Reports on Observance of Standards and Codes

Cameroon and the IMF

Cameroon ROSC
I.  Fiscal Transparency
II.  Transparency of Monetary and Financial Policies
III.  Banking Supervision
IV.  Insurance Supervision
V.  Payment System

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V.  Payment System
Prepared by a staff team from the International Monetary Fund and the World Bank in the context of a Financial Sector Assessment Program (FSAP), on the basis of information provided by the Cameroonian authorities.

May 2000

Review of Committee on Payments and Settlement Systems (CPSS) Core Principles for Systemically Important Payment Systems1

1.  Cameroon's payments system is part of that for the CEMAC zone. The system consists of two parts: clearing centers at the level of the BEAC branches for high-volume, small-value payments and settlement through regional BEAC current accounts for large value payments.

2.  For small amounts, daily clearing sessions are held in each BEAC branch, during which banks exchange their instruments (checks, transfers, paper) and arrange settlement of their net positions using the current accounts they maintain at that particular BEAC branch. Since 1987, there have been "pre-clearing" sessions to verify whether checks are covered--practices aimed at eliminating the automatic granting of central bank credit. Clearing is strictly local: paper not payable locally must be sent for collection, which can cause significant delays. There is no national consolidation of local clearing sessions at the moment.

3.   There are currently no subregional clearing organizations. The central bank executes transfer orders of account holders on its books within the CEMAC zone and abroad. Although the BEAC uses the SWIFT network, at times there are administrative delays in the international transfers it processes, and some banks use alternative routes to transfer funds to and from their correspondent accounts; individuals often avail themselves of services provided by nonbanks, such as Western Union.

4.  An assessment of the CPSS Draft Core Principles for Systemically Important Payment Systems found that there is less than full observance for most of the principles (Table 4). In particular, the new legal framework is not yet adopted, there is no guaranteed settlement finality, the payment system is not efficient and practical for participants, and there is scope for improvement in security procedures.

Table 4. Cameroon: Observance of the CPSS Draft Core Principles
for Payment Systems

CP Principle FC1 PC2 NC3 Comments and Corrective Actions
I The system should have a well-founded legal basis in all relevant jurisdictions.   X   The system rests on a sound legal basis, but has to be completed further. A comprehensive law was prepared three years ago but has not been ratified yet by the national parliaments. The statutes of the BEAC give it legal authority to organize a payment system.
II The system's rules and procedures should enable participants to have a clear understanding of the system's impact on each of the financial risks they incur through participating in it. X     The rules and procedures are issued by the BEAC and distributed to all participants. The latter have a clear understanding of settlement risks.
III The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and participants, and which provide appropriate incentives to manage and contain risk.   X   Procedures exist for handling crisis situations, but they have not been completely formalized.
IV The system should provide prompt final settlement on the day of value, preferably during the day, and at a minimum at the end of the day.     X The pre-clearing system implies that payments are only executed the day after documents are presented for settlement.
V A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation.     X If a participant is unable to settle, his counterparts have to withdraw their claims until the next day.
VI Assets for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk. X     Assets for settlement are deposits held in current accounts at the BEAC or its branches.
VII The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.   X    
VIII The system should provide a means of making payments which is practical for the markets it serves and efficient for the economy.     X The payment system does not allow for development--especially for automating its manual character for improving its pre-clearing practices.. Especially its manual character and the pre-clearing system are criticized.
IX The system should have objective and publicly disclosed criteria for participation, which permit fair and open access. X     The system is open for participation by all commercial banks, the Treasury, CFC and CCP.
X Governance of the system should be effective, transparent, and accountable. X     The system is in full compliance with this principle.
1FC: Fully compliant
2BC: Partially compliant
3NC: Not compliant

Principle I: Well-founded legal basis in all relevant jurisdictions.

5.  The legal basis for the Cameroonian payment system is derived from the European legal systems, in particular the French system. This solid legal basis allows bilateral settlement, but the texts are old and need to be modernized. To that end, the regional authorities have prepared a uniform law for payment instruments in the CEMAC, focusing on prevention of fraud and the centralization of information on check payment incidents. However, the law, drafted three years ago, has not yet been adopted. Cameroon faces two particularities that could interfere with the overhaul of the legal basis of the payments system, namely the OHADA-rules for the standardization of economic law in Africa based on a "civil law" system, and the existence of a British-style "common law" system in the northwestern part of the country.

