## cr1745 ## Source details **Canonical URL:** [cr1745](https://www.imf.org/-/media/files/publications/cr/2017/cr1745.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr1745.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr1745.pdf.json) --- ### Authorities and Scope - Authorities with responsibilities for the Turkey National Payments System (NPS): - Central Bank of the Republic of Turkey (CBRT): regulatory and oversight responsibility for payment and securities settlement systems. - Capital Markets Board (CMB): responsibility for safe and efficient functioning of capital markets and for CSDs, CCPs and TRs. - Banking Regulation and Supervisory Authority (BRSA): banking supervision including regulation of payment instruments and non-bank e-money and payment institutions. - Assessment covers CBRT-owned/operated FMIs: - Electronic Funds Transfer (EFT) system. - Electronic Securities Transfer System (ESTS). - Interlinkages considered with Takasbank and Merkezi Kayit Kurulusu (MKK). - EFT and ESTS form part of an integrated “CBRT Payment and Securities Settlement System” that includes the Retail Payment System (RPS). ### Integrated presentation and methodology - EFT and ESTS share operating rules, governance arrangements, risk management framework, access criteria, system interfaces and message formats. - Assessment methodology: CPMI-IOSCO “Assessment Methodology and Disclosure Framework for PFMIs (December, 2012)” and “Application of PFMIs for central bank operated FMIs (August 2015)”. - Assessment context: FSAP field missions to Turkey in April 2016. - Assessor: Harish Natarajan (World Bank). ### System design, participants, operating hours and volumes - CBRT-operated systems: - EFT and RPS: RTGS-mode payment systems. - ESTS: CSD-cum-SSS for Government securities and CBRT bills; settles in DVP mode using Model 1. - Participation and accounts: - Any bank operating under the Banking Law can become a direct participant with CBRT approval. - Total participants: 54; with the exception of the MKK all other participants are banks. - Systems support only Turkish Lira (TRY) credit transfers. - Operating hours: - Weekdays (except national holidays) from 8:30 to 17:30. - 2015 activity: - RPS settled 315,243,249 payments with a total value of TRY 9.99 trillion in 2015. - EFT settled 2,918,019 payments with a total value of TRY 42.73 trillion in 2015. - The total value processed by the EFT and RPS system in 2015 was around 27.9 times the GDP of Turkey in 2015. - Intraday patterns and queuing (January 2016 data): - On a typical day around 50% of EFT transactions occur in the last 2.5 hours of operations. - Around 15.94% of transactions were queued for inadequate balance and remained in the queue for an average of 7 minutes. - Maximum queue time in January 2016 was around 18 minutes. - SLA and processing times: - EFT SLA maximum processing time: one minute (current average is one second). - RPS SLA maximum processing time: 15 minutes (current average is 30 seconds). ### Roles and interactions: Takasbank and MKK - Takasbank functions: - SSS for secondary market transactions and repos on Government securities on Borsa Istanbul (BIST); SSS for equities and corporate bonds traded on BIST. - CCP for derivatives traded on BIST; operates SLB platform, money market, collateralized cash credit facility; Legal Entity Identifier Operating Unit (LOU) for Turkey. - MKK functions: - CSD for equities and corporate bonds traded in BIST; holds securities in the name of the beneficial owner. - Has an account at ESTS to reflect consolidated holdings of Government securities in MKK. - Received a license from the CMB to function as a Trade Repository (TR) for OTC derivatives. ### Legal and regulatory framework (key laws and instruments) - CBRT authority derives from: - CBRT Law – Law no. 1211 (enacted 1970, amended most recently in 2011). - Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions No 6493 (PSL) enacted June 2013. - Implementing regulations issued by CBRT since Payment Law: - “Regulation on Operations of the Payment and Securities Settlement Systems” (ROPSSS) – June 2014. - “Regulation on Oversight of the Payment and Securities Settlement Systems” (ROSPSSS) – June 2014. - ‘Communique on Information Systems of Payment and Securities Settlement Systems’. - Other relevant laws: Banking Law No 5411; Cheque Law No 5941; Bank Cards and Credit Cards Law No 5464; Public Finance and Debt Management Law No 4749; Capital Market Law No 6362. ### Risk management, liquidity, default and operational resilience — key findings - Overall observation status: - EFT: Broadly observes the risk management framework, Liquidity risk management, Default Management and operational risk management principles; Partially observes the tiered participation principle. - ESTS: Broadly observes the risk management framework, liquidity, default management and operational risk principles. - Risk management framework: - PSD has developed a departmental level risk management framework based on ISO 31000; framework is recent and has not been audited. - Framework is internally focused and does not explicitly take into account: - Risks arising from external sources. - Linkages with other FMIs (e.g., Takasbank, MKK). - Risks posed by CBRT systems to other FMIs. - Liquidity and systemic risk: - CBRT as operator is not constrained in TRY liquidity, but participants face liquidity shortages due to concentrated transaction patterns (e.g., around 50% in last 2.5 hours). - Liquidity sources include CBRT facilities (ILF, overnight credit, daily repo, weekly repo, LOLR) and market sources (BIST repo market, Takasbank money market, Takasbank cash credit facility, pre-agreed credit lines). - For March 2016 selected ADVs: - BIST Debt Securities Market Repo Markets ADV: TRY 55.6 billion (settles at 16.30). - Takasbank Money Market ADV: TRY 1.5 billion (settles at 16:00). - Takasbank - Cash Credit Facility ADV: TRY 92 million (settles at 17:00). - CBRT Liquidity Facilities ADV: TRY 104 billion (settles in real-time, DVP mode; ILF hours 09:00 - 15:00). - Default management: - CBRT developed a default management procedure consistent with PSOR and PSL; procedure adopted recently and has not been comprehensively tested. - Coordination and information sharing arrangements with BRSA and CMB exist to provide notice for executing default management. - Operational risk and business continuity: - Comprehensive operational risk management framework in place; IT controls based on ISO 27001 and ITIL; dual data centers and full redundancy; application package on different platform to mitigate simultaneous-impact risks. - BCP plan exists; current scenarios focus on CBRT infrastructure and do not fully include operational risks arising from other FMIs. - CBRT surveyed participants on BCP and cyber resilience; some gaps identified; CBRT revising business continuity guide. ### Legal uncertainties and segregation issues - Ambiguity exists concerning: - Legal certainty for protection of securities holdings of sub-account holders in Takasbank (sub-account structure for participants of money markets and Government securities secondary market). - Conflict-of-law and enforceability issues related to collateral holdings in ICSDs. - Recommendations flagged: - Review legal and regulatory framework for protection of customer assets held by Takasbank. - Consider obtaining external legal opinion on enforceability of PSOR and arrangements for securities held in ICSDs. ### Access, tiering and participation monitoring - Participation rules: - Only banks and MKK (special participant of ESTS) accepted as participants; policy decision to allow only banks based on liquidity risk management. - PSOR regulates only direct participants; does not formally acknowledge tiered participation, though tiered arrangements exist in practice. - Monitoring gaps: - No formal monitoring of tiered participation; CBRT has capability to track initiator, recipient and purpose via message fields. - January 2016 observation: EFT system shows tiered-like activity (entities access EFT services via participants). - Recommendation: collect information on non-bank entities accessing EFT through participants (service terms, typical transaction volume and value, credit/liquidity facilities) and assess risks. ### Transparency, message standards and inefficiencies - Messaging and standards: - Message exchange uses XML based proprietary formats; PIS supports STP and conversion to other formats. - Transparency: - Rules, system descriptions, workflows, summary statistics and pricing policy disclosed on CBRT web page and CBRT Payment Systems User Group web site. - CBRT committed to publish results of PFMI assessments. - Inefficiencies: - Secondary market settlement process for Government securities varies by counterparty; addressing inefficiencies will require changes in ESTS and new interfaces between MKK, ESTS and Takasbank. ### Ratings summary (selected) - EFT system: - Observed: Principles 1,2,4,5,8,9,15,16,18,21,22,23 - Broadly observed: Principles 3,7,13,17 - Partly observed: Principle 19 - Not applicable: Principles 6,10,11,12,14,20,24 - ESTS: - Observed: Principles 1,2,4,5,8,9,11,15,16,18,19,20,21,22,23 - Broadly observed: Principles 3,7,13,17 - Not applicable: Principles 6,10,12,14,24 ### Prioritized recommendations (selected, original wording and priorities preserved) - Conflict of law with respect to collateral holdings in ICSDs - The CBRT could consider seeking an external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the certainty of legal basis with respect to the securities held in the ICSDs. - Relevant parties: CBRT. Priority: Low. - Protection of securities holdings in Takasbank - The CBRT should review the legal and regulatory framework for the protection of customer assets held by Takasbank and implement specific amendments if any gaps are identified. - Relevant parties: CBRT, CMB. Priority: High. - Lack of explicit performance indicators for system as a whole - The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. - Relevant parties: CBRT. Priority: Medium. - Risk management framework is