Central bank unveils framework to identify and regulate systemically important payment systems

KATHMANDU: Nepal Rastra Bank (NRB) has introduced a comprehensive framework to identify and regulate Systemically Important Payment Systems (SIPS), marking a milestone in strengthening the country’s financial infrastructure. Released in July 2025, the new framework is part of NRB’s ongoing efforts to align Nepal’s payment ecosystem with international standards, reduce systemic risk, and ensure resilience of financial market infrastructures (FMIs).

According to the Payment Systems Department, safe, efficient, and resilient payment systems are the backbone of any economy, enabling smooth transfers between individuals, businesses, and financial institutions. NRB’s new framework aims to protect these critical channels by identifying payment systems that, if disrupted, could trigger wider financial instability.

Backbone of Financial Stability

In its introduction, NRB highlights that payment systems not only support everyday transactions but also underpin financial inclusion and trust in the economy. In countries like Nepal, where digital transactions are rising rapidly alongside traditional banking, their role has become more significant.

Large-value and time-critical payments—processed through systems such as the Real-Time Gross Settlement (RTGS)—are particularly sensitive. A disruption in these systems could delay settlements, weaken confidence, and even create liquidity crises. NRB emphasized that ensuring the smooth functioning of such platforms is vital for economic stability.

The framework also underscores that resilient payment systems play a crucial role in implementing monetary policy. By providing secure channels for the transmission of monetary instruments, they support economic confidence and reduce transaction costs.

Global Alignment with PFMIs

The framework heavily draws on the Principles for Financial Market Infrastructures (PFMIs), established by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). These principles, also adopted by central banks worldwide, are regarded as the global benchmark for ensuring the safety and efficiency of FMIs.

By adopting PFMIs, Nepal seeks to strengthen governance, risk management, settlement finality, operational resilience, and transparency across its payment systems. NRB’s stated objective is not only to minimize systemic risk but also to encourage innovation, inclusivity, and sustainable development in the financial sector.

Classification of Payment Institutions

The Payment and Settlement Act, 2019 provides the legal basis for NRB’s authority over payment systems. It prohibits any institution from operating as a Payment System Operator (PSO) or Payment Service Provider (PSP) without NRB’s approval.

Under this act, payment institutions are classified into:

Payment System Operators (PSOs): Entities providing infrastructure to process and transfer funds, including clearing houses and card networks.

Payment Service Providers (PSPs): Entities offering services like online payments, mobile wallets, peer-to-peer transfers, and point-of-sale solutions directly to customers.

NRB also classifies payment systems into Large Value Payment Systems (LVPS)—such as the RTGS—and retail systems, including Electronic Cheque Clearing, interbank payments, faster payment systems, and card networks.

Criteria for Systemic Importance

Not every payment system will be considered systemically important. The framework lists clear criteria under which a system may be designated as SIPS. These include:

Handling of time-critical and large-value payments.

Being the sole or critical system in the country’s financial market infrastructure.

Holding the largest share in terms of aggregate payment value.

Possessing a significant market share in retail transactions (more than one-third by value or two-thirds by volume).

Having a high degree of interconnectedness with other systems.

NRB reserves the authority to designate systems based on their criticality, even if they do not meet all the thresholds.

Responsibilities of Designated Payment Systems

Once designated as SIPS, payment systems will face enhanced oversight and must comply with a set of responsibilities designed to minimize systemic risks. These include:

Sound Legal Basis: Operations must have enforceable legal frameworks, including settlement finality and collateral arrangements.

Clear Rules and Procedures: Participation and operational rules must be transparent and consistent, with clear liability and default procedures.

Comprehensive Risk Management: Systems must manage credit, liquidity, operational, and general business risks. Regular stress testing is mandatory.

Timely Settlement: Payments must be settled within the same business day or in real-time for critical transactions.

Governance Standards: Systems must ensure accountability, transparency, and alignment with public interest.

Regulatory Approval for Changes: Any significant changes in operations, rules, or infrastructure must be approved or notified to NRB.

Periodic Self-Assessments: Systems must evaluate themselves against PFMI benchmarks and share results with NRB.

Transparency and Disclosure: Operators must publicly share key data, governance structures, and risk management policies.

Support for Financial Stability: Systems must cooperate with regulators and establish crisis protocols to prevent contagion risks.

Alignment with International Standards: Operators are expected to benchmark themselves globally, ensuring competitiveness and resilience.

Evaluation and Oversight

The framework requires NRB’s Payment Systems Department to conduct annual evaluations of designated payment systems, or sooner if significant market changes occur. Licensed institutions operating these systems must also perform periodic self-assessments and report results.

A list of designated SIPS will be published on NRB’s official website, ensuring public transparency. Furthermore, the framework will be reviewed and updated at least every two years to address emerging risks, technological changes, and international best practices.

Why This Matters Now

With Nepal’s digital economy expanding rapidly, mobile wallets, QR payments, and online transactions have surged, joining traditional banking infrastructure. This growth has brought both opportunity and risk. While payment systems have made transactions faster and more inclusive, any disruption could now have far-reaching effects.

The timing of NRB’s move is also significant. In recent years, cyberattacks, system outages, and liquidity crunches in other countries have shown how fragile payment systems can destabilize entire financial sectors. By proactively designating and regulating SIPS, NRB is signaling its readiness to safeguard Nepal’s financial stability against such shocks.

Human Impact and Trust

Ultimately, payment systems touch every Nepali household—whether through remittance transfers, card payments in local shops, or digital wallets used by students and small businesses. NRB’s framework, while highly technical, is intended to reinforce public trust. Ensuring payments are processed securely, efficiently, and without interruption means individuals can rely on their salaries, remittances, or transactions reaching their intended destination without fear of systemic failure.

As previous NRB Governor Maha Prasad Adhikari has repeatedly stressed in past speeches, financial stability is not only about banking soundness but also about the confidence ordinary citizens have in the systems that move money. This framework is another step in building that trust.