## _cr06221

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---

### A. Assessment overview
- Assessed system: Servicio de Liquidación del Banco de España—SLBE (Real-Time Gross Settlement System—RTGS).
- Scope: One Systemically Important Payment System (SIPS) in Spain; Spain’s link to TARGET not assessed in this exercise.
- Assessor: Marylin Choy (Central Bank of Peru) as part of the Financial Sector Assessment Program (FSAP) in June–July 2005.
- Methodology: Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems (CPSIPS) of the IMF and the World Bank of August 2001.
- Sources: discussions with Banco de España (BE) staff, meetings with commercial banks, BE self-assessment, ECB assessment of the Euro Large-Value Payment System, relevant BE laws and regulations, and BE website information.

### B. Market structure and cashless payment instruments — key findings
- Financial sector composition at end-2004:
  - 346 credit institutions total
  - 136 commercial banks (75 national and 61 foreign)
  - 47 saving banks (cajas)
  - 83 credit cooperatives
  - 79 specialized credit institutions
  - State-owned Instituto de Crédito Oficial (ICO)
- Payment instrument characteristics:
  - Direct debits: most important in number of transactions for recurrent payments; average payment low; creditor issues payment order with prior debtor authorization; debtor can reject incorrect payments.
  - Debit cards: permit direct charge via ATM or POS; receiver’s account credited the next day; around 1,400 debit and credit cards per 1,000 people; three supplier nets: Sociedad Española de Medios de Pago (SEMP), Sistema 4B, and Euro6000 (managed by CECA); payments by debit cards and other paperless payments increasing.
  - Other instruments: prepaid cards, commercial cards, post office payments, and e-money exist but are not of extended use.

### C. Indicators of Use of Various Cashless Payment Instruments — Volume of Transactions (In millions)
- Year ended 2000 2001 2002 2003 2004
- Checks issued: 197.4 166.7 168.0 177.0 204.5
- Payments by debit cards: 286.6 340.1 612.4 630.9 692.8
- Payments by credit cards: 221.8 259.0 400.8 465.3 578.1
- Paper-based credit transfers: 57.5 71.0 83.3 151.7 90.8
- Paperless credit transfers 1/: 280.6 283.2 326.3 470.4 633.2
- Direct debits: 1,175.9 1,154.3 1,192.2 1,382.9 2,118.0
- E-money: 1.8 1.1 1.2 1.3 0.6
- Other: 129.8 114.6 91.3 94.4 129.8
- Total: 2,351.4 2,390.0 2,875.5 3,373.9 4,447.8
- Source: Banco de España
- Note: 1/ Excludes interbank large value transfers.

### D. Indicators of Use of Various Cashless Payment Instruments — Value of Transactions (In billions of euros)
- Year ended 2000 2001 2002 2003 2004
- Checks issued: 749.5 735.4 735.8 1,053.7 902.4
- Payments by debit cards: 11.3 13.9 25.1 27.5 30.6
- Payments by credit cards: 13.6 15.5 23.9 28.4 35.4
- Paper-based credit transfers: 188.4 273.4 313.2 626.3 1,056.9
- Paperless credit transfers 1/: 776.7 1,004.2 1,249.8 1,910.3 3,906.0
- Direct debits: 368.4 310.7 438.2 459.9 770.6
- E-money: 0.1 0.1 0.0 0.0 0.0
- Other: 254.3 245.8 219.1 599.3 425.7
- Total: 2,362.3 2,599.0 3,005.1 4,705.4 7,127.6
- Source: Banco de España
- Note: 1/ Excludes interbank large value transfers.

### E. Legal framework and oversight — key elements
- Settlement Finality Law (Law 41/1999 of November 12):
  - States irrevocability and finality of a payment order and recognizes legal validity of clearing agreements.
  - Establishes procedures and consequences of legal insolvency of a participant; covers clearing agreements, transfer orders and collateral; provides expeditious proceedings for execution of collateral in case of default.
  - Insolvency proceedings do not have retroactive effects on payment orders and collateral that have been put through the payment system.
- Law 24/1988, Law of the Securities Market (modified by Law 37/1998 and Law 44/2002): governs securities settlement systems.
- Law 13/1994 on Bank of Spain Autonomy:
  - BE must promote well functioning and stability of the financial system and payment system.
  - BE empowered to regulate and operate clearing and settlement systems and to exercise oversight.
  - BE may gather information and documentation to evaluate system efficiency and reliability (Law 2/2004 of December 27).
  - BE can suspend decisions by the entity managing a payment system when prejudicial and can take necessary measures.
- BE regulations and circulars cover access criteria, prices, operational timetable and calendar, and access to intraday credit.
- CNMV: oversight of securities settlement systems.

### F. Recent reform and system architecture
- Pre-reform: three payment systems — two for large value (SLBE and SEPI) and one for small payments (SNCE).
  - SLBE: Gross Settlement System of Spain, managed by central bank.
  - SEPI: private clearing house for large value payments in euros, managed by Servicio de Pagos Interbancarios (SPI).
  - SNCE: National Electronic Clearing System, managed by BE.
- Reform introduced in December 2004:
  - SPI reorganized and legally transformed into Sociedad Española de Sistemas de Pago, S.A. (SESP); SESP’s functions as large value payment system manager eliminated.
  - SLBE became the only large value payment system.
  - SNCE management transferred to SESP; BE oversees and approves rules of the system.
  - Guiding principle: separate systems for large and retail payments. All payments above €50,000 formerly channeled through SEPI are now processed by the SLBE; smaller value payments processed through the SNCE.