internally focused - The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. - Relevant parties: CBRT. Priority: High. - Credit risk management integration - The credit risk management framework of the Markets department of the CBRT should be more fully integrated into the risk management framework of the EFT system. - Relevant parties: CBRT. Priority: Medium. - Gaps in liquidity risk management - Joint daily and periodic liquidity-risk analysis by the PSD and Markets departments; consider incentives/pricing to encourage earlier settlement; evaluate making intra-day liquidity support more attractive to participants. - Relevant parties: CBRT. Priority: High. - Default management testing and disclosure - The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise at least once a year; publically disclose key elements of the default and operational rules. - Relevant parties: CBRT. Priority: Low. - Gaps in Business Continuity Plans - Include explicit mandates for participant operational risk management in PSOR and a mechanism to assess compliance; incorporate complex scenarios covering risks from/posed to other FMIs (e.g., Takasbank, MKK). - Relevant parties: CBRT. Priority: High. - No monitoring of Tiered participation - The CBRT should consider instituting mechanisms to collect information about non-bank financial companies that access EFT services through participants and assess risks arising from tiered arrangements. - Relevant parties: CBRT. Priority: Medium. - Lack of efficiency in Government securities secondary market - Address process variation by counterparty through changes in ESTS and introducing new interfaces between the MKK, ESTS and Takasbank. - Relevant parties: CBRT. Priority: Medium. - Operating rules and procedures not publicly disclosed - Include details of the key elements of the operating rules and procedures in the CBRT disclosure framework or separately. - Relevant parties: CBRT. Priority: Medium. - CMB TR regulation - CMB should issue a regulation/communique on TRs before approving MKK to commence TR operations. - Relevant parties: CMB. Priority: Medium. ### Responsibilities assessment (A–E) — snapshot - Responsibility A (Regulation, supervision, oversight of FMIs): Broadly Observed. - Responsibility B (Powers and resources): Broadly Observed. - Responsibility C (Disclosure of policies): Observed. - Responsibility D (Adoption/application of PFMIs): Observed. - Responsibility E (Cooperation among authorities): Observed. - Observations: CMB has not established dedicated organizational arrangements and allocated dedicated resources for FMI oversight; TR regulatory framework under CMB is in process of development. *Source: EXECUTIVE SUMMARY and chapter content extracted from cr1745 (IMF country report).* ### EXECUTIVE SUMMARY ...................................................................................................... ### EXECUTIVE SUMMARY ### Authorities and Scope - The authorities with specific responsibilities for the Turkey National Payments System (NPS) are: - Central Bank of the Republic of Turkey (CBRT): central bank with regulatory and oversight responsibility for payment and securities settlement systems. - Capital Markets Board (CMB): responsibility for safe and efficient functioning of the capital markets and for CSDs, CCPs and TRs. - Banking Regulation and Supervisory Authority (BRSA): banking supervision responsibility including regulation of payment instruments and regulation and supervision of non-bank e-money and payment institutions. ### Assessment Coverage and Interlinkages - This assessment covers CBRT-owned and operated FMIs: - Electronic Funds Transfer (EFT) system. - Electronic Securities Transfer System (ESTS). - The assessment takes into account interlinkages of the EFT and ESTS with other Turkish FMIs: Takasbank and Merkezi Kayit Kurulusu (MKK). - The EFT and ESTS form part of an integrated “CBRT Payment and Securities Settlement System” that also includes the Retail Payment System (RPS). - RPS functions in Real Time Gross Settlement (RTGS) mode for customer-initiated inter-bank transactions. - EFT functions in RTGS mode for participating banks’ proprietary transactions including settlement of primary and secondary market transactions on Government securities and central bank bills. - ESTS functions as a Central Securities Depository (CSD) for Government securities and central bank bills and as a Securities Settlement System (SSS) for primary and OTC secondary market transactions between banks on these securities. - Takasbank: SSS for secondary market transactions and repos on Government securities on Borsa Istanbul (BIST); SSS for equities and corporate bonds traded on BIST; CCP for derivatives traded on BIST; operates SLB platform, money market, collateralized cash credit facility, and is the Legal Entity Identifier Operating Unit (LOU) for Turkey. - MKK: CSD for equities and bonds traded in BIST and for Government securities held by brokers and individual and institutional investors; holds securities in the name of the beneficial owner; has an account at ESTS to reflect consolidated holdings of Government securities in MKK. MKK has received a license from the CMB to function as a Trade Repository (TR) for OTC derivatives. ### Integrated Presentation and Methodology - The EFT and ESTS are integrated and share operating rules, governance arrangements, risk management framework, access criteria, system interfaces and message formats. - The two systems were assessed separately, with common details presented in the EFT assessment and referenced in the ESTS assessment. The recommendations table presents an integrated set of recommendations. - The assessment uses the CPMI-IOSCO methodology: “Assessment Methodology and Disclosure Framework for PFMIs (December, 2012)” and considers “Application of PFMIs for central bank operated FMIs (August 2015)”. - The assessment was conducted in the context of FSAP field missions to Turkey in April 2016. ### Key Findings: EFT system - Overall observation status: - Broadly observes the risk management framework, Liquidity risk management, Default Management and operational risk management principles. - Partially observes the tiered participation principle. - The rest of the principles are observed or not applicable. - Risk management framework: - CBRT has a departmental level risk management framework; the Payment Systems Department (PSD) has developed a risk management framework for CBRT payment and settlement systems. - The risk management framework is very recent and has not been subject to internal audit; as a policy the PSD framework would be in the scope of the CBRT internal audit department. - By design the risk management framework is internally focused and does not explicitly take into account: - Risks arising from external sources. - Linkages with other FMIs. - Risks posed by CBRT payment and settlement systems to other FMIs. - Liquidity risk: - Participants of the EFT system are exposed to liquidity risk due to a distinct pattern of concentration of transactions closer to the end of the day. - Default management: - CBRT has developed a default risk management framework but this has not been comprehensively tested. - Operational risk: - CBRT has developed a comprehensive operational risk management framework. - Business continuity procedures do not fully take into account operational risks arising from other FMIs and the risks posed to other FMIs. - Tiered participation: - Rules and procedures do not acknowledge tiered participation arrangements, though such arrangements exist in practice. ### Key Findings: ESTS system - Overall observation status: - Broadly observes the risk management framework, liquidity, default management and operational risk principles. - The rest of the principles are observed or not applicable. - Many observations related to risk management framework, liquidity risk, default management and operational risk management are the same as for the EFT system. - Legal risk: - Ambiguity exists in the rules and procedures of the CBRT payment and settlement systems and the overall legal framework related to the sub-account structure of Takasbank for participants of money markets and the Government securities secondary market. - This creates potentially inadequate legal certainty for protection of the securities holdings of sub-account holders. ### Responsibilities Assessment (Authorities’ responsibilities A–E) - Responsibility A (Regulation, supervision, and oversight of FMIs) and Responsibility B (Regulatory, supervisory, and oversight powers and resources) are broadly observed. - The other three responsibilities (C–E) are observed. - CBRT and CMB are the two overseers of FMIs in Turkey with a clear articulation of the scope of each authority. - Trade Repositories (TRs) regulatory and oversight framework, which are under the CMB, is in the process of development. - The CMB has not established dedicated organization arrangements and allocated dedicated resources for its oversight activities. ### Assessment inputs - Materials used in the assessment included: - Relevant laws, rules and procedures governing the systems. - Public domain materials and materials provided by CBRT and CMB. - Extensive discussions with CBRT, CMB, Takasbank, MKK, and commercial banks. - Self-assessments provided by: - EFT system against the PFMIs. - ESTS against the PFMIs. - CBRT and CMB on their responsibilities for FMIs against the PFMIs. - Excerpts of daily, monthly, quarterly and annual CBRT reports related to the EFT, ESTS and RPS. - Excerpts of internal policies, procedures and deliberations of relevant working groups and committees. - The assessor: Harish Natarajan (World Bank). *Source: EXECUTIVE SUMMARY (cr1745).