The Payment and Settlement Systems (Finality and Netting) Bill was introduced for the first reading in Parliament today.
2 This Bill seeks to provide finality to payments and transactions effected through designated payment and settlement systems. When enacted, the Bill will enable MAS to designate certain payment and settlement systems, with the consequence that a designated system will be exempt from the application of certain laws that might otherwise threaten the finality of payments made through the designated system, including the law of insolvency. The Bill will also uphold the validity of netting arrangements in the event of the insolvency of a participant in a designated payment system.
3 A draft of the Bill and a MAS-AGC joint paper on the legal protection of payment system were released for public consultation in August 2002. The feedback received has been very favourable, and MAS has incorporated many of the comments into the Bill.
BACKGROUND ON LEGAL PROTECTION OF PAYMENT AND SETTLEMENT SYSTEMS
4 It is vital that important payment systems with systemic implications be protected from insolvency laws that could jeopardise the finality and irrevocability of transactions that are routed through these systems.
5 The Bill provides the broad legal foundations for the operation of stable payment and settlement systems by empowering MAS to designate systems such that the designated systems are exempted from the application of the various rules, in particular the rules that provide for certain dispositions to be unwound in the event of the subsequent insolvency of the party effecting the disposal. In determining whether to designate a payment system, MAS will take into account a whole range of factors, including in particular, the systemic risks associated with that payment system.
6 It is equally important that the law upholds the enforceability of netting arrangements in these systems, in the event of the insolvency of one of the participants, and the Bill makes provision for this as well.
7 The Bill has been drafted along the lines of the legislative initiatives undertaken in countries such as Australia, U.S.A., Canada and the U.K. When enacted, the Bill will also provide the legal certainty that will enable Singapore banks to participate in the Continuous Linked Settlement (CLS) system, which is a global system for the settlement of foreign currency transactions, and eventually pave the way for the Singapore dollar to be included within the CLS system.