### G. SLBE — legal aspects, participants, operations, and metrics
- Status and legal recognition:
  - SLBE is a Real-Time Gross Settlement (RTGS) system owned, operated, and controlled by BE.
  - Spanish component of TARGET; settles domestic and cross-border operations.
  - Recognized by the Settlement Finality Law; payment orders irrevocable and final; no retroactivity in insolvency (“zero hour”).
  - SLBE manual: Circular 5/1990 and modifications; Circular 3/2000 defines irrevocability and finality.
- Participants:
  - 184 direct participants (33 branches of foreign institutions) and 36 indirect participants.
  - Direct participants must open a centralized RTGS account at BE and meet registration, financial strength, technical and operational criteria.
- Operational metrics (Table 3):
  - Number of participants: 184 direct, 36 indirect
  - Daily value of transactions (In millions of euros): 305,000
  - Average value per transaction settled (In millions of euros): 17
  - Daily volume of instructions: 18,250
  - Source: Banco de España.
- Processing and liquidity mechanisms:
  - RTGS processing one by one; insufficient funds send orders to a queue with a bypass FIFO management; priority managed by participants.
  - Intraday credit available via repo operations or pledge, with no charge; specific assets and securities with a minimum rating accepted as collateral per Eurosystem criteria; securities blocked in IBERCLEAR or other depositories in favor of BE.
  - BE can suspend intraday facility under systemic risk circumstances.
  - Liquidity optimization: automatic bilateral netting during session; multilateral netting executed by manager when necessary.
  - “Liquidity reservation facility” allows participants to voluntarily reserve funds for specific payments; BE recommended to monitor use to avoid possible discrimination and ensure it does not unduly prevent debiting accounts during the day.
  - End-of-day: orders not settled and still in queue are cancelled; inability to return intraday facility converts credit to overnight using Eurosystem standing facility.
- Communications, contingency, operating hours and fees:
  - Communication via SWIFT or online connection; external lines encrypted; remote access allowed to entities outside Spain.
  - Backup site in external center allows recovery of system in less than two hours; contingency plans tested regularly.
  - Operating hours: 7:00 to 18:00.
  - Charges and fees based on cost recovery: monthly charge of € 500 and a fee of € 0.50 for domestic transfers.
- Outlook:
  - SLBE described as modern and efficient; expected to be replaced by TARGET 2 when introduced in 2007.

### H. SNCE — classification, membership, clearing and settlement
- Classification: SNCE falls under Prominent Important Payment System (PIPS) in the Eurosystem standard; not a Systemically Important Payment System due to low value of transactions.
  - Daily average value of transactions is around € 6 billion compared with €305 billion cleared the SLBE.
  - Result of multilateral clearing is low relative to participant liquidity.
- Membership and participants:
  - Commercial banks, saving banks, and credit cooperatives can be members.
  - Two forms of participants: 25 direct participants and 202 indirect participants.
- Clearing, truncation, transmission and settlement:
  - Bilateral exchange of information by electronic means using private virtual network and STP processes.
  - Truncation agreement: 99.5 percent of the clearing is done without physical exchange of documents.
  - Each pair of institutions report bilateral net balances to the BE; if no discrepancies, a multilateral net position is calculated.
  - Settlement takes place through the SLBE on participants’ accounts at the BE by debiting short accounts before crediting long ones.
  - Payments over €50,000 are transmitted to the BE to be settled one by one.
- Timetable, finality, and costs:
  - General cycle: communications begin in T, bilateral exchange, settlement in T+1.
  - Settlement is considered final.
  - No cost for participating in the SNCE except for connectivity and a software license fee.

### I. Main findings and recommended actions (selected)
- Overall assessments:
  - The BE is an important player with well established and cooperative relationships with the financial sector; roles and responsibilities clearly defined in law, including oversight.
  - Legal framework is sound; Settlement Finality Law fully enforceable; irrevocability and finality ensured even in participant insolvency.
  - Infrastructure for clearing and settlement is well developed, modern and functional.
  - SLBE provides protection against liquidity and credit risks (queuing mechanisms, intraday credit, bilateral and multilateral algorithms).
- Key recommended actions:
  - Consolidate payment circulars to improve readability and transparency for participants (Principle 2).
  - Monitor use of the liquidity reservation facility to avoid possible discrimination against payments and ensure it does not unduly prevent the central bank from debiting accounts during the day (Principle 3).
  - SLBE Manual should give clearer guidance on expected participant behavior in emergencies (e.g., participant platform failure or SLBE failure); require participants to establish clear internal policies and procedures and to carry out operating audits; periodically review participants’ IT infrastructure; assess distance between backup and main site to ensure sufficiency against natural disasters or terrorist acts (Principle 7).
  - Disseminate and publish statistics and reports on oversight activities periodically (Responsibility C).
- Summary observance:
  - All CPSS Core Principles and Bank Responsibilities were rated Observed: Observed 10+4 CP 1,2,3,4,5,6,7,8,9,10    Responsibilities A,B,C,D
  - Recommended actions identified are relatively minor measures to strengthen robustness.

### J. Oversight, operational resilience, and compliance with Core Principles (selected details)
- Oversight, dissemination and reporting:
  - BE’s oversight based on data analysis, instrument analysis, self-assessment under international standards; BE produces statistics and reports.
  - Recommendation: disseminate and publish oversight material periodically.
- Rules, transparency and participant information (Principle 2):
  - SLBE operating rules described in manual comprising Circulars, Technical Applications and Communications; rules publicly disclosed in Official Gazette and BE website.
  - Participants receive real-time information on account state, settled and queued orders, and clearing/settlement status; virtual projections and forecasts provided.
  - Assessment: Observed. Comment: Circulars are difficult to follow; recommendation to consolidate them.
- Credit and liquidity risk management (Principle 3):
  - RTGS design eliminates credit risk among participants when transactions accepted; intraday credit free of charge through repo and collateralized credit; bypass FIFO queue arrangement and optimization mechanisms available.
  - Less than 50 percent of the intraday credit is actually used (around 90 percent of it is provided through repo operations).
  - Since January 2005 liquidity reservation system allows participants to reserve liquidity.
  - Assessment: Observed. Comment: BE should monitor liquidity reservation facility use.
- Security, operational reliability and business continuity (Principle 7):
  - IT and security framework: Circular 2/2002 on Computer Security Regime; confidentiality, integrity, identification and authentication requirements; encrypted communications and firewalls; incidents registered and monitored.
  - Operational reliability metrics: monthly indicator of availability was 100 between January to August 2005 except for three months when indicator was 99.7, 99.9 and 99.9.
  - Since January 2003, system suffered 17 incidents, none a “disaster failure”; average time of interruption in message process has been 14,5 minutes and the longest incident lasted 59 minutes.
  - Contingency: external backup center recovery in less than two hours; contingency plan tested at least quarterly with participants.
  - Assessment: Observed. Recommendations: clarify participant emergency procedures; require participant internal policies and operating audits; periodic review of participant IT infrastructure; assess separation distance of backup site.