* ### 12. The presentation of the assessment takes into account the integrated nature of the ### 12. The presentation of the assessment takes into account the integrated nature of the ### Integrated assessment approach - The assessment accounts for the integrated nature of the EFT and ESTS. - EFT and ESTS share operating rules, governance arrangements, risk management framework, access criteria, system interfaces and message formats. - Assessment tables for the EFT provide detailed descriptions that are referenced in the ESTS assessment table rather than repeated. - Principles on credit risk, collateral management and liquidity risk have been assessed for ESTS to account for credit extension to participants which happens outside the EFT and ESTS system but is integral to the functioning of both FMIs. - In the summary section and recommendations table, highlights of the EFT and ESTS assessments and the recommendations are presented together. ### Institutional arrangements: responsibilities and organizational structure - Authorities with responsibility for elements of the Turkey National Payments System (NPS): - Central Bank of the Republic of Turkey (CBRT): central bank; regulatory and oversight responsibility for payment and securities settlement systems. - Capital Markets Board (CMB): responsibility for the safe and efficient functioning of the capital markets; responsible for CSDs, CCPs and TRs. - Banking Regulation and Supervisory Authority (BRSA): responsible for regulation of payment instruments and regulation and supervision of non-bank e-money and payment institutions. - CBRT specific details: - CBRT published its objectives and policies as regards payment and securities settlement systems on its website in October 2014; main objective to ensure “safe, uninterrupted, efficient and effective functioning of the systems.” - CBRT is a member of the CPMI. - Payment Systems Department (PSD) established in November 2013. - PSD is headed by an Executive Director (ED) reporting to one of the four Deputy Governors and executes functions through four divisions: Payment Systems Operations, Regulation & Oversight, Payment Transactions, and Research & Development; organized as two groups each reporting to a Deputy Executive Director (DED). - CMB specific details: - CMB is the regulatory and supervisory authority for the capital markets. - Borsa Istanbul (BIST) is the only securities exchange. - Merkezi Kayit Kurulusu (MKK) functions as Turkey’s central securities depository (CSD) and registrar of dematerialized corporate securities. - Istanbul Settlement and Custody Bank (Takasbank) settles and clears capital market trades conducted over BIST, acts as CCP for derivatives and operates the Securities Lending Market. - CMB is a member of IOSCO and is responsible for regulation, supervision and oversight of Turkey’s corporate securities market FMIs (CSD, CCP and TR) and their observance of the PFMIs. - BRSA specific details: - BRSA is the sole authority for banking regulation and supervision. - Fundamental goal: ensure confidence and stability in financial markets, effective operation of credit market, safeguard rights and interests of depositors. - Established according to Banks Act No. 4389 in June 1999 and began operating in August 2000. - Responsibilities under Banking Law (No. 5411) include: (i) regulate, monitor and supervise banks and financial holding companies and related entities; (ii) become members of international organizations and sign MOUs with foreign counterparts; (iii) fulfil other duties assigned by law. - BRSA regulates payment instruments and regulates and supervises non-bank e-money and payment institutions. ### Legal and regulatory framework - CBRT authority derives from: - Law on the Central Bank of the Republic of Turkey (CBRT Law) – Law no. 1211 (enacted 1970, amended most recently in 2011). - Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions No 6493 (PSL) enacted in June 2013. - CBRT powers under CBRT Law (as amended 2011): establish payment, securities transfer and settlement systems; enact regulations to ensure uninterrupted operation and oversight; determine methods and instruments for payments including electronic environment. - PSL assigns CBRT responsibilities to: - (i) prepare secondary regulation regarding establishment, operations, acquisition and transfers of shares, and oversight of payment and securities settlement systems within a year (Articles 4.3 and 8.1); - (ii) designate payment and securities settlement systems that are subject to settlement finality and publish them in the Official Gazette; - (iii) license payment and securities settlement systems; - (iv) monitor licenses and revocation in certain situations defined by the Law; - (v) oversee all payment and securities settlement systems that operate in Turkey; - (vi) impose administrative fines on system operators that violate the provisions of Law and secondary regulations. - Implementing regulations issued by CBRT since the Payment Law: - “Regulation on Operations of the Payment and Securities Settlement Systems” (ROPSSS) – June 2014 (principles and procedures regarding operating licenses, system rules, operating conditions, risk management framework, collateral, guarantee and credit mechanisms, acquisition and transfers of shares). - “Regulation on Oversight of the Payment and Securities Settlement Systems” (ROSPSSS) – June 2014 (basis for CBRT oversight activities). - ‘Communique on Information Systems of Payment and Securities Settlement Systems’ (detailed provisions for management of information systems). - Banking Law No 5411: - Lists payment services as activities banks may carry out (Article 4(d) and Article 4(g) examples cited). - PSL Article 12: - Lists transactions deemed to be "payment services" including payment accounts, fund transfers, direct debits, issuing or acquiring payment instruments, money remittance, services for mediating invoice payments. - Article 13 exhaustively lists institutions authorized to perform payment services: (i) banks within Banking Law; (ii) Electronic Money Institutions; (iii) Payment Institutions. - Regulation No. 29043 on Payment Services, Electronic Money Issuance, Payment Institutions and Electronic Money (27 June 2014) authorizes the Post Office (PTT) to perform such payment services within Postal Services Law No. 6475. - Cheque Law (No 5941) enacted 2009 and amended 2012: - Governs issuance, acceptance and payment by cheque; 2012 amendments decriminalized issuance of bad cheques, imposing administrative sanctions; enables establishment and functioning of interbank cheque clearing houses whose oversight vests with CBRT under CBRT Law and PSL. - Bank Cards and Credit Cards Law (No 5464): - Governs issuance, use, clearing and settlement of bank cards and credit cards; complemented by BRSA secondary regulation. - Public Finance and Debt Management Law (Law No 4749): - Governs issuance and management of public debt; CBRT as agent of the Undersecretariat of Treasury is responsible for issuing and settling government bonds and Treasury bills on behalf of the Treasury. - Capital Market Law No 6362 (CML): - Mandate to regulate and supervise capital markets and protect investors; provides for establishment of CMB; provides settlement finality and irrevocability for capital market transactions; enables setting up of market infrastructures (CSD, central clearing institutions, CCPs, TRs); CMB has issued secondary regulations related to CSDs and CCPs and is in process of issuing regulations for TRs. ### Payment, clearing and settlement systems in Turkey: system design, participants and usage - CBRT owns and operates an integrated payment and securities settlement system comprising: - Two payment systems – EFT and RPS, functioning in RTGS mode. - ESTS - a CSD-cum-SSS for Government securities and CBRT bills. - EFT characteristics: - EFT is an RTGS system and is fully integrated with ESTS. - Launched in April 1992; modernized in 2000 and again in 2012. - Second generation (2000) added central queuing mechanism, funds management facilities, direct debit facilities, phased closure of operations, emergency backup center. - Third generation (2012) split processing of interbank (time critical banking payments) and retail payments into two separate operations creating the RPS for customer-initiated transactions and EFT covering inter-bank proprietary transactions. - No transaction value ceiling or floor for these systems. - Integration and technical operations: - EFT, RPS and ESTS use the same inter-bank network and function as an integrated system. - Message types direct messages to appropriate sub-system. - CBRT is system owner and operator; operative and administrative responsibility with CBRT’s Payment Systems Operation Division of PSD; technical responsibility with Analytical IT Development Division (Information Technology Department). - Any bank operating in accordance with the Banking Law can, with CBRT’s approval, become a direct participant in EFT, RPS and ESTS. - Total participants: 54; with the exception of the MKK all other participants are banks. ### System participant profile and operational differences - Participants: - Participants in EFT system and RPS are only banks. - Participants have different accounts at the CBRT for the EFT and RPS. - Systems support only local currency credit transfers (Turkish Lira, TRY). - SLA and processing time differences: - Both components based on RTGS-principle. - EFT service level agreement (SLA) limits processing time to a maximum of one minute (current average is one second). - RPS SLA limits the processing time to no more than 15 minutes (current average is 30 seconds). - EFT settles on First-in first-out (FIFO)-basis based on priority. - RPS settles on By-Pass first-in first-out (By-Pass FIFO) basis. - EFT allows queue management; RPS does not. - EFT has an automated multilateral offsetting generated every minute. - Participants have different settlement accounts for EFT and RPS; funds can be moved intra-day between these accounts. - 2015 system activity: - RPS settled 315,243,249 payments with a total value of TRY 9.99 trillion in 2015. - EFT settled 2,918,019 payments with a total value of TRY 42.73 trillion in 2015. - The total value processed by the EFT and RPS system in 2015 was around 27.9 times the GDP of Turkey in 2015. - Intraday transaction pattern and queuing (operational observations): - The number of transactions processed by the EFT shows a distinct skew to the later part of the operational day – on a typical day around 50% in the last 2.5 hours of operations. - In January 2016, around 15.94% of transactions were queued for inadequate balance and remained in the queue for an average of 7 minutes. - The maximum queue time in January 2016 was around 18 minutes. *Source: IMF country report chapter text.