Kuma highlights risks in government payment system

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MINISTER of Finance and Treasury, Harry Kuma has highlighted the risks in the current payments landscape.

These include credit risk, legal risk, liquidity risk, cross border transaction, operational risk and antimony laundering.

Speaking at the second reading of the Payment Systems Bill 2021 in Parliament yesterday, Kuma said these risks are magnified by the fact that the advancement in technologies has provided many choices to the people on how payments are conducted.

“And as technology continues to develop, safety and efficiency issues become increasingly important matters for consideration under various risk elements,” he said.

First on credit risk, lenders offer credit lines to borrowers (or counterparties) as and when borrowers’ requests for credit and meet the lenders’ credit policy requirements.

Kuma said in absence of appropriate legal parameters, a default in a payment obligation can have rippling effects on payment services and financial stability overall.

Secondly, on legal risk, the Central Bank of Solomon Islands Act 2012 is in itself insufficient to provide the Bank with the mandates to implement functions that it is required to ensure that there is sufficient oversight powers to administer the payment system.

Thirdly, on liquidity risks, in a real time, payments settlement process, time critical payments may have adverse effects on the way credit is made available to liquid deficit institutions.

Fourtly, on cross border transactions, the abolishment of foreign exchange and capital controls in many countries in recent years have increased the movements of funds across border.

Kuma said in the absence of prudent measures, catastrophic results could adversely affect a country’s economy.

Fifth, operational risks; and

Sixthly, antimony laundering requirements for good monitoring of the payments landscape.

Parliament meeting continues at 9.30am today.