### K. Efficiency, pricing, capacity, and governance
- Efficiency and usability:
  - End-to-end processing time for national operations: less than a second from participant order to final execution, provided enough funds.
  - Daily average of operations in queue is less than 0.5% of transactions processed; highest queue volume between 10a.m. and 12a.m.; average time in queue about 35 minutes; no typical queues after 3 p.m.
  - Participants use less than 50 percent of disposable intraday credit.
- Pricing and cost recovery:
  - Pricing based on cost recovery methodology. Annual index of cost recovery for 2000 to 2004: 89.3%, 101.9%, 111.1%, 100.6% and 99.6%, respectively.
  - Example fees:
    - Fee for domestic interbank transfers: 0.50 euros
    - Fee for bilateral settlement through the SNCE: 0.25 euros
    - Monthly charge: 500 euros
  - Fees are public and posted on the BE website.
- Capacity, communications and access:
  - System provides direct and SWIFT communication alternatives; capacity sufficient for current demand; ability to stop lower priority programs to prioritize SLBE if needed.
  - Access criteria (Principle 9): main requirement is being a supervised credit institution; admission per Circular 5/1990; participation modes direct or indirect; counts as of July 2005: 184 direct and 36 indirect participants.
- Governance (Principle 10):
  - SLBE owned, managed and operated by BE. Payment System Department reports to Deputy Governor; three divisions specified.
  - Rule approval: Governing Council approves policy issues and Circulars; Operations Commission approves technical applications.
  - Stakeholder fora: Working Group on Payment Systems and Users of the SLBE Group.
  - Assessment: Observed.

### L. Summary recommended action plan (selected items)
- Principle 2: Revise organization of BE circulars to improve readability and transparency.
- Principle 3: Monitor use of the liquidity reservation facility to avoid discrimination and ensure debiting of accounts is not unduly prevented.
- Principle 7: Revise SLBE Manual to give clearer emergency guidance; require participant internal policies and operating audits; periodic review of participant IT infrastructure; assess backup site distance.
- Responsibility C: Disseminate and publish statistics and reports on oversight activities periodically.

### M. Authorities’ response
- Authorities thank the IMF team and assessor and broadly agree with the assessment.
- Minor shortcomings have been addressed and appropriate measures are being implemented to tackle the issues in the first half of 2006.
- Given Banco de España’s membership to the Eurosystem, some business continuity improvements are being tackled collectively.

*Source: IMF staff assessment of the SLBE as provided in the supplied content.*

### 1.   Indicators of Use of Various Cashless Payment Instruments—Volume of Transactions ...5

### _cr06221 - 1.   Indicators of Use of Various Cashless Payment Instruments—Volume of Transactions ...5

### A. Assessment overview
- The assessment covered one Systemically Important Payment System (SIPS) in Spain: Servicio de Liquidación del Banco de España—SLBE (a Real-Time Gross Settlement System—RTGS).
- It did not assess Spain’s link to TARGET.
- The assessment was undertaken by Marylin Choy (Central Bank of Peru) as part of the Financial Sector Assessment Program (FSAP) in June–July 2005.
- Methodology: Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems (CPSIPS) of the IMF and the World Bank of August 2001.
- Sources used: discussions with Banco de España (BE) staff, meetings with commercial banks, BE self-assessment, ECB assessment of the Euro Large-Value Payment System, relevant BE laws and regulations, and BE website information.

### B. Market structure and cashless payment instruments — key findings
- At end-2004, the financial sector composition:
  - 346 credit institutions total
  - 136 commercial banks (75 national and 61 foreign)
  - 47 saving banks (cajas)
  - 83 credit cooperatives
  - 79 specialized credit institutions
  - State-owned Instituto de Crédito Oficial (ICO)
- Payment instruments and usage characteristics:
  - Direct debits: most important in number of transactions for recurrent payments (utilities and other services); average payment low; payment order issued by creditor with prior authorization from debtor; debtor can reject incorrect payments.
  - Debit cards: permit direct charge via ATM or POS; receiver’s account credited the next day; around 1,400 debit and credit cards per 1,000 people; three supplier nets: Sociedad Española de Medios de Pago (SEMP), Sistema 4B, and Euro6000 (managed by CECA); payments by debit cards and other paperless payments increasing.
  - Other instruments: prepaid cards, commercial cards, post office payments, and e-money exist but are not of extended use.

### C. Indicators of Use of Various Cashless Payment Instruments — Volume of Transactions (In millions)
- Year ended 2000 2001 2002 2003 2004
- Checks issued: 197.4 166.7 168.0 177.0 204.5
- Payments by debit cards: 286.6 340.1 612.4 630.9 692.8
- Payments by credit cards: 221.8 259.0 400.8 465.3 578.1
- Paper-based credit transfers: 57.5 71.0 83.3 151.7 90.8
- Paperless credit transfers 1/: 280.6 283.2 326.3 470.4 633.2
- Direct debits: 1,175.9 1,154.3 1,192.2 1,382.9 2,118.0
- E-money: 1.8 1.1 1.2 1.3 0.6
- Other: 129.8 114.6 91.3 94.4 129.8
- Total: 2,351.4 2,390.0 2,875.5 3,373.9 4,447.8
- Source: Banco de España
- Note: 1/ Excludes interbank large value transfers.