* ### 27. The ESTS is the CSD for government debt securities and the CBRT bills. It also ### cr1745 - 27. The ESTS is the CSD for government debt securities and the CBRT bills. It also ### ESTS functions, settlement modes, and volumes - The ESTS is the CSD for government debt securities and the CBRT bills. - The ESTS functions as an SSS for the primary and OTC secondary market operations on these securities, settling in DVP mode using Model 1. - The ESTS supports the use of these securities as collaterals for the CBRT liquidity facilities. - The ESTS maintains these securities in dematerialized form and records: - ownership from initial issue through transfers arising from secondary market transactions to final redemption. - Integrated operation with the EFT to support DvP using Model 1 – gross settlement of both funds and securities leg. - Account structure and participant arrangements: - Proprietary securities holdings of banks are held at banks’ own accounts in the ESTS. - Retail and institutional investor accounts are held in the MKK at the beneficial owner level. - The MKK is a participant in the ESTS and has an account to reflect the consolidated holdings of these securities held by investors. - Banks have separate collateral accounts, one each for respective CBRT liquidity facilities. - ESTS supports sub-accounts for customers called the “007” accounts; banks use this account only for intra-day transactions and at end of day move all holdings in the “007” accounts to the investors account in MKK. - Takasbank is an exception and uses the “007” account also to reflect holdings of investors’ assets as part of its SSS activities. - ESTS supports additional business flows: - Free of Payment (FOP) transfers of securities between participants. - Repositioning of securities between the accounts of a participant. - Direct debiting of securities by the CBRT. - CBRT Portfolio Operations. - 2015 processing volumes: - Total securities transactions processed: 302,512. - DvP operations: 113,542. - For DvP operations, total value of corresponding payment legs settled in EFT: TRY 7.01 trillion. - The rest of the transactions were free of payment transfers. ### Operating hours, PIS, and end-of-day processing - Operating hours of EFT, RPS and ESTS: - Weekdays (except national holidays) from 8:30 to 17:30. - EFT and RPS settlement accounts are zero balance accounts: - At start of day EFT and RPS receive the previous day’s closing balances as starting balance from the CBRT. - EFT and RPS receive electronic payment orders on an ongoing basis, debit sender’s account if balance suffices, credit settlement account of receiving participant, and inform the receiving bank. - If funds are insufficient, the messages are queued. - At end of every business day, EFT and RPS send reconciliation reports to participants and the CBRT. - Participant Interface System (PIS): - System component used by participants for interfacing with CBRT Payment Systems. - Functions as messaging system and gateway to EFT, RPS and ESTS. - Accessed via a closed private network. - PIS checks access rights, enforces security measures, verifies digital signatures, manages encryption/decryption and validates messages. - PIS used for distribution and access to end of day reports and files shared between participants and CBRT payment and securities settlement systems. ### Liquidity sources, operating hours, collaterals, and ADV (March 2016 data) - Reserve maintenance period for banks: 14 days; banks have access to statutory reserves at CBRT for use in EFT and RPS within this period. - CBRT liquidity facilities (collectively): collateralized Intra-day Liquidity Facility (ILF), overnight credit, daily repo operations, weekly repo auctions and Lender of Last Resort (LOLR) facilities. - CBRT sets an overall borrowing cap across the standing facilities except the LOLR; cap based on asset size of a bank. - Additional liquidity sources available to banks: - BIST repo market. - Takasbank inter-bank money market. - Takasbank cash credit facility. - Pre-agreed credit lines between banks. - Summary of selected markets and average daily values (ADV) based on data for March 2016: - BIST Debt Securities Market Repo Markets: - Settles at 16.30. - ADV: TRY 55.6 billion. - Same Day Value hours: 09:15 - 14:00. - Future date hours: 09:15-17:00. - Assets accepted as collateral: Government Securities, Lease Certificates, CBRT Bills, Corporate Bonds. - SSS: Takasbank. - Securities accounts: G-Secs: Takasbank; Corporate Bonds: MKK. - Funds account: Takasbank. - Takasbank Money Market: - Settles at 16:00. - ADV: TRY 1.5 billion. - Operating hours: 10:00-12:00 and 13:00-15:30. - Assets accepted as collateral: Cash & Letters of Guarantee: TRY & Foreign Currencies; Government Securities and CBRT Bills; Euro Bonds; Mutual Funds Participation Certificates. - SSS: Takasbank. - Securities a/c: Takasbank. - Funds a/c: Takasbank. - Takasbank - Cash Credit Facility: - Settles at 17:00. - ADV: TRY 92 million. - Operating hours: 08:45 - 17:00. - Assets accepted: Equities; Government Securities and CBRT Bills; mutual funds participation certificate; and Letters of Guarantee. - Works as a bilateral arrangement. - CBRT Liquidity Facilities: - Settles in real-time, DVP mode. - ADV: TRY 104 billion. - ILF hours: 09:00 - 15:00. - For the others: 10:00-12:00 & 13:00-16:00. - Assets accepted as collateral: Foreign Exchange Deposits, Foreign Exchange Banknotes Deposits, Eurobonds, Lease Certificates issued by the ALCTT (Asset Leasing Company of the Turkish Treasury), Foreign Bonds and Notes, International Islamic Liquidity Management (IILM) Issuances, TRY Government Bonds, CBRT Liquidity Bills. - SSS: CBRT. - Securities A/C: ESTS. - Funds A/C: EFT. ### Roles of Takasbank and MKK - Takasbank functions: - SSS for secondary market transactions and repos on Government securities on the Borsa Istanbul (BIST). - SSS for equities and corporate bonds traded in the BIST. - Central Counterparty (CCP) for derivatives traded on the BIST. - Operates a Securities Lending and Borrowing (SLB) platform and acts as CCP on that platform. - Operates a money market platform for banks and other institutional investors. - Provides a collateralized cash credit facility for banks and other institutional investors. - Legal Entity Identifier Operating Unit (LOU) for Turkey. - MKK functions: - CSD for equities and corporate bonds traded in the BIST. - Monitors government securities held by brokers and individual and institutional investors on the MKK system. - Holds securities in the name of the beneficial owner. - Linked to ESTS to record movement of government securities from banks to investors and vice versa. - Maintains an account at the ESTS to reflect consolidated holding of government securities in the MKK by investors. - Recently received a license from the CMB to function as a Trade Repository (TR) for OTC derivatives. ### Foreign exchange, cheque clearing, card systems, PTT, and e-money licensing - Foreign exchange transactions: - Primarily conducted bilaterally between banks and by banks with the CBRT. - There is no PVP arrangement for the inter-bank foreign exchange transactions. - Banks place bid and asks for foreign currency at the CBRT’s Reuters page; CBRT intervenes, processes these and settles the FCY leg in correspondent accounts abroad. - CBRT operates periodic FCY auctions that function similarly. - Banks also use OTC trades using foreign correspondent bank accounts for the FCY leg. - Banks have FCY accounts with the CBRT, but these are only used for reserve maintenance and transactions are not allowed. - Interbank cheque transactions: - Cleared through Interbank cheque Clearing House (ICH), overseen by the CBRT. - Cheque clearing executed in Istanbul and Ankara Clearing Houses; identical hardware and software; can serve as back-up for each other. - ICH functions as a Deferred Net Settlement (DNS) system for cheque transactions. - Transactions are settled based on multilateral netting on T+2 basis through ICH’s special settlement account at the CBRT. - ICH notifies members and the CBRT of each bank’s net debit or credit position; after all debit positions closed, payments credited to creditor banks. - Domestic payment card transactions: - Processed through two domestic switches: Interbank Card Center System (BKM) and Gosas. - BKM is a DNS system for debit card and credit card transactions. - All banks issuing cards or operating ATM and POS are BKM members. - Payments settled based on multilateral netting on the books of the central bank through BKM’s special settlement account at the CBRT. - Net results calculated on T+1 and settlement made on T+2. - BKM offers BKM Express digital wallet enabling Person-to-Person Transfers. - Gosas: - Operates a card switch for its 10 members and processes transactions between these banks. - Settles in DNS mode on T+2 in the books of Garanti Bank. - Gosas has an acceptance mark called “Bonus”. - Post and Telegraph (PTT) – PTT Bank services and scale: - Postal Cheque Account with linked Maestro branded debit card: (96.72 million). - Prepaid cards for social protection payments of Government and other international agencies: (1.5 million). - Collects and processes bill payments through its branch network (4,414 – largest in Turkey) for over 359 institutions. - Operates network of ATMs: (2124). - Offers ecommerce acquiring and a mobile solution for access to services. - PTT Bank does not have direct access to EFT and RPS; it accesses these through other banks and indirectly participates in BKM. - E-money and payment institution licensing (PSL and BRSA): - PSL introduced category of non-bank e-money issuers and other payment institutions and assigned regulatory and supervision to the BRSA. - BRSA issued implementing regulations