MONGOLIA: Payment Systems Strategy and Oversight Framework
With the rapid growth of Mongolia’s economy, the importance of payment systems and the need to build the capacity of the Bank of Mongolia (BOM) to regulate and oversee them continues to increase. Developing safe and efficient NPS infrastructure in line with international standards is crucial to supporting the development of the financial sector and the further economic development of the country.
The BOM has made significant progress in improving Mongolia’s payment systems in the last 10 years. In 2006, the Switch and Clearing Center was established as part of a World Bank project to modernize financial capacity in the country. In 2009, an RTGS system was established. In the same year, Mongolia’s National Payment and Settlement Council* adopted a strategy for developing payment and settlement systems for the period of 2009–2014. The main purpose of the strategy was “to hasten the growth of money circulation, and to maximize [the] sustainability, security, and safety of [the] entire financial market.” The strategy included objectives to increase the speed of the payment process and to minimize cash payment transactions.
Not all aspects of the 2009–14 strategy were implemented; in particular, a clear legal framework for Mongolia’s payment systems and an oversight framework for the BOM were not completed. A strong legal foundation and regulatory framework, an oversight framework, and strengthening the bank’s capacity as an overseer of the payment systems are priorities for increasing the safety and efficiency of the payment systems. The 2009–14 strategy also did not address retail usage or improved access to financial services through the expansion of innovative payment services.
In 2014, the BOM requested FIRST TA to update its National Payments and Settlement System Strategy (NPSSS) and improve both the legal and regulatory framework and the bank’s oversight capacity.
This TA delivered the following tangible outputs:
1. An updated NPS strategy: On the basis of a review of the NPSSS, the former strategy, reforms already addressed, and remaining challenges, the team developed a renewed strategy for the development of the NPSs, including a sequenced action plan for the coming years. A series of consultation workshops were organized for the authorities (the BOM, the Financial Regulatory Commission—the securities regulator, and the Ministry of Finance) and the private sector.
2. A legal framework: The World Bank team undertook a series of missions to review the BOM draft act on payment systems, build the capacity of bank working group members on the key concepts of the legal framework for the NPS, sensitize key members of the Parliament, and provide advice and a draft NPS Act (in English and Mongolian).
3. Oversight and capacity building: The World Bank team fielded a series of missions and developed a draft oversight framework. The team organized a series of workshops on the PFMI, payment systems oversight, and self-assessment of the RTGS system by the BOM.
In addition, the TA contributed to enhancing cooperative and joint oversight with the Financial Regulatory Commission.
The Financial Stability Board of Mongolia (made up of representatives from the BOM, the Financial Regulatory Commission, and the Ministry of Finance) adopted the Strategy for NPS Development in August 2016, and it will be officially launched by the BOM later in 2016.
The BOM is working with stakeholders to finalize the draft Payment Systems Law developed under the project. Submission of the draft is expected in the fall (slightly delayed owing to the elections held in June).
A follow-on World Bank Programmatic TA—an FSDS Program— includes a payment systems component that will support the government in implementing the strategy developed under the FIRST TA.
The strategy, legal framework, and oversight work have enabled the BOM to revise the administration document for a US$20 million loan from the Asian Development Bank (ADB) (for the Payment System Modernization Project), aligning it with the updated strategy. The ADB lending operation began implementation in early 2016. In addition, the BOM has agreed to a proposal from the World Bank team to establish a regular three-party coordination mechanism between the BOM, the ADB, and the World Bank on payment systems to ensure that the follow-up World Bank TA for implementation of the strategy and the implementation of the ADB project will be well aligned.
B. Lkhagvasuren, deputy governor of the Bank of Mongolia, in his feedback, stated that the Bank of Mongolia was honored to receive TA from FIRST to improve the legal framework of the NPS of Mongolia.
Our priorities were the drafting of the NPS Act, comprehensive enough to cover netting, finality of settlement, and many more issues, preparing the strategy for the development of the NPS in Mongolia, and central bank oversight capacity strengthening for the efficient and smooth operation of the whole financial market infrastructure. I am glad that with the help of experts from the World Bank we have succeeded in those issues.
Moreover, the fact-finding discussions with market participants to identify the gaps in the current system, the whole process of development of the “NPS Development Strategy 2015– 2020” document, and capacity-building trainings were a great experience for our staffs and payment system specialists.
I am sincerely grateful to the World Bank and FIRST for their invaluable contribution in the development of our national payment system.
The staff at the BOM also shared their opinions:
- World Bank experts from various fields such as payment system, and legal and technical operation worked together with us to implement various documents such as the development strategy, NPS Act, and oversight policy framework and organized a series of capacity-building workshops related to international standards, principles, oversight, and assessment methodology.
- I really liked the fact-finding discussions with World Bank experts, Financial Market Infrastructures experts, and participants as it gave us an opportunity to hear the market voice from different perspectives. Moreover, it was very encouraging and inspiring to collaborate with experts who have a high level of expertise in their respective fields.
- I am confident that FIRST has greatly contributed to the development of the financial market infrastructure of our country by making this TA available to us.
* Consisting of representatives from the Bank of Mongolia; the Treasury Department of the Ministry of Finance; the Financial Regulatory Commission; the Information, Communications Technology, and Post Authority; the Mongolian Securities Clearing House and Central Depository; the Mongolian Bankers Association; the Stock Exchange; and banks.