### D. Indicators of Use of Various Cashless Payment Instruments — Value of Transactions (In billions of euros)
- Year ended 2000 2001 2002 2003 2004
- Checks issued: 749.5 735.4 735.8 1,053.7 902.4
- Payments by debit cards: 11.3 13.9 25.1 27.5 30.6
- Payments by credit cards: 13.6 15.5 23.9 28.4 35.4
- Paper-based credit transfers: 188.4 273.4 313.2 626.3 1,056.9
- Paperless credit transfers 1/: 776.7 1,004.2 1,249.8 1,910.3 3,906.0
- Direct debits: 368.4 310.7 438.2 459.9 770.6
- E-money: 0.1 0.1 0.0 0.0 0.0
- Other: 254.3 245.8 219.1 599.3 425.7
- Total: 2,362.3 2,599.0 3,005.1 4,705.4 7,127.6
- Source: Banco de España
- Note: 1/ Excludes interbank large value transfers.

### E. Payment systems infrastructure — Legal framework and oversight
- Settlement Finality Law (Law 41/1999 of November 12):
  - Provides general legal framework for payment and securities settlement system.
  - States irrevocability and finality of a payment order and recognizes legal validity of clearing agreements.
  - Establishes procedures and consequences of legal insolvency of a participant; covers clearing agreements, transfer orders and collateral; provides expeditious proceedings for execution of collateral in case of default.
  - Insolvency proceedings do not have retroactive effects on payment orders and collateral that have been put through the payment system.
- Law 24/1988, Law of the Securities Market (modified by Law 37/1998 and Law 44/2002): governs securities settlement systems.
- Other applicable legislation: Law 16/1989 (Defense of Competition Law, modified by Law 52/1999) and Law 26/1988 (Discipline and Intervention of Credit Entities Law) for competition and consumer protection aspects.
- BE regulations and circulars cover access criteria, prices, operational timetable and calendar, and access to intraday credit.
- Law 13/1994 on Bank of Spain Autonomy:
  - BE must promote well functioning and stability of the financial system and payment system.
  - BE empowered to regulate and operate clearing and settlement systems and to exercise oversight.
  - BE may gather information and documentation to evaluate system efficiency and reliability (Law 2/2004 of December 27).
  - BE can suspend decisions by the entity managing a payment system when prejudicial and can take necessary measures.
- CNMV: oversight of securities settlement systems.

### F. Recent reform and system architecture
- Pre-reform: three payment systems — two for large value (SLBE and SEPI) and one for small payments (SNCE).
  - SLBE: Gross Settlement System of Spain, managed by central bank.
  - SEPI: private clearing house for large value payments in euros, managed by Servicio de Pagos Interbancarios (SPI).
  - SNCE: National Electronic Clearing System, managed by BE.
- Reform introduced in December 2004:
  - SPI reorganized and legally transformed into Sociedad Española de Sistemas de Pago, S.A. (SESP); SESP’s functions as large value payment system manager eliminated.
  - SLBE became the only large value payment system.
  - SNCE management transferred to SESP; BE oversees and approves rules of the system.
  - Guiding principle: separate systems for large and retail payments. All payments above €50,000 formerly channeled through SEPI are now processed by the SLBE; smaller value payments processed through the SNCE.

### G. SLBE — legal aspects, participants, and operations
- Status:
  - SLBE is a Real-Time Gross Settlement (RTGS) system owned, operated, and controlled by BE.
  - Spanish component of TARGET; settles domestic and cross-border operations.
  - Created in 1997 from transformation of Servicio Telefónico del Mercado de Dinero (STMD).
- Legal recognition:
  - SLBE recognized by the Settlement Finality Law: payment orders irrevocable and final; no retroactivity in case of insolvency (“zero hour”); BE has rights over collateral pledged in the system in case of default.
  - BE regulates SLBE via circulars, technical applications (Aplicaciones Técnicas), communications; circulars published in Official Gazette and BE website.
  - SLBE manual: Circular 5/1990 and modifications — includes rules on access conditions, fees, sanctions, operation timetable, intraday credit access, cross-border payment procedures; foreign participants must present legal opinions from their jurisdiction.
  - Circular 3/2000 (in accordance with Law 41/1999): payment orders cannot be modified or cancelled by participant once account debited in real time; payment order irrevocable.
- Participants:
  - Open system with participation by credit institutions established in any European Euro Area country, and investment service institutions subject to prudential supervision; treasury departments of central and regional governments and clearing houses (e.g., stock exchanges and IBERCLEAR) participate.
  - 184 direct participants (33 branches of foreign institutions) and 36 indirect participants.
  - Direct participants must open a centralized RTGS account at BE; can act on own behalf and on behalf of customers.
  - Direct participants must be registered at BE, have adequate financial strength, and meet technical and operational criteria per SLBE manual.
- Operational metrics (Table 3):
  - Number of participants: 184 direct, 36 indirect
  - Daily value of transactions (In millions of euros): 305,000
  - Average value per transaction settled (In millions of euros): 17
  - Daily volume of instructions: 18,250
  - Source: Banco de España.
- Processing and liquidity:
  - SLBE settles domestic and cross-border transfers, secondary market operations, multilateral clearing systems, monetary operations; matches interbank operations and transactions with public debt securities.
  - Main operations in volume: public debt transactions, followed by cross-border transfers, national transfers, and money market operations; clearing house settlements also processed.
  - Payment orders processed one by one in real time, debiting/crediting central bank accounts if sufficient funds or collateral available; insufficient funds send orders to a queue with a bypass FIFO management; priority of orders managed by participants; when funds arrive the first transaction in queue is settled unless its value exceeds funds received, in which case the system searches for a transaction in the queue that can be settled.
  - Intraday credit available via repo operations or pledge, with no charge; specific assets and securities with a minimum rating accepted as collateral per Eurosystem criteria; securities blocked in IBERCLEAR or other depositaries in favor of BE.
  - BE can suspend intraday facility under systemic risk circumstances (e.g., insolvency of a participant).
  - Liquidity optimization mechanisms in case of gridlock: automatic bilateral netting during the session when account lacks funds; multilateral netting executed by manager when necessary (e.g., to settle all pending operations at end of session).
  - Settlement timetable for multilateral netting systems allows participants to manage liquidity and avoid failures in ancillary system settlement.
  - “Liquidity reservation facility” allows participants to voluntarily put aside funds to assure availability for specific payments; recommendation that BE monitor use to avoid possible discrimination and to ensure it does not unduly prevent debiting accounts during the day.
  - End-of-day: orders not settled and still in queue are cancelled; inability to undo intraday facility converts credit to overnight using Eurosystem standing facility.
- Communications and contingency:
  - Communication via SWIFT or online connection to BE computer; external communication lines encrypted and have security access; remote access allowed to entities outside Spain.
  - Backup site in external center allows recovery of system in less than two hours.
  - BE contingency plans for emergency situations are tested regularly.
- Operating hours and fees:
  - SLBE operates from 7:00 to 18:00.
  - Charges and fees based on cost recovery: monthly charge of € 500 and a fee of € 0.50 for domestic transfers.
- Outlook:
  - SLBE is modern and efficient; expected to be replaced by TARGET 2 when introduced in 2007.