related to these in 2014. - BRSA received 48 applications and is reviewing them. - BRSA has provided licenses to 5 e-money issuers and 11 payment institutions. - Applications of the remaining 32 are under examination. - Some firms were already operating and applied under the “transition period” allowed under the PSL for institutions in operation prior to the PSL coming into force. ### Planned reforms - CBRT is developing an oversight framework that: - Envisages articulating specific standards to be used for specific types of systems, and the data and reporting requirements. - Has issued a general policy statement on payment and securities settlement systems, making the PFMIs applicable for all payment and securities settlement systems in Turkey. - Intends to adapt the PFMIs in terms of specific principles and key considerations applicable for specific retail payment systems. - CBRT, in co-ordination with banks, is evaluating inclusion of the TRY in the CLS System. ### Summary assessment — governance, risk management, and legal aspects - Legal and contractual framework (Principles 1–3): - Legal basis for EFT and ESTS are the CBRT law, the PSL and specific regulations pertaining to operations and oversight. - CBRT, as operator, has detailed operating rules – Payment Systems Operating Rules (PSOR). - Participants required to sign a participation contract binding them to the PSOR. - Participation contract and PSOR have a sound legal basis; material legal aspects adequately covered in the PSL and CBRT law. - All participants of the EFT system are subject to Turkish laws and regulations; all operations performed in Turkey. - Legal uncertainty and recommended review: - Legal certainty for arrangements with respect to collateralized liquidity support relating to securities held in ICSDs should be ascertained. - Usage of liquidity support against securities held in the ICSDs is very limited and securities pledged as collateral are held in the name of CBRT, hence not an immediate issue of concern. - Recommendation: review legal certainty for these arrangements as a good measure. - Ambiguity exists on legal basis for protection of participant securities holdings transferred by participants to the account of Takasbank in ESTS. - Banks and investors transfer securities to Takasbank (in ESTS) for securities transactions and to be used as collateral. - Specific provisions related to collateral in the PSL and CML are applicable and protect securities pledged as collateral. - Protection for securities holdings in sub-accounts from insolvency of Takasbank is not clear. - PSOR does not clearly recognize holding of government securities sub-accounts by a participant [Takasbank in this case]. - CML and other provisions related to CSDs do not specifically apply to this arrangement, as ESTS is outside scope of CML. - However, articles in CML pertaining to segregation of assets of investors in investor firms (article 46) appears to be applicable to Takasbank. - Investor firms as defined in article 3(v) of the CML and investment services as defined in article 37(g) encompass activities of Takasbank as a SSS. - Governance and institutional risk management: - CBRT objectives and policies regarding Payment and Securities Settlement Systems place high priority on stability, safety and efficiency. - CBRT has documented governance arrangements for the institution defining clear and direct lines of responsibility and accountability; same governance framework applied to EFT and ESTS as core responsibility of PSD. - A risk management framework for CBRT-operated payment systems exists; departmental risk management framework auditing process exists, but PSD’s risk management framework has not been audited yet. - Mechanisms exist for involving stakeholders in decision-making and CBRT effectively communicates with stakeholders through different channels. - PSD risk management framework is based on ISO 30001 and covers risks outlined in the PFMIs; reviewed annually and subject to audit by CBRT audit committee. - PSOR provides adequate powers to CBRT to ensure conformance to operating and security procedures. - PSD has mechanisms for measuring and monitoring liquidity risk and operational reliability of the EFT system. - Observed risk gap: - Risk management framework is internally focused and does not explicitly take into account dependencies on other FMIs and internal CBRT systems. - EFT operations have heavy dependence on money markets operated by Takasbank and CBRT markets department for providing liquidity to participants. - Markets Department is decision maker on provision of CBRT liquidity support facilities and has its own systems and processes; credit risk management of liquidity support is in domain of Markets Department. - Mitigation: Takasbank and other FMIs are subject to CBRT oversight; Markets Department has its own risk management and a co-ordination framework is in place. - Credit and collateral management (Principles 4–7): - Credit risk in EFT and ESTS stems from CBRT liquidity support operations to participants. - Liquidity support operations are not integrated into EFT system and are handled by Markets Department. - Credit risk is considered part of EFT risk management framework, but full treatment of credit risk from liquidity support operations is in domain of Markets Department. - Markets Department’s credit risk management includes: - Overall borrowing limits. - Requirement for all credit facilities to be collateralized with good quality securities. - Application of haircuts. - Daily re-valuation of collaterals and CBRT rights to ask for additional collateral when adverse movements occur. - Collateral management system and processes are external to EFT and ESTS and managed by CBRT Markets Department. - Extension of liquidity support is considered a monetary policy instrument; choice of securities, haircut rates, valuation practices and operational arrangements are integral to CBRT monetary policy operations framework. - CBRT maintains a list of eligible securities and their haircut rates. - Eligible securities include TRY government bonds, central bank bills, lease certificates issued by ALCTT (Asset leasing company of the Turkish Treasury), foreign bonds and notes, IILM issuances and foreign exchange deposits and foreign exchange banknotes deposits. *Italic: IMF Financial Sector Assessment Program — Chapter content as provided.* ### 49. The CBRT as the operator of the EFT system and ESTS, by itself is not ### 49. The CBRT as the operator of the EFT system and ESTS, by itself is not ### Liquidity and systemic risk (Principles 1–5, 7, 8) - The CBRT, as operator of the EFT system and ESTS, by itself is not constrained in TRY liquidity; participants could face liquidity shortages. - Participants have access to liquidity support from the CBRT and the inter-bank money markets; these liquidity options are collateralized. - For intraday and overnight CBRT liquidity support there is an overall borrowing limit for the participant. - Liquidity support is available without any limit within the framework of LOLR. - There is no explicit stress testing mechanism in place; an ongoing review of the policy framework relating to CBRT intraday liquidity support is underway, with no set time-period for completion. - Transaction patterns in the EFT system show substantial liquidity risk; the CBRT has studied this and is currently evaluating suitable options. ### Settlement, finality and dematerialisation (Principles 8–12) - The EFT functions as a RTGS system with final settlement through the day and settles in central bank money. - Settlement finality is protected in the PSL and articulated in the PSOR, providing a sound legal basis. - In ESTS, securities are dematerialised and processed in book entry form. - Physical printing of government debt securities was terminated as of November 2012; with redemption of latest printed securities there have been no printed government debt securities since July 2013. - Since government debt securities are only in dematerialised form, there is no risk associated with storage and delivery of physical instruments. ### CSD and exchange-of-value settlement (Principles 11, 12) - ESTS functions as a CSD-cum-SSS for Government securities and central bank bills and settles securities transactions in DVP mode. - The funds leg is settled at the EFT system. - The CBRT acts as agent of the Prime Ministry Undersecretariat of Treasury for dematerialised issue, custody and redemption of government securities issued by various public institutions. - As CSD for securities in ESTS, the CBRT eliminates custody risk from CSD insolvency and risk of participants’ securities being sequestrated due to other activities of the system operator. - In ESTS, securities owned by participants’ customers are segregated from participants’ own holdings and kept in a special securities account of the MKK; MKK keeps securities by customer details enabling customers to track holdings. - All CBRT operations in ESTS require dual approval, are logged, and can be tracked; participants are notified during end-of-day operations about their securities account holdings and daily operations for reconciliation. - All securities held in ESTS are dematerialized book entry form; there are no physical securities. ### Default management (Principles 13, 14) - The PSD recently developed a default management procedure covering all payment and securities settlement systems operated by the CBRT; the procedure is consistent with PSOR and derives legal basis from the PSL. - Given the procedure was adopted very recently it has not been tested in its entirety. - Participants are banks except the MKK; banks are supervised by the BRSA and MKK by the CMB. These authorities have sole rights related to insolvency or bankruptcy of participants. - Existing coordination and information sharing arrangements between the CBRT, BRSA and the CMB provide a high degree of certainty that the CBRT will have adequate notice to execute its default management process. - Any delays in executing the default management process could escalate risks in the