levied on commercial banks that fail to attain a 50 per cent reduction in the number of large-value payments and transfers effected through the ACH.
Comparatively, each transaction through JamClear-RTGS attracts a fee of J$62 if settled before 1 p.m. each day, and J$100 if settled in the afternoon, BOJ said.
The central bank told the Financial Gleaner that the disparity in the charges is having the intended effect.
Since the implementation of the 'value threshold' in April 2011 — that is the J$5,000 fee on large cheques cleared through ACH — there has been a significant downward trend in transactions of J$5m or greater, processed in the ACH, and a corresponding increase in the affected transactions settled in JamClear-RTGS, said Pat Rose, director of payments at the BOJ.
Beneficiary payments in JamClear-RTGS totalled 4,092 in 2010; this year, 15,637 transactions were processed up to August 31, Rose said.
"This increase spiked after the value-threshold implementation in April, as the first-quarter total for 2011 just prior to the implementation was 1,310 beneficiary transactions," she told the Financial Gleaner.
The trend is seen as positive by the BOJ, which states that the current use of the ACH for transactions of all sizes, poses net settlement risks for the institution.
In 2010, total transactions in the ACH amounted to J$2.32 billion representing over 9,000 transactions, coming down from J$2.85 billion or 10,948 transactions in 2008.
Unacceptable risk
The BOJ said that in 2010, approximately 79 per cent of the value of all transactions processed through the clearing house was for amounts above J$1 million, and "serves to confirm the concerns of the Bank of Jamaica about the level of net settlement risk posed to the ACH".
In a September newsletter on the RTGS, the BOJ said it was "deeply concerned about the net settlement risk posed by large-value transactions that are processed through the ACH and settled in Central Bank money via JamClear-RTGS."
It added: "The risk to the stability of the financial system is unacceptable and must be significantly reduced if not eliminated".
Net settlement is the process by which banks calculate the collective total of all transactions in any given day. Credit and debit transactions are recorded on the clearing house books throughout the business day; final settlement of the net transaction - that is, credits less the debits - occurs when the central bank credits the reserve accounts.
Rose said institutions have responded positively to efforts to steer them towards JamClear.
The J$5,000 charge on commercial banks that do not attain the 50 per cent target on reduced ACH transactions will be reviewed in January 2012, with a view to setting revised targets by April 2012.
The BOJ said in its newsletter that it was sensitive to the possibility that the banks would pass the charge on customers "at a time when efforts are being made to encourage a reduction in bank charges to end users", and that its intent is "not to generate earnings but instead to reduce, if not eliminate the risk to system stability posed by large value payments that are effected through the ACH, which is a deferred net settlement system."
The retail charge for cheque clearing is stage three of the overall national payments system reform programme; the development of the settlement infrastructure and dematerialisation and electronic transfer of title for GOJ domestic securities comprised the first two.
The fourth and final stage is an electronic foreign exchange trading system for real-time settlement of cross-border transactions, to be commissioned around 2015, according to Rose.
JamClear-RTGS transaction values
2010: J$11.002 billion
Jan-July 2011: J$6.925 billion