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Development of an Inter-Regional Payment System Integration Framework Workshop

This workshop provides an overview of the East African Community's current regional payment system integration initiatives, including the EAC's institutional framework, pillars of integration, East African Monetary Union, payment and settlement systems, financial market infrastructure, harmonization of financial laws and regulations, capacity building, and the way forward.

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Development of an Inter-Regional Payment System Integration Framework Workshop

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  1. Development of an Inter-Regional Payment System Integration Framework Workshop-Overview of EAC Current Regional Payment System Integration Initiatives

  2. Outline • Introduction • EAC Institutional Framework • Pillars of EAC Integration • The East African Monetary Union (EAMU) • Payment and Settlement system • Status of EAC Payment System • EAC initiatives for PSS • Financial Market Infrastructure • Harmonization of financial laws & regulations • Capacity building • Way forward

  3. Introduction The East African Community (EAC) is a regional organization mandated by the Governments of the Republics of Burundi, Kenya, Rwanda, Uganda, South Sudan and the United Republic of Tanzania to spearhead the East African economic, social and political integration. Under Article 5(2) EAC Partner States undertake to establish among themselves a Customs Union, a Common Market and subsequently a Monetary Union and ultimately a Political Federation

  4. EAC Institutional Framework The EAC has its own; legislature (which can promulgate laws that override national law), judiciary, and the EAC Secretariat. The integration agenda is managed by the “Council of Ministers” and the “Sectoral Councils” on (i) Trade, (ii) Industry, (iii) Finance, and (iv) Investment. There are three executive committees: • Monetary Affairs Committee (MAC) composed of the Central Bank Governors

  5. EAC Institutional Framework • Fiscal Affairs Committee (FAC), composed of senior officials from the Ministries of Finance, and • Capital Markets Insurance and Pensions Committee (CMIPC), composed of securities, insurance and pension regulators.

  6. Pillars of EAC Regional Integration • Customs Union; signed in 2004 and ratification in 2005 Through the Customs Union Protocol, trade within the EAC region has been enhanced significantly making the region an attractive foreign direct investment hub • Common Market; signed in 2009 and ratified in 2010 Provides for free movement of goods, people, labour, services and capital from one Partner State to another as well as the rights of establishment and residence without restrictions.

  7. Pillars of EAC Regional Integration • Monetary Union; Signed in 2013 and ratified in 2015 The East African Monetary Union Protocol provides for the attainment of a single currency for daily transactions within the Common Market • Political Federation The EAC Partner States envisages coming together to form a super-state under a single political authority / government

  8. The East African Monetary Union (EAMU) Monetary Union is expected to be in place in 2024 with single currency and a regional central bank Preconditions to the above include • Establishment of institutions to support the Monetary Union • Attainment of macroeconomic convergence criteria, and • Harmonization of policies and regulatory frameworks

  9. Payment and settlement system ARTICLE: 15 of the Protocol envisages the following; • Development and implementation of secure, efficient, reliable and integrated payment and settlement system that is; • Adopt an integrated trading and securities depository system and • Harmonize and integrate the payment and Settlement system financial market infrastructure with other system

  10. Payment and settlement system • The objective of the payment and settlement system shall be to ensure the efficient flow of financial transactions within the Monetary Union; by • Developing a robust environment for both, wholesale and retail Payment & Settlement System to facilitate market integration • Support effective application of monetary policy and financial markets

  11. Payment and settlement system • Enhance safety and efficiency in the overall payment and settlement systems. • Support, through integrated payment & settlement system, the broadening and deepening of the financial sector.

  12. Status of EAC Payment System • Varied payment system development • Inconsistent legislation and regulatory framework • Developed and under developed Communication infrastructure • Large Value and Retail systems are limited in all member states • The region has small financial systems that are dominated by the banking sector • Low Levels of access to formal financial services

  13. EAC Initiatives for PSS- Financial Market Infrastructure • Supporting the implementation and upgrade of Real Time Gross Settlement (RTGS) systems • Support Retail Payment System Automation and clearing systems- ACHs • Support SWIFT messaging platforms

  14. EAC Initiatives- Financial Market Infrastructure • Support Business Continuity arrangements and Disaster Recovery Sites • Support Network upgrade and IT operating environment • Support implementation of Central Securities Depositories • Support for modalities on setting up National switches

  15. EAC Initiatives- Financial Market Infrastructure • Development of a centralized database for regional payment flows • Implementation of the trading and settlement systems through a Capital Market Infrastructure (CMI) project;A technology platform seeking to link all the Stock Exchanges and Central Depositories of the EAC Capital Markets. The objective is to enable seamless transaction of financial securities across the Community.

  16. EAC Initiatives- Financial Market Infrastructure • Connectivity to East African Payment System (EAPS);The systems operates on a real time gross settlement basis by utilizing the linkage between the various Partner States’ Real Time Gross Settlement (RTGS) systems using SWIFT messaging network using the local currencies of the East African countries.

  17. Harmonization of financial laws & regulations • Drafting of legislation and policy to ensure that payments & settlement systems are adequately supported in the region by; • Developing a harmonized legal and regulatory Regional Framework • Cross Border Regional Regulatory Framework • EAC Regional Oversight Policy Framework • EAC Regional Failure to Settle Policy

  18. Harmonization of financial laws & regulations • Support for the development of rules, regulations and procedures to operationalise the NPS Act • Supporting development and drafting of Central Securities Depository (CDS) law • Drafting of regulations for payment and settlement system • Provided recommendations for technical, legal and regulatory framework for interoperability of card switches in the EAC.

  19. Capacity building • Training and skills support to strengthen the capacity of National Central Banks officers and other stakeholders in the area of Payment and Settlement Systems by; through • Facilitating study tours and exchange programs to institutions with developed PS • Organising Courses and training in PSS

  20. Capacity building • Sensitizing the population on retail payment systems and use of electronic means of payment (EAPS), • Support to the formation of a Regional Association of Bankers. • Facilitation of Financial literacy/education and establishment of regional/national strategies for banking and Payments

  21. Way Forward • The EAC is supporting the preparation for an integrated Single Payment System for the region (EAPS 2) • Establishing real time clearing for low value retail payments in the region • Establishment of a regional switch that will connect to the national switch in each EAC country

  22. Thank you Thank you

  23. East African Community

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