system. ### General business and operational risk management (Principles 15–17) - EFT and ESTS are central bank operated FMIs; aspects related to liquid assets, wind down plans and viable plan for raising additional capital are not applicable. - Pricing policy for the EFT system aims for full investment and operational expenses recovery; pricing structure is clear, communicated to participants, fees are recovered monthly and information is available to participants. Costs are covered under CBRT general budget and subject to standard audit. - CBRT Payment and Securities Settlement Systems have a comprehensive operational risk management Framework spanning people, process and systems; reviewed once a year. - Industry best practices for IT risk management framework – ISO 27001 and ITIL for IT services management – have been used. - Periodic IT security reviews and dedicated organizational arrangements exist for monitoring/managing IT security. - IT infrastructure is built with no single point of failure and includes a full-fledged backup site operating on a load sharing basis with the main site. - An application package developed on a completely different hardware and software platform exists to cover simultaneous-impact risks (noted relevance to cyber risk incidents). ### Business continuity planning (Principle 17) - Well-laid out BCP plan with organized governance to monitor and review execution exists. - Current BCP scenarios focus on infrastructure of CBRT payment and securities settlement systems; scenarios arising within CBRT or externally causing widespread impact have not been included. - Participants are included in BCP tests; plans underway to include complex scenarios to cover business continuity risks arising from/posed to other FMIs and participants, in particular Takasbank and MKK. - PSOR covers operational risk management in articles 17–20 but there is no explicit mandate and no structured process to measure ongoing compliance. - CBRT recently surveyed participants to assess BCP plans and cyber resilience; all participants reported having BCPs but some gaps were identified in quality of BCP and cyber resilience readiness; CBRT is addressing this in revised business continuity guide. ### Access, participation and tiering (Principles 18–20) - Participation criteria and requirements are clearly stated in PSOR and disclosed to related parties. - Only banks and the MKK (special participant of ESTS for safekeeping of securities in the name of customers) are accepted as participants; only banks are participants in the EFT system. - Policy decision to allow only banks is based on liquidity risk management considerations. - CBRT does not allow access to specific components; all participants have access to EFT, RPS and ESTS with MKK as the only exception. - CBRT monitors operational compliance of participation criteria and is guided by BRSA for continued qualification of participants as banks; suspension and orderly exit rules are stated in PSOR and disclosed. - PSOR acknowledges and regulates only direct participants and sets no rules for indirect participation; EFT system in practice has tiered arrangements. - Entities not eligible for participation can perform operations through participants but are treated as customers of participants rather than indirect participants. - One bank and one electronic payment services entity access EFT through other banks; other market intermediaries and non-bank financial entities also access EFT services. - Usage of TETS by brokers and other market intermediaries is an example of tiered participation for EFT; ESTS by design does not have tiered participation. - CBRT has capability to track initiator, recipient and purpose of transactions via specialized fields in message formats; these tools can support comprehensive monitoring for tiered participation. - ESTS and MKK have an issuer CSD–investor CSD link; the risk management framework does not explicitly acknowledge this arrangement as a link, but MKK is overseen by CBRT for SSS functions and CBRT has a full integrated view of risks from the ESTS–MKK link. ### Efficiency and message standards (Principles 21, 22) - Message exchange is managed via secure services using industry standard technologies and XML based proprietary message formats. - It is possible to easily convert XML messages used in CBRT systems into other message formats. - The PIS used to interface with CBRT systems offers adequate tools to allow STP mode. - Process for secondary market transactions on Government securities varies based on nature of counterparty, creating inefficiencies; settlement processes vary by whether counterparty is another bank, custodian, individual investor or other institutional investor. - Addressing inefficiencies will require changes in ESTS and introducing new interfaces between MKK, ESTS and Takasbank. ### Transparency (Principles 23, 24) - Rules and procedures for CBRT Payment and Settlement Systems are clearly defined and shared with participants. - System descriptions, system rules, general structure and workflows, summary statistics and pricing policy are disclosed to the public through the CBRT web page and the CBRT Payment Systems User Group web site. - Pricing tariff is defined yearly based on pricing policy and disclosed to participants and the public at least one month before entry into force. - CBRT is committed to publish details of the assessment of the EFT system and ESTS in line with the requirements of this principle. ### Ratings summary (EFT system and ESTS) - EFT system — Observed: Principles 1,2,4,5,8,9,15,16,18,21,22,23; Broadly observed: Principles 3,7,13,17; Partly observed: Principle 19; Not applicable: Principles 6,10,11,12,14,20,24. - ESTS — Observed: Principles 1,2,4,5,8,9,11,15,16,18,19,20,21,22,23; Broadly observed: Principles 3,7,13,17; Not applicable: Principles 6,10,12,14,24. ### Prioritized recommendations (selected, preserving original wording and priorities) - Conflict of law with respect to collateral holdings in ICSDs - The CBRT could consider seeking an external legal opinion on the enforceability of the PSOR, all contractual arrangements and also with respect to the certainty of legal basis with respect to the securities held in the ICSDs. - Relevant parties: CBRT. Priority: Low. - Protection of securities holdings in Takasbank - The CBRT should review the legal and regulatory framework for the protection of customer assets held by Takasbank and implement specific amendments if any gaps are identified. - Relevant parties: CBRT, CMB. Priority: High. - Lack of explicit performance indicators for system as a whole - The CBRT could consider including specific indicators related to efficiency and effectiveness of the EFT system and satisfaction levels of the participants, as use these to measure the performance of the EFT system. - Relevant parties: CBRT. Priority: Medium. - Risk management framework is internally focused - The CBRT should include its dependencies on other FMIs and also the internal dependencies for the EFT system in the risk management framework for the EFT system. - Relevant parties: CBRT. Priority: High. - Credit risk management integration - The credit risk management framework of the Markets department of the CBRT should be more fully integrated into the risk management framework of the EFT system. - Relevant parties: CBRT. Priority: Medium. - Gaps in liquidity risk management - The risk management framework of the EFT system could consider daily and periodic analysis of the liquidity risk jointly by the PSD and Markets departments of the CBRT. There could be additional indicators like estimate of participants available both from the CBRT and also the inter-bank money markets. This could build on the framework being established by the BRSA on liquidity risk. - The CBRT could consider encouraging earlier settlements in the inter-bank money markets to allow for more liquidity to flow into the EFT system earlier. Regulating and structuring money markets other than the CBRT money market is not the responsibility of the CBRT. - The CBRT as part of the ongoing review of its current policy on liquidity risk, analyze options to make intra-day liquidity support by the CBRT more attractive to the participants and implement suitable options. - The CBRT could evaluate if pricing policies could incentivize earlier settlement perhaps as part of overall throughput guidelines. - Relevant parties: CBRT. Priority: High. - Default management testing and disclosure - The CBRT should conduct periodic testing of the default management procedure as a whole and include the participants also in this exercise. This could be integrated with the BCP or conducted as a standalone exercise at least once a year. - As part of the publication of the disclosure framework or separately the CBRT should publically disclose key elements of the default and operationsl rules of the EFT and ESTS system. - Relevant parties: CBRT. Priority: Low. - Gaps in Business Continuity Plans - The CBRT could build on the specific provisions in the PSOR to include explicit mandates with respect to operational risk management for its participants and have a mechanism to assess compliance to those on an ongoing basis. - The CBRT could consider including more stringent operational risk management measures for the participants with a large share of transactions, based on the monthly network analysis being carried out. - The CBRT could also consider incorporating a more structured assessment of the operational risks it can pose to other FMIs and the risks it could be exposed from them. This assessment could become the basis for the more detailed and complex scenarios being proposed for inclusion in the revised business continuity plans. - Relevant parties: CBRT. Priority: High. - No monitoring of Tiered participation - The CBRT should consider instituting mechanisms to collect information, about the non-bank financial companies that access the services of the EFT through participants. Information like the terms of the service between the participant and the non-bank financial entity, the typical transaction