6.  The statutes of the BEAC mandate it to organize a payments system for the entire CEMAC. By international treaty, these statutes have force of law in the member states. Art. 1 of the statutes says that BEAC's mission includes the promotion of the proper functioning of the union's payment system. Art. 9 gives it the authority to organize a clearing system, and Art. 20 instructs it to participate in actions aimed at the stability and control of--among other things--all means of payment.

7.  Assessment: The system is partially compliant; ratification of the uniform law for payment instruments would strengthen the legal framework.

Principles II-III: Understanding of the system's impact on risks; and procedures for the management of risks and liquidity risks.

8.  The BEAC has issued a set of rules and guidelines on the functioning of the clearing system, which had been distributed to all participants. The banking crises and the payment system reforms of 1987 developed awareness of the risks involved among all concerned parties. The rules for solving settlement problems are known to all participants, and have been clarified with the introduction of the pre-clearing system. Crisis management procedures are supposedly in place, but have not been formalized.

9.  Assessment: The system is in full compliance with II, and in partial compliance with III; full compliance could be achieved after formalizing crisis management procedures.

Principles IV-VI: Final settlement; inability to settle by the participant with the largest single settlement obligation; and assets for settlement.

10.  The system of pre-clearing implies that settlement takes place the day after presentation of the payment documents. For large payments, bureaucratic execution delays that take longer than a day are not uncommon. The system does not allow for multilateral netting, and there is no facility in place to deal with an inability to pay by one of the participants. In such cases, the counterparts are supposed to withdraw their claims and present them again the following day. Assets for settlement are CFAF deposits held in current accounts at BEAC headquarters for large payments, and at the BEAC-branches for settlement of small payments.

11.  Assessment: The system is not compliant with IV and V, since settlement only takes place one day after the pre-clearing, and claims are withdrawn if the drawee's bank has insufficient funds; and is fully compliant with VI.

Principle VII: Security and operational reliability; and contingency arrangements.

12.  Security procedures are in place, but could be improved. A major weakness is the extensive need to physically transport payment documents. The information systems are secured at the level of the individual BEAC branches, with procedures depending on the importance of the branch. The operational reliability could be improved substantially, as errors and delays are common.

13.  Assessment: The system is in partial compliance; improved security procedures and operational reliability would help in reaching compliance.

Principle VIII: Practical for the markets and efficient for the economy.

14.  The system hampers the development of the banking system, the financial sector, financial markets and the economy. Delays are common, value dates are not respected, problems and incidents (especially returned checks) are frequent. Features of the small payment system that contribute to this poor performance are the strictly local organization of the clearing centers, the existence of a pre-clearing system and the lack of automation. The large payment system maintained at BEAC's headquarters in Yaoundé hampers the development of financial markets because it is slow and bureaucratic, and transactions are not always executed flawlessly. Exchange and other controls make international payments outside the zone cumbersome and slow. The consequences of this problem are illustrated by the national capital market initiative, which was forced to include payment delays of up to five days in the settlement procedures.

15.  Assessment: The payment system is not compliant with this principle.

Principle IX: Objective and publicly disclosed criteria for participation.

16.  Participation is open to all commercial banks, the CFC, the Treasury and the CCP.

17.  Assessment: The system is in full compliance.

Principle X: Governance of the system should be effective, transparent and accountable.

18.  The system is governed in an effective way by the BEAC, which intervenes actively in settlements and in the management of the payments system. The competencies of the BEAC are described in its statutes and in international treaties, all of which are available to the public. The BEAC is accountable to its board and to the Ministerial Committee of the CEMAC.

Assessment: The system is in full compliance.

1This module was prepared in consultation with the Cameroonian authorities in the context of an FSAP mission conducted in Cameroon in March 2000. The work of the FSAP mission was coordinated by a joint IMF-World Bank team led by Mr. Durand (IMF) and Ms. A.C. Rennie (World Bank) with assistance from Mr. Driessen and Mr. Fonteyne (both IMF). The main contributor was Mr. Spiri (Bank of France).


IV. Insurance Supervision        Cameroon ROSC