On 9 April 2020, the Financial Stability Board (FSB) published a Stage 1 Report (Report) of its project to develop a roadmap to enhance cross-border payments.
Faster, cheaper, more transparent and more inclusive cross-border payment services, including remittances, would have widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.
The Report provides an assessment of existing arrangements plus the challenges standing in the way of enhancing cross-border payments. The Report was submitted to the G20 Finance Ministers and Central Bank Governors for their virtual meeting on 15 April 2020. Following the virtual meeting, the G20 asked the FSB to continue supporting international cooperation and coordination through information sharing, assessing vulnerabilities, and coordinating on the response to policy issues.
The G20 made enhancement of cross-border payments a priority during the Saudi Arabian Presidency. The G20 asked the FSB to co-ordinate relevant stakeholders through a three-stage process to develop a roadmap to enhance cross-border payments:
- Assessment (Stage 1): This Report which, in coordination with relevant international organisations and standard-setting bodies, has assessed existing arrangements and challenges.
- Building Blocks (Stage 2): The Committee on Payments and Market Infrastructures (CPMI) is leading the work on creating building blocks to improve current global cross-border payment arrangements. Stage 2 will set out areas where further public sector work could assist in moving to an improved cross-border payments system and in public goods or removing unnecessary barriers. The CPMI will provide an update to the G20 in July 2020.
- Roadmap (Stage 3): Building on the previous stages, the FSB will coordinate, with the CPMI and other relevant international organisations and standard-setting bodies, the development of the roadmap. The FSB will report to the G20 on progress and indicative timeframes. The three-stage process will be submitted as a combined report to the G20 in October 2020.
The Report highlights the many challenges faced by cross-border payments as well as opportunities of enhancement including:
- cross-border payments are often perceived to face challenges of high costs, low speed, limited access and insufficient transparency;
- fragmented data standards;
- lack of interoperability between systems;
- complexities in meeting compliance requirements, including for anti-money laundering and countering the financing of terrorism (AML/CFT), and data protection purposes;
- different operating hours across different time zones;
- outdated legacy technology platforms;
- the length of the transaction chain increases costs and delays;
- high cost barriers to entry which further weakens competition; and
- the introduction of new innovative technologies could involve new risks.
The FSB recommends that the roadmap for enhancing cross-border payments should include a variety of approaches and time horizons as well as input from the public and private sectors. While the roadmap may indicate different possible routes, all need to meet minimum standards of safety and soundness. For instance, there should be no compromise in meeting minimum international standards for safe and sound payment systems, prudential supervision and AML/CFT compliance. This means that a minimum threshold of safeguards, and associated friction, is necessary for cross-border payments.
The Report concludes with areas of focus for enhancements to cross-border payments under four broad categories: (1) operational improvement of payment infrastructures; (2) standardisation of data and market practice; (3) legal, regulatory and oversight framework; and (4) progress monitoring and information sharing.