### H. Retail payments system (SNCE)
- SNCE created by Real Decreto 1369/1987; managed by SESP and recognized under the Settlement Finality Law (transactions protected from retroactive actions and settlement agents protected in participant insolvency).
- First ACH in 1990 cleared checks only; SNCE has grown rapidly since 2001 and is the only electronic clearing house for retail payment instruments such as paper checks, traveler’s checks, direct debits, credit transfers, bill of exchange, and gas checks.
- Instruments are operated by several clearing sub-systems according to governing law.

*Source: Banco de España and assessment by Marylin Choy, FSAP June–July 2005; content derived from the provided IMF country report excerpt.*

### 39.      The SNCE falls under the classification of Prominent Important Payment System

### _cr06221 - 39.      The SNCE falls under the classification of Prominent Important Payment System

### SNCE classification and scale
- The SNCE falls under the classification of Prominent Important Payment System (PIPS) in the Eurosystem standard considering the market penetration criteria, the aggregate financial risks and the domino effect risk.
- It is not a Systemically Important Payment System due to the low value of the transactions:
  - the daily average value of transactions is around € 6 billion compared with  €305 billion cleared the SLBE.
- The result of the multilateral clearing is low relative to participant liquidity.

### Membership and participant structure
- Commercial banks, saving banks, and credit cooperatives can be members of the SNCE.
- Two forms of participants:
  - direct participants: take part in the exchange stage of the clearing and settlement process, acting on its own behalf or representing indirect participants.
  - indirect participants.
- There are 25 direct participants and 202 indirect participants.

### Clearing, truncation, and transmission
- The SNCE is based on the bilateral exchange of information by electronic means using private virtual network and STP processes.
- There is a truncation agreement among the participants so that 99.5 percent of the clearing is done without physical exchange of documents.
- Each pair of institutions report their bilateral net balances to the BE. If no discrepancies are found in the bilateral exchange of information in each subsystem, a multilateral net position is calculated.
- The settlement takes place through the SLBE on the accounts that the participants hold at the BE by first debiting short participant’s accounts before crediting the long ones.
- Payments over €50,000 are transmitted to the BE to be settled one by one.

### Timetable, finality, and costs
- Each subsystem has its own timetable for communications. In general:
  - the cycle begins in T, followed by bilateral exchange of information, and settlement takes place in T+1.
  - Settlement is considered final.
- There is no cost for participating in the SNCE except for connectivity and a software license fee.

### Main Findings (paragraphs 44–47)
- The BE is an important player in the payment system and has a well established and cooperative relationship with the financial sector. Its role and responsibilities are clearly defined in the law, including the oversight function.
- The legal framework is sound. The Settlement Finality Law is fully enforceable. Irrevocability and finality are clearly defined in the law and in the regulations of the system, and they are also ensured even in the event of insolvency of a participant.
  - The relevant rules and regulations of the SLBE system are contained in a number of documents issued and modified by the BE.
  - Although rules and regulations address all the relevant aspects of the system, they are contained in a number of circulars which are quite difficult to follow, so it is recommended that the BE consolidates its payment circulars to improve readability and transparency for participants. BE staff has indicated that efforts in this direction are in progress.
- The infrastructure for clearing and settlement of payments is well developed, modern and functional.
  - The SLBE has systems that offer protection against liquidity and credit risks, such as queuing mechanisms, intraday credit and bilateral and multilateral algorithms.
  - The needs of the users are accounted for in the development of the payment infrastructure. The introduction of the liquidity reservation facility is an example of requirements fulfilled by the BE.
  - Recommendation: the BE should monitor the use of this facility to avoid possible discrimination against certain payments that may have to wait until the end of the day to be settled and to make sure that it does not unduly prevent the central bank from debiting accounts during the day.
- Contingency and operational risk recommendations:
  - There are contingency plans to assure continuity in the SLBE.
  - The procedures in the manual of the SLBE should give clearer guidance on the expected behavior of participants in case of emergency situations (for instance, procedures in case of failure of the platform of a participant or the SLBE should be clearly established).
  - Although the BE conducts regular testing of the contingency plan with the cooperation of system participants, it is recommended to establish that participants have in place clear internal policies and procedures, and carry out operating audits.
  - A periodic review of the IT infrastructure by participants to avoid operational risks is recommended.
  - The distance of the external backup center from the main site should also be evaluated to make sure that it is sufficient in case of events such as natural disasters or terrorism.

*Source: _cr06221 - 39.      The SNCE falls under the classification of Prominent Important Payment System*

### 48.      The BE complies with its oversight function to ensure the safety and efficiency of

### _cr06221 - 48.      The BE complies with its oversight function to ensure the safety and efficiency of

### Oversight, dissemination, and reporting
- The BE’s oversight is based on data analysis, the analysis of payment instruments and new developments, and self-assessment under international standards, among other aspects.
- As a result of its oversight activities the BE produces statistics and reports.
- Recommendation: this material should be disseminated and published periodically.