volume and value, and any credit extension and liquidity facilities offered. The CBRT should then assess any risks arising from these tiered arrangements. - Relevant parties: CBRT. Priority: Medium. - Lack of efficiency in Government securities secondary market - Currently the process varies by counterpart. Addressing this will require some changes in ESTS and introducing new interfaces between the MKK, ESTS and Takasbank. - Relevant parties: CBRT. Priority: Medium. - Operating rules and procedures not publicly disclosed - The CBRT as part of the publication of the disclosure framework or separately should include details of the key elements of the operating rules and procedures. - Relevant parties: CBRT. Priority: Medium. ### Summary assessment — responsibilities and follow up - CBRT law, PSL and CML clearly lay out payment and market infrastructures subject to regulation, supervision and oversight; together they assign responsibility for regulating, supervising and overseeing payment systems and SSS to the CBRT, and CCPs, CSDs and TRs to the CML. - Authorities have publicly announced adoption of CPMI-IOSCO PFMIs; CMB has stated PFMIs would be applicable for MKK and Takasbank. - CBRT has articulated it will apply PFMIs to all payment and securities settlement systems under its oversight and has issued ROPSS articulating its powers to regulate and oversee these systems. - CMB has issued specific regulations/communiques for CSDs and CCPs but not yet for TRs; powers of the CMB over TRs derive from the CML. - CMB has licensed MKK as a TR but MKK has not yet commenced operations; as part of approval to commence operations the CMB intended to issue a regulation/communique to fully articulate its regulatory and oversight actions and powers related to TRs. *Source: cr1745 - 49. The CBRT as the operator of the EFT system and ESTS, by itself is not* ### 65. The CBRT and the CMB have the relevant powers to obtain information and ### 65. The CBRT and the CMB have the relevant powers to obtain information and ### Powers and legal articulation - The CBRT and the CMB have the relevant powers to obtain information and induce change to carry out their oversight activities. - These powers have been explicitly articulated in secondary regulations with respect to the payment systems and SSS, by the CBRT. - The CMB has articulated its powers with respect to the CCPs and SSS. - The CMB’s powers with respect to the TRs have not been explicitly articulated yet. - At this point, however there are no TRs in Turkey. - The CMB has licensed the MKK to function as a TR. - Prior to its becoming operational, the CMB intends to issue specific regulations. ### Resources and staffing for oversight - The CBRT and the CMB has adequate resources and qualified staff to carry out its oversight and regulatory responsibilities with respect to the FMIs in its oversight. - The CBRT has specific designated staff for carrying out the oversight activities. - The CMB’s oversight activities are housed in a department which also includes regulation and supervision of brokers and also the BIST. - The CMB has not allocated dedicated resources for the oversight of FMIs under its purview. *Source: cr1745 - 65. The CBRT and the CMB have the relevant powers to obtain information and* ### 67. The CBRT and the CMB have articulated their policies with respect to FMIs ### 67. The CBRT and the CMB have articulated their policies with respect to FMIs ### Executive summary — responsibilities and policy stance - The CBRT and the CMB have publicly articulated policy statements committing to application of the CPMI-IOSCO PFMIs. - CBRT: requires all payment and securities settlement systems in its purview to adopt the PFMIs; completed self-assessment against the PFMIs for FMIs operated by it; asked Takasbank and MKK to complete self-assessments as SSS. CBRT oversight/regulatory powers derive from CBRT Law and the PSL; ROSPSS/ROPSSS provide oversight mechanics. - CMB: has requested Takasbank and MKK to complete self-assessments as CCP and CSD respectively; CMB has issued regulations/communiques on CCPs and CSDs; regulation for TRs remains to be issued (CMB plans to issue before MKK commences TR operations). - Data-sharing and coordination: legal/regulatory measures permit data sharing among CBRT, CMB and other authorities, notably BRSA; the Financial Stability Committee (FSC) provides a structured mechanism for sharing/analyzing/resolving sector issues affecting financial stability; ad-hoc cooperation mechanisms also in use. *Assessment snapshot for Responsibilities (as presented)* - Responsibility A (Regulation/supervision/oversight of FMIs): Broadly Observed. - Responsibility B (Powers and resources): Broadly Observed. - Responsibility C (Disclosure of policies): Observed. - Responsibility D (Adoption/application of PFMIs): Observed. - Responsibility E (Cooperation among authorities): Observed. *Top-level prioritized recommendations (from Responsibility tables)* - CMB should issue a regulation/communique on TRs before approving MKK to commence TR operations. — Priority: Medium. - CMB could consider assigning specific responsibilities to staff with respect to FMIs in its scope; and issue TR regulations ahead of MKK operations. — Priority: Medium. --- ### Detailed assessment — EFT system (CBRT-operated LVPS / RTGS with multilateral offsetting) Key facts and legal basis - EFT operates as an RTGS system with periodic multilateral offsetting; CBRT operates EFT and ESTS and has oversight powers via CBRT Law and Payment Systems Law (PSL). - Relevant laws/regulations: CBRT Law (article 4(f) and others), PSL (articles 3, 4, 7, 9, 10, 11, 23, 27, 37), PSOR (Payment Systems Operating Rules), ROPSSS/ROPSS. - Settlement finality: PSL Article 10 establishes settlement finality and irrevocability for systems designated by the CBRT (EFT, RPS, ESTS designated). - Liquidity support offered by CBRT: intra-day credit, overnight credit, 1-week repos, and LOLR facility; all collateralized. Accepted collaterals include Turkish government bonds, central bank bills, lease certificates issued by ALCTT, foreign bonds and notes, IILM issuances, foreign exchange deposits and foreign exchange banknotes deposits. - Inter-bank money market collateral (in addition to CBRT collaterals) includes corporate bonds, foreign currency and gold. - EFT participants: banks licensed in Turkey by BRSA (except MKK). Assessment conclusions and principle-level ratings (selected) - Principle 1 (Legal basis): Observed. - PSOR and participation contract provide enforceable operating rules; Article 10 PSL and PSOR articulate finality and DvP for securities settlements; recommendation: CBRT could seek external legal opinion on enforceability and conflict-of-law issues with securities held in ICSDs. - Principle 2 (Governance): Observed. - CBRT governance: CBRT Board (art 22) and Executive Committee (art 30); PSD operations and oversight are segregated; HITI Committee coordinates cross-departmental views; disclosure of governance arrangements is public. - Recommendation: consider including specific efficiency/effectiveness and participant satisfaction indicators (examples listed). - Principle 3 (Risk management framework): Broadly Observed. - PSD adopted a risk management framework in October 2014 based on ISO 31000; annual review (first review February 2016); operational risk considered most material. - Gap: framework is internally focused and should explicitly include dependencies on other FMIs (notably Takasbank) and internal CBRT systems (Markets department). - Recommendation: include dependencies on other FMIs and internal dependencies in EFT risk framework. - Principle 4 (Credit risk): Observed. - EFT as RTGS creates no inter-participant credit exposures; CBRT liquidity support to participants creates credit risk managed by Markets department (overall borrowing limit, haircuts, daily collateral revaluation). - Recommendation: integrate Markets department credit risk framework more fully into EFT risk management. - Principle 5 (Collateral): Observed. - Collateral eligibility and haircut practices set by CBRT Markets Department; daily revaluation and published haircuts; at least 30% of securities by value held as collateral must be government debt securities. - Recommendation: establish schedule for ongoing review of haircut rates (last review Sept 2015). - Principle 6 (Margin): Not Applicable (EFT is a payment system). - Principle 7 (Liquidity risk): Broadly Observed. - CBRT (as operator) not constrained in TRY liquidity; participants face liquidity risk (bunched activity: around 60% transactions settle post 3 PM and around 35% post 4 PM; over 60% settle post 2 PM). - CBRT provides collateralized liquidity; inter-bank markets settle at 4.30 PM in Takasbank; design features: minute-by-minute offsetting, queue management, participant balance visibility. - Recommendations: joint daily/periodic liquidity-risk analysis by PSD and Markets; consider incentives/pricing to encourage earlier inter-bank settlement; evaluate making intraday liquidity support more attractive. - Principle 8 (Settlement finality): Observed. - Finality defined in PSL Article 10 and PSOR; irrevocability = time settlement accounts debited/credited; server timestamps used. - Principle 9 (Money settlements): Observed. - EFT settles in CBRT accounts (central bank money). - Principles 10–16: mix of Not Applicable and Observed as appropriate (e.g., Principle 10 Not Applicable; Principle 11 Not Applicable; Principle 12 Not Applicable for EFT; Principle 15 Observed; Principle 16 Observed). - Principle 17 (Operational risk): Broadly Observed. - CBRT IT and operational risk management: dual data centers (Tier 3 assessment), full redundancy, ISO 27001-based Information Security Management System, ITIL-aligned service management, regular testing and BCP with RTO/RPO objectives (acceptable downtime for critical processes: 1 hour). - Gaps: PSOR lacks explicit mandate for participants’ operational risk management and no structured compliance assessment; need to expand complex BCP scenarios (including failures near market close, Takasbank