September 8, 2023
Payment systems in Uzbekistan.
Contents:
2. Key terms.
4. The operator of the payment system.
5. The Central Bank is the regulator of the payment system.
Normative legal acts:
Law of the Republic of Uzbekistan dated 01.11.2019 No. ZRU-578 “On payments and payment systems”.
Supplementary materials:
Batyayeva A.R. – “Electronic payment systems in Russia and foreign countries”. Available at: https://cyberleninka.ru/article/n/elektronnye-platyozhnye-sistemy-v-rossii-i-zarubezhnyh-stranah/viewer
In the era of technical progress and development of high technologies, as well as taking into account the high demand for payment services, the payment market integrates many highly efficient mechanisms for fast and secure transfer of payments. These mechanisms embody the services of transferring or exchanging money through an electronic system, which is called – an electronic payment system. First of all, let’s consider the meaning of the term “payment system”. The legislator defines the payment system as a set of relations ensuring the execution of payments through the interaction of the operator of the payment system of participants, the payment system, and (or) infrastructure and rules of the payment system established by the system. Some scholars call this concept a mechanism of subjective law, as the payment system is a certain set of obligations assumed at the time of receiving material or financial resources and other valuables. At the same time, other legal experts define the payment system as a set of subsystems including rules, regulations, agreements, methodological guidelines, infrastructure, and technology of money transfer, which is an integral part of the monetary system. To summarize the introduction, we can say that the payment system is a part of the financial infrastructure that carries out payment transactions between individuals and legal entities.
The main legal act regulating the activities of payment systems and organizations in the territory of the Republic of Uzbekistan is the Law “On Payments and Payment Systems”, which entered into force on 3 February 2023.
Payment organization – a legal entity, other than a bank, which is entitled to carry out activities related to the provision of payment services.
Payment service – a service provided by a payment service provider to a payment service user.
Electronic money – unconditional and irrevocable monetary obligations of the issuer of electronic money, stored in electronic form and accepted as a means of payment in the electronic money system.
Payment services market – a set of relationships related to the provision and use of payment services and the issuance and use of payment instruments.
Clearing – a process of collection, reconciliation, and set-off of mutual monetary claims and obligations of participants in the payment system.
The legislation distinguishes two types of payment systems: significant payment systems and other payment systems.
A payment system is recognized as significant if its uninterrupted operation contributes to the stable functioning of the payment services market, while its interruptions (failures) may lead to the occurrence of risks in the payment services markets of the country. In addition, a payment system shall be considered significant if its share in the payment services market exceeds the value determined by the Central Bank (the CB) and if payments are made through the payment system during the year in an amount not less than the indicators determined by the CB.
Participants of the payment system are banks that perform settlements and have concluded an agreement on participation in the payment system with the operator of the payment system. The operator of the payment system is a legal entity that carries out activities to ensure the functioning of the payment system on the territory of the Republic of Uzbekistan. A legal entity that is not the operator of the payment system has no right to use the words “payment system” and its derivatives in its name and/or trademark, which implies that it carries out activities to ensure the functioning of the payment system.
The operator of the payment system:
– establishes the rules of the payment system and controls their observance by the participants of the payment system;
– processes and issues payment and information messages of participants (members) of the payment system, executes individual orders, or performs clearing;
– concludes an agreement on participation in the payment system with a participant in the payment system;
– ensures the functioning of the payment system infrastructure;
– ensures compliance with information security requirements and measures for the continuity of the functioning of the payment system;
– ensures equal and open access of participants in the payment system to the services provided to them.
Other payment systems are payment systems that do not meet the criteria mentioned earlier in the legislation and the CB.
The Central Bank is the regulator of the payment system.
Payment systems of central banks (or organizations performing their functions) occupy a special place among payment systems, as the majority of money transfers are carried out through them. In addition, they ensure the fast and reliable passage of payments with minimal risks of non-payment. The CB and organizations performing its functions may provide clearing services, settlement services, etc.
The CB of the Republic of Uzbekistan regulates payment systems to ensure their efficient, reliable, and safe functioning. The CB has the following duties and powers:
– licensing the activities of payment system operators;
– licensing of activities of payment organizations;
– maintaining registers of payment system operators and payment organizations;
– revoking the licenses of payment system operators and payment organizations;
– establishing the procedure for the supervision and monitoring of the activities of payment system operators and payment organizations;
– coordinating the rules of the payment system and the procedure of interaction of the payment organization with the participants of the payment system;
– determining the criteria of significance of payment systems;
– exercising supervision over payment systems;
– applying measures and sanctions against operators of payment systems and payment organizations for violations of the requirements of the law;
– establishing the procedure for non-cash payments on the territory of the Republic of Uzbekistan;
– determining the rules of operation of the CB’s interbank payment and clearing systems;
– establishing the procedure for opening, maintaining, and closing bank accounts;
– Establishing the procedure for payment system operators and payment organizations to submit information on payments to the Central Bank;
– Establishing the rules for issuing and circulation of electronic money and bank cards in the territory of the Republic of Uzbekistan;
– establishing requirements for software, including automated banking systems, ensuring interaction with the CB’s interbank payment and clearing systems;
– ensuring information security measures in payment systems;
– determining the minimum amount of authorized capital of payment system operators and payment organizations;
– approving the limit on the operations of payments and transfers of electronic money.
The CB, banks, and payment organizations, agents, and sub-agents are the subjects of the payment services market.
The number of types of services is large, but the most important ones are:
– acceptance and execution of payments through a bank account;
– crediting cash to bank accounts, including those of third parties;
– making cash payments without opening a bank account;
– issuance (and redemption) of electronic money and debit cards;
– redeeming electronic money and bank cards;
– acceptance and settlement of electronic money payments;
– processing payments in electronic form and transmitting the necessary information to the bank for making payments or receiving funds for such payments;
– acceptance and execution of funds transfers through funds transfer systems.
In the US, there is a payment system called Fedwire, which is a real-time gross settlement system. This system is established by the US Federal Reserve Banks, which own and control its operations. Fedwire is used only by financial institutions that have accounts with a Federal Reserve Bank and are eligible for the Fedwire payment system funds transfer service (Fedwire Funds). Participants in the Fedwire payment system initiate funds transfers by sending a settlement document (including using an electronic settlement document delivery system) to the Federal Reserve Bank to debit their account and credit the beneficiary’s account. All other banks have access to funds transfers through the Federal Reserve’s payment services. Large, urgent payments are usually made through the Fedwire Funds service.
In Switzerland, payment transactions are mainly processed by the Swiss central bank – the Swiss National Bank (SNB), commercial banks, and a specialized company – PostFinance. The SNB operates and manages the SIX Interbank Clearing Ltd (SIC) payment system, which was introduced in 1987. The system processes both wholesale and retail payments. SIC participants include Swiss banks and PostFinance, as well as other financial market participants such as securities dealers, insurance companies, and cash-handling companies domiciled in Switzerland or the Principality of Liechtenstein. Foreign banks may also participate in the system, provided they meet certain additional requirements. In addition to high-value transactions, the SIC system also handles retail transfers.
In the UK, the Clearing House Automated Payments System (CHAPS Sterling) is available for urgent payments in sterling. Payments are made on the same day and high fees are charged. There are currently 13 direct participants. CHAPS payments are typically used to transfer very large sums of money, but the system can also be used by individuals for household needs.
Payment systems play an important role in ensuring the liquidity and stability of the financial system and in facilitating financial transactions both domestically and internationally.
The memo was written in collaboration with a 3rd-year student of the faculty of International Law of the University of World Economy and Diplomacy – Khaydarkulov Shokhjakhon.