### Legal basis (Principle 1)
- Article 7.3.d) of Law 13/1994 on the Autonomy of the BE: central bank is in charge of promoting the well functioning of the national payment system.
- Art.16: empowers the BE to oversee and regulate clearing and settlement systems through circulars, and to suspend, when necessary, the application of the decisions adopted by the managing body of the payment systems. The Law also empowers the BE to manage the system.
- Law 41/1999 of November 12 (Settlement Finality Law) defines acceptance, irrevocability and settlement finality (Art.10 and 11) and recognizes the netting system on clearing agreements (Art.9).
- Settlement Finality Law regulates insolvency procedure (Art.13) for clearing and transfer of orders; Article 14 establishes rights to collateral in case of default; collateral arrangements are fully enforceable; law establishes expeditious proceedings for execution of collateral; insolvency proceedings do not have retroactive effects on payment orders or collateral.
- The SLBE falls within the scope of the Settlement Finality Law.
- The SLBE manual (Circular 5/1990 and modifications) regulates access conditions and criteria, prices, timetable of operations, intraday credit, and disciplinary regime.
- Circular 5/1990: participants from foreign institutions must provide a country opinion with the terms of reference given by the Governing Council of the European Central Bank (ECB). Currently no participants from outside Spain on a remote access basis.
- Law 1/2000 of January 7 on Civil Prosecution: electronic records will be accepted as valid evidence in a court of law.
- Assessment: Observed.

### Rules, transparency, and participant information (Principle 2)
- SLBE operating rules and procedures are described in the manual of the SLBE and comprise Circulars, Technical Applications and Communications of the BE.
- Regulations explain system design, timetable, intraday credit access, risk management procedures, legal basis, and rights and obligations.
- Procedure for sending/receiving payments and final settlement is transparent; transactions processed in real time are final and irrevocable if sender has enough funds or sufficient collateral (RTGS).
- Information on processing and settlement, and rules for access to intraday credit, are clear and allow participants to understand liquidity risk management; queue arrangement and gridlock algorithms are explained in rules.
- BE’s degree of discretion is minimal and explained in regulation; BE may modify intraday credit conditions owing to systemic liquidity needs or insolvency; BE may use optimization mechanism for multilateral settlement.
- Circulars are published in the Official Gazette (Boletín Oficial del Estado) and rules are available and publicly disclosed on the BE website.
- Participants receive relevant documents when joining; rights and obligations are explained in the SLBE manual.
- Participants receive real-time information on account state, settled and queued orders, domestic payments blocked due to lack of funds, state of clearing and settlement processes of net multilateral systems, state of cross-border payments; complemented by virtual projections and forecasts of account balances.
- Information includes daily turnover and final balance; intended to support efficient liquidity management and orderly flow of payments.
- BE sends regular messages updating participants on problems; information available through the TARGET Information System (TIS).
- BE coordinates with the Group of Users of the SLBE and the Working Group of Payment Systems on operational and liquidity risk matters; participants informed in advance of projects or reforms.
- Participants complete mandatory infrastructure and functional tests before initiating operations; BE carries out tests with credit institutions before introducing changes; participants participate in periodic tests covering contingency planning and exceptional scenarios.
- Assessment: Observed.
- Comment: Rules are contained in a number of circulars which are quite difficult to follow; recommendation to improve organization of circulars to enhance readability and transparency; BE staff report efforts in progress.

### Credit and liquidity risk management (Principle 3)
- Credit risk:
  - Credit risk does not arise among participants as transactions are processed in real time and are final and irrevocable when accepted by the system, provided sender has enough funds or sufficient collateral.
- Liquidity risk and facilities:
  - Banks required to hold minimum liquidity reserves in accounts at the central bank; balances can be mobilized for SLBE operations during the day.
  - Intraday credit, free of charge, is provided by the BE through repo operations and collateralized credit. Treasury bonds and other securities are eligible. Eligible collateral includes assets and securities deposited in other EU countries using the CCBM (Corresponding Central Bank Model), following Eurosystem criteria. Haircuts applied per rating and asset type.
  - Bypass FIFO queue arrangement smooths flow when payment cannot be settled due to lack of funds or insufficient collateral; bypass FIFO allows management by arrival and priority.
  - Participants can continuously manage liquidity via real time monitoring; incoming and outgoing queues transparent to each participant.
  - Optimization mechanisms search receiver’s and sender’s queue and calculate bilateral clearing continuously; SLBE manager can run optimization (discretionary) to calculate net multilateral settlement in case of gridlock (settlement would take place on a gross basis).
  - Less than 50 percent of the intraday credit is actually used (around 90 percent of it is provided through repo operations).
  - Overnight standing facility provided by BE: if participant cannot return intraday credit, intraday credit becomes overnight using same collateral at a penalty interest rate.
  - Since January 2005 a liquidity reservation system allows participants to reserve liquidity in their accounts (discretionary) to ensure settlement of important payments; participants can choose criteria by participant, type of payments, or specific operations.
  - SLBE has a time schedule for settlement of ancillary systems during the session.
- Assessment: Observed.
- Comment: BE should monitor use of liquidity reservation facility to avoid possible discrimination against some payments and ensure it does not unduly prevent the central bank from debiting accounts during the day.

### Settlement finality and operating hours (Principle 4)
- SLBE rules (Circular 3/2000 of May 31) define acceptance, irrevocability and finality according to the Settlement Finality Law.
- SLBE is an RTGS system; transactions irrevocable when accepted and final when account is debited.
- RTGS transactions accepted for settlement only when sender’s central bank account has enough funds or fully collateralized intraday credit is available; transactions wait in queue until funds available.
- Payment orders cannot be revoked, cancelled or modified by originator; once settled they are irrevocable and final.
- Submission, validation, irrevocability and finality are clearly defined.
- SLBE working hours ensure final settlement on the day of value.
- Assessment: Observed.