or BIST outages, government securities primary issuance days, external provider failures). - Recommendations: include explicit PSOR mandates for participant operational risk, more stringent measures for high-share participants, structured assessment of inter-FMI operational risks and inclusion of complex scenarios in BCP. - Principles 18–23: Observed (participation criteria publicly disclosed; messaging uses XML-based proprietary formats; PSOR and User Guide disclosed to participants; CBRT committed to disclose PFMI assessments). - Specifics: participation limited to banks (and MKK for ESTS), applications approved by Executive Committee; PSOR Article 13(4) authorizes sanctions on non-conforming participants; User Group meetings and BAT working groups in place. - Principle 19 (Tiered participation): Partly Observed. - PSOR regulates direct participants only; no formal definition/monitoring of tiered arrangements; some entities (PTT Bank, Habib Bank, Mellat Bank historically) accessed via direct participants; Takasbank’s TETS and other non-bank initiators create tiering-like flows. - Recommendation: collect information on non-bank entities accessing EFT via participants (service terms, typical volumes/values, credit/liquidity facilities) and assess risks from tiered arrangements. Operational and technical details - PSOR defines irrevocability as when settlement accounts are debited or credited (art 8); server time used for recording timestamps (art 7(3)). - DvP settlements: Article 9.1.b PSOR specifies securities and funds transfers carried out simultaneously. - Offsetting algorithm: runs every minute; manual trigger available. --- ### Detailed assessment — ESTS (CSD-cum-SSS operated by CBRT) Key facts and legal basis - ESTS functions as CSD-cum-SSS for government securities and CBRT bills; tightly integrated with EFT for funds leg (DVP model 1). - MKK functions as investor CSD; ESTS acts as issuer CSD; Takasbank holds omnibus accounts (Takasbank’s omnibus account in ESTS and sub-accounts in Takasbank for SSS functions). - Dematerialization: Undersecretary of Treasury decision dated November 2, 2012 led to full dematerialization of government securities; CML and Communiqué on book-keeping of dematerialized capital market instruments apply to MKK but ESTS is exempt from CML Article 136; legal ambiguity exists regarding protection of customer assets held in Takasbank books. - ESTS/CBRT legal basis: CBRT Law, PSL, PSOR; PSOR and participation contracts vetted by CBRT legal department and Executive Committee. Assessment conclusions and principle-level ratings (selected) - Principle 1 (Legal basis): Observed. - ESTS legal basis: CBRT Law, PSL, PSOR; dematerialization legal basis: Public Finance and Debt Management Act (Article 6), CML articles and Communiqué. - Recommendation: CBRT should review legal/regulatory framework for protection of customer assets held by Takasbank; potential options listed (no new facts invented — options presented in source). - Principle 2 (Governance): Observed (ESTS governance same as CBRT Payment Systems; PSD governance). - Recommendation: include ESTS-specific efficiency/effectiveness and participant satisfaction indicators in PSD performance metrics. - Principle 3 (Risk management framework): Broadly Observed. - ESTS risk management integrated with CBRT PSD RMF based on ISO 31000; recommendation: explicitly include dependencies on other FMIs (ESTS–MKK and ESTS–Takasbank links) in RMF. - Principle 4 (Credit risk): Observed. - ESTS uses DVP model 1; credit exposures arise from funds leg via EFT (CBRT liquidity support managed by Markets department). - Recommendation: integrate Markets department credit-risk framework into CBRT payments & securities settlement risk framework. - Principle 5 (Collateral): Observed (collateral/ haircut/valuation managed by Markets Department; eligible list includes TRY government bonds, central bank bills, ALCTT lease certificates, foreign bonds, IILM issuances). - Principle 6 (Margin): Not Applicable (ESTS is not a CCP). - Principle 7 (Liquidity risk): Broadly Observed. - ESTS uses EFT for funds leg; participant liquidity risks similar to EFT; high end-of-day concentration (over 60% settle post 2 PM; 35% post 4 PM). - Recommendations mirror EFT: joint PSD–Markets analysis, incentives to bring liquidity earlier, consider automatic highest queue priority for DVP settlements from ESTS. - Principle 8 (Settlement finality): Observed. - ESTS DvP model 1; funds leg settled in EFT (RTGS with finality protected by PSL and PSOR). - ESTS–MKK link: transfers from ESTS to MKK are free-of-payment transfers; MKK maintains consolidated account in ESTS; sale in inter-bank money market processed as DvP with securities moved to MKK consolidated holding and message triggered to MKK. - Principle 9 (Money settlements): Observed (money settlements use CBRT central bank money). - Principle 10 (Physical deliveries): Not Applicable (securities fully dematerialized since Nov 2012; no printed government debt securities since July 2013). - Principle 11 (CSD standards): Observed. - ESTS keeps participant holdings in individual accounts; customers’ securities held in MKK Customer Securities Account in ESTS (MKK keeps customer-level records). Dual-control, end-of-day reconciliation and auditability in place. - Gap: Takasbank sub-accounts carry potential ambiguity about explicit legal protection for investor assets; recommendation: CBRT, BRSA, CMB coordinate to ensure adequate segregation and transferability from Takasbank to MKK if needed. - Principles 12–24: mix of Observed and Not Applicable as appropriate (e.g., Principle 12 Observed as ESTS provides exchange-of-value via DvP model 1; Principle 20 Observed with note that ESTS treats MKK as participant rather than a link in RMF — recommendation: reflect ESTS–MKK and ESTS–Takasbank as links in RMF). Operational and technical details - ESTS: Issue Operations account controls issuance and deletion of securities; approvals require three authorized CBRT personnel; end-of-day reconciliations cross-check ESTS holdings with CBRT mainframe. - ESTS transaction composition (February 2016): by holdings recorded in ESTS: 20% government issued sukuks and 80% government bills. Transaction volumes: 37% DVP, 57% free transfers, 6% repositioning. Transaction values: 51% DVP, 38% free transfers, 11% repositioning. --- ### Cross-cutting responsibilities — detailed points and recommendations - Responsibility A (Regulation, supervision, oversight): Broadly Observed. - Laws: CBRT Law, PSL assign CBRT responsibility for payment and SSS; CML assigns CMB responsibility for CCPs, CSDs, TRs; CBRT issued ROSPSS/ROPSSS; CMB issued bylaws and regulations for CCPs/CSDs. - Recommendation: CBRT finalize oversight framework to define criteria for systemically important payment systems and clarify which systems are FMIs to which PFMIs apply. - Recommendation: CMB should issue TR regulation/communique prior to MKK commencing TR operations. - Responsibility B (Powers and resources): Broadly Observed. - CBRT and CMB have powers to obtain information, induce corrective action, and impose sanctions; both authorities have dedicated staff and resources (CBRT PSD oversight division: 15 employees; CMB Intermediary Activities Department: 48 employees). - Recommendation: CMB consider assigning staff with specific responsibilities for FMIs. - Responsibility C (Public disclosure of policy): Observed. - Both CBRT and CMB have published policy statements on FMIs and PFMIs; CBRT published “Objectives and Policies Regarding Payment and Securities Settlement Systems”; CMB published corresponding policy statement and objectives. - Responsibility D (Adoption/application of PFMIs): Observed. - Both authorities have adopted PFMIs and requested self-assessments (CBRT completed internal self-assessments; Takasbank and MKK asked to complete self-assessments). - Responsibility E (Cooperation among authorities): Observed. - FSC provides structured mechanism (membership: BRSA, CMB, CBRT, SDIF, Undersecretariat of Treasury; chaired by Minister/Deputy Prime Minister) for coordination on financial stability and FMIs. Bilateral/ad-hoc cooperation mechanisms also exist. - Recommendation: continue use of FSC and ad-hoc channels; ensure coordination for cross-border / multicurrency FMI activity notifications where volumes or risks warrant. --- ### Selected prioritized actions extracted from assessments and recommendations - CBRT: - Integrate dependencies on other FMIs (Takasbank, MKK) and internal Markets department into EFT/ESTS risk management framework. - Seek external legal opinion on enforceability of PSOR and on conflict-of-law issues for securities held in ICSDs (e.g., Euroclear, IILM holdings). - Conduct periodic testing of the Default Management Procedure as a whole; include participants and integrate with BCP testing at least annually. - Strengthen PSOR to include explicit participant mandates for operational risk management and establish a mechanism for ongoing compliance assessment. - Consider participant-targeted operational risk measures for high-share participants (monthly network analysis basis). - Establish a schedule for ongoing review of haircut rates (last review Sept 2015). - Joint PSD–Markets liquidity analyses and consider pricing/incentives to encourage earlier settlement in inter-bank markets; evaluate making intraday liquidity support more attractive. - Publish PFMI disclosure framework results and consider publishing PSOR key elements to improve transparency. - CMB: - Issue regulation/communique for TRs prior to authorizing MKK TR operations (draft Implementing Regulation on TRs and reporting Communiqué circulated March 2016; finalize in second half 2016 and expect first reporting in 2017). - Consider assigning specific staff responsibilities for FMIs oversight within CMB. --- ### Source and attribution *This summary is based solely on the supplied IMF assessment content contained in the source PDF chapter "67. The CBRT and the CMB have articulated their policies with respect to FMIs".* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1745.pdf_