### Use of settlement assets (Principle 6)
- System operates and settles in central bank money; participants have a centralized account (“cuenta única”) or Treasury Accounts with the BE; SLBE payments settled in these accounts.
- There is no credit risk or liquidity risk incurred by participants with respect to the settlement agent and settlement asset.
- Assessment: Observed.

### Security, operational reliability, and business continuity (Principle 7)
- IT and security framework:
  - IT infrastructure follows BE general security policy defining responsibilities for operation, administration and maintenance.
  - Participants subject to confidentiality, integrity, identification and authentication requirements.
  - All incidents registered, monitored and analyzed under risk management procedure.
  - Circular 2/2002 on the Computer Security Regime establishes general security policy; safety based on technical and organizational measures; measures justified by risk and costs.
  - Communication lines encrypted; firewalls protect against intrusion.
  - Security administration uses validations and specific authorizations; users and processes uniquely identified and authenticated; “needed to work” principle applied.
  - BE uses checksum and unique key controls for payment orders (some controls continuous in both receiving and settling applications).
  - Record kept on use of privileges and special utilities; backup system for all SLBE information.
  - IT risk management based on Internal Order 10/2002 and Internal Note 3/2002 (Guide for Risk Management in the IT Systems of the BE) with phases: security requirement specification, risk analysis and monitoring; risk analysis identifies threats and vulnerabilities, uses questionnaires to evaluate impact; residual risks identified, reported and evaluated; monitoring by Internal and External Audit.
  - Detail of security requirements for each system includes availability, integrity, authentication, confidentiality, access control, and auditing.
- Operational reliability:
  - All system components duplicated; communication lines have backups or are duplicated; separate alternative communication routes exist.
  - Required service levels established where multiple communication providers compete; participants have alternative communication mechanisms.
  - System recoverable without loss of information; back-up copies of software and information made; back-up and recuperation implemented at different levels.
  - Monthly indicator of availability was 100 between January to August 2005, except for three months when indicator was 99.7, 99.9 and 99.9.
  - IT staff estimate central computer has more than enough capacity for SLBE; capability to stop lower priority programs to augment capacity if necessary.
  - IT monitoring tools: Mainview, SMF/MICS and other self developed tools; designed to guarantee timely processing of expected volume and forecast activity changes.
  - System audited by Internal Audit Department; Internal and External audits performed on components such as SWIFT.
- Business continuity and contingency:
  - Contingency plan includes a Crisis Consulting Board chaired by chief of IT Department.
  - External backup center for IT infrastructure with same security and controls as main center; backup and main site depend on different telecommunication and facility suppliers; synchronized copying of data between processing centers.
  - In case of disruption, SLBE can be restored in external backup center in less than two hours.
  - Since January 2003, system suffered 17 incidents, none a “disaster failure”; some caused delays but not service interruption.
  - Average time of interruption in message process has been 14,5 minutes and the longest incident lasted 59 minutes.
  - None of these failures caused modification of the original schedule; no liquidity or settlement problems in ancillary systems reported.
  - IT Department undertakes regular tests before changes; testing stages: IT personnel, Payment System Department, then users; results verified and certified before next stage.
  - Contingency plan tested at least as frequently as quarterly with cooperation of participants; procedures to activate backup site are documented and updated.
  - IT Department has personnel permanently monitoring the system (before opening and after closing); user help center available; programmers on duty at all times aiming to solve reported problems in less than 15 minutes.
  - Service agreements with suppliers (such as SWIFT) whose compliance is verified periodically (SWIFT annually); recurring incidents prompt special evaluation.
- Assessment: Observed.
- Comments and recommendations:
  - SLBE Manual should give clearer guidance on expected behavior of participants in emergencies (e.g., procedures in case of failure of participant platform or the SLBE).
  - BE should require participants to put in place clear internal policies and procedures and to carry out operating audits.
  - BE should periodically review IT infrastructure of participants to avoid operational risks.
  - Distance between backup site and main site should be assessed to ensure sufficiency against natural disasters or terrorist acts.

### Efficiency and practical usability (Principle 8)
- SLBE is an efficient channel for interbank payments and for settlement of ancillary clearing systems with finality.
- End-to-end processing time for national operations: less than a second from participant order to final execution, provided enough funds.
- SLBE operating hours: from 7:00 to 18:00.
- Daily average of operations in queue is less than 0.5% of transactions processed in the SLBE.
- The highest queue volume is between 10a.m. and 12a.m. The average time in queue is about 35 minutes and no queues typically arise after 3 p.m.
- System functionalities: access to intraday liquidity, optimization mechanisms, continuous bilateral optimization before queuing, multilateral optimization available in case of gridlock.
- Interfaces exist between RTGS accounts and Public Debt management system to enhance liquidity management.
- Participants use less than 50 percent of disposable intraday credit.
- Working Group on Payment Systems (BE and users) meets regularly to discuss customer demands, technology trends, and new products; system updates follow cost-benefit analysis.
- Additional services: complete real-time information and permanent IT support; system flexibility has enabled BE to introduce participant-driven innovations.
- Assessment: Observed.

*Source: _cr06221 - 48.      The BE complies with its oversight function to ensure the safety and efficiency of (PDF chapter/section).*

### introduction of the liquidity reservation facility, the development of an algorithm to

### _cr06221 - introduction of the liquidity reservation facility, the development of an algorithm to

### Pricing, cost recovery and fees
- Pricing is based on a cost recovery policy following the Eurosystem methodology: operating, investment depreciation, capital costs and general costs are analyzed separately.
- Annual index of cost recovery for the years 2000 to 2004: 89.3%, 101.9%, 111.1%, 100.6% and 99.6%, respectively.
- SLBE fees have been lowered several times since 2002 in response to improvements in cost recovery.
- Example fees:
  - Fee for domestic interbank transfers: 0.50 euros
  - Fee for bilateral settlement through the SNCE: 0.25 euros
  - Monthly charge: 500 euros
- Fees are public and posted on the website of the BE.
- The BE follows a pricing policy with a cost recovery target and carries out detailed analyses of the different costs generated by the systems; changes or reforms are based on cost-benefit analysis in cooperation with related areas.

### System capacity, communications and operations
- The system provides alternatives in communication (direct, SWIFT) to optimize participants’ investment.
- The system has enough capacity to cope with the current level of demand and is permanently monitored; contingency includes the ability to stop other processes to give priority to the SLBE if an unexpected increase in transactions occurs.
- The SLBE provides all services of a modern RTGS in an efficient way; up to date, the BE has not received complaints from participants.
- Internal Auditors periodically control the functioning of the system; they certify implementation of modifications and evaluate effectiveness and conditions of the system.

### Access criteria and participant arrangements (Principle 9)
- Main access criterion: being a supervised credit institution. Treasury departments of public sector bodies, investment firms and organizations providing clearing or settlement services subject to oversight also have access.
- Access criteria and procedures established by Circular 5/1990; published in the Spanish Official Bulletin and the BE website.
- Admission requires signing a contract and opening a centralized account at the central bank; a legal opinion per BE terms of reference is required for institutions wishing to participate.
- Participation modes:
  - Direct participants hold accounts at the BE and send orders directly.
  - Indirect participants must sign a private arrangement with a direct participant; indirect participants do not have accounts at the BE and cannot send orders directly.
- There are no specific capital requirements beyond eligibility as an institution.
- Participant counts as of July 2005: 184 direct and 36 indirect participants.
- Access and exclusion criteria are identified in the Manual of the SLBE; Circular 5/1990 allows the BE to suspend or exclude participants for negligence or non-compliance.
- Assessment: Observed. Access is fair and open.

### Governance and institutional arrangements (Principle 10)
- The SLBE is owned, managed and operated by the BE, which elaborates and disseminates the rules and regulations.
- Payment System Department organization:
  - Reports to the Deputy Governor via the General Director of Operations, Market and Payment Systems.
  - Composed of three divisions: Settlement Systems Analysis Division, Centralized Payment Services Division, Credit Institutions Payment Services Division.
  - Settlement Systems Analysis Division handles analysis and oversight; the other divisions have operational responsibilities.
- Rule approval process:
  - Policy issues and Circulars approved by the Governing Council of the BE.
  - Technical applications approved by the Operations Commission and signed by the General Director.
  - Communications authorized by the Head of the Department.
- IT Department is responsible for technical infrastructure and contingency arrangements within the Crisis Consulting Board.
- Consultation process before issuing new regulations includes lawyers, operators, overseers, IT personnel.
- Stakeholder fora: Working Group on Payment Systems and Users of the SLBE Group provide venues for discussion and feedback.
- As a TARGET member, the BE applies mandatory common minimum standards to the SLBE.
- Participants are informed of new projects via meetings, presentations and BE website postings.
- Assessment: Observed.

### Central bank responsibilities (A–D)
- Responsibility A: BE’s role defined in Law 13/1994 on the Autonomy of the Banco de España; function includes “to promote the smooth functioning of payment systems” and entitles BE to regulate and operate clearing and settlement systems and to perform oversight.
  - The role, objectives, policies and guidelines are disclosed via the BE website, communications, press notes, brochures, periodic bulletins and articles.
  - Assessment: Observed.
- Responsibility B: BE ensures systems it operates comply with Core Principles via continuous monitoring, periodic self-assessments, statistical monitoring and separation of oversight and operational units; impact of incidents is reviewed post-change.
  - Assessment: Observed.
- Responsibility C: BE oversees systems it does not operate (e.g., SNCE) and previously evaluated the Servicio Español de Pagos Interbancarios SPI; oversight objectives include promoting legal basis, risk controls, automation, balance between cooperation and competition, transparency and level playing field.
  - Oversight tools: data analysis, legal review, approval of norms, instrument analysis, international standards assessment, moral suasion, cooperation.
  - BE produces statistics and reports on assessments, major incidents and significant changes.
  - Assessment: Non Applicable. Comment: although capacity and ability to oversee exist, statistics and reports on oversight activities should be disseminated and published periodically.
- Responsibility D: BE cooperates with domestic and foreign authorities, endorsed ESCB Memorandum of Understanding on cooperation between banking supervisors and payment systems overseers, collaborates with CNMV on securities clearing/settlement, participates in IAC under the WHI and coordinates with EU and Latin American central banks.
  - Assessment: Observed.

### Summary observance and recommended action plan (Table 5 and Table 6)
- All CPSS Core Principles and Bank Responsibilities were rated Observed: Observed 10+4 CP 1,2,3,4,5,6,7,8,9,10    Responsibilities A,B,C,D
- Recommended actions (selected):
  - Principle 2: Revise organization of BE circulars to improve readability and transparency for participants; BE staff indicated efforts are in progress.
  - Principle 3: Monitor use of the liquidity reservation facility to avoid possible discrimination against payments that may wait until end of day; ensure facility use does not unduly prevent debiting of accounts during the day.
  - Principle 7: Revise the SLBE Manual to give clearer guidance on expected participant behavior in emergencies (e.g., platform failure of a participant or the SLBE); require participants to establish clear internal policies and procedures and carry out operating audits; periodic review of participants’ IT infrastructure recommended; assess distance between backup and main site to ensure continuity in events such as natural disasters or terrorist acts.
  - Responsibility C: Disseminate and publish statistics and reports on oversight activities periodically.
- Note: All CPSS principles were rated as observed; recommended actions are relatively minor measures to strengthen robustness.

### Authorities’ response
- Authorities thank the IMF team and assessor, broadly agree with the assessment.
- Minor shortcomings have been addressed and appropriate measures are being implemented to tackle the issues in the first half of 2006.
- Given Banco de España’s membership to the Eurosystem, some business continuity improvements are being tackled collectively.

*Source: IMF staff assessment of the SLBE as provided in the supplied content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06221.pdf_