Answers to Reporters’ Questions about CIPS (Phase I) (October 8)

I. Why did you develop the Cross-Border Interbank Payment System (CIPS)?

　　

As policies concerning cross-border RMB business are promulgated in recent years, cross-border RMB business scale is expanding with RMB becoming the 2nd largest cross-border payment currency in China and the 4th largest in the world. The rapid increase in demands for cross-border RMB settlement keeps raising the requirements for financial infrastructure. To meet the demands for cross-border use of RMB, further integrate existing channels and resources for cross-border RMB settlement and increase the settlement efficiency, the People’s Bank of China (PBOC) decided to build the Cross-Border Interbank Payment System (“CIPS” hereinafter) for RMB business development in all main time zones in 2012.

　　

Construction of the CIPS is carried out in two phases: In the first phase, real-time full-amount settlement is adopted to render clearing and settlement services for cross-border trade, cross-border investment & financing and other cross-border RMB businesses; in the second phase, a more liquidity-saving hybrid settlement mode will be employed to increase the efficiency of cross-border and offshore RMB clearing and settlement.

　　

II. What are the functions of the CIPS (Phase I)?

　　

The main functions of the CIPS (Phase I) are to facilitate processing of cross-border RMB business and to support settlement of cross-border trade in goods and services, cross-border direct investment, cross-border financing and cross-border individual remittance. The CIPS (Phase I) has main features as follows: First, the CIPS (Phase I) processes remittance of individual customers and financial institutions on a real-time basis and in full amount. Second, through one-point access, direct participants can enjoy centralized clearing service, shortened clearing path and more efficient clearing. Third, the CIPS adopts the internationally accepted ISO20022 message standard and uniform Chinese four-corner codes; transmission in Chinese and English is supported; settings of fields such as name, address, charging etc. better facilitate the automatic processing of RMB business. In terms of message design, CIPS takes full considerations of the conversion requirements with the current SWFIT MT messages and thus, facilitates STP (straight through processing) of cross-border business and supports future business development. Fourth, running hours of the CIPS covers all major time zones in Asia, Europe, Africa and Oceania. Fifth, direct participants in Mainland China are connected to the system via special lines.

　　

III. What impact may be brought on the current cross-border RMB clearing models after the launch of the CIPS (Phase I)?

　　

Current cross-border RMB clearing models mainly include clearing bank model and correspondent bank model. Under the clearing bank model, Hong Kong and Macau clearing banks have direct access to the HVPS, while other clearing banks are connected to the HVPS through their head office or parent bank. All clearing banks have to depend on the HVPS to complete cross-border and offshore RMB clearing services. Under the correspondent bank model, correspondent banks in mainland China have direct access to the HVPS, while overseas participating banks can open an interbank account with a correspondent bank in mainland China for cross-border and offshore RMB clearing.

　　

After the CIPS (Phase I) was put into operation, the current cross-border RMB clearing models will continue to play their roles based on market demands.

　　

IV. What are the major rules and regulations governing the CIPS (Phase I)?

　　

Rules and regulations governing the CIPS (Phase I) mainly include: the Interim Rules for Cross-border RMB Payment System Business, the Cross-border RMB Payment System Participant Service Agreement, the Operating Guides on Cross-border RMB Payment System Business, the Running Rules of Cross-border RMB Payment System and the Technical Norms on Cross-border RMB Payment System.

　　

Specifically, the Interim Rules for Cross-border RMB Payment System Business (Y.B.F. [2015] No.210), which was formulated and released by the PBOC on its website, provides for access conditions of participants, business processing requirements and account management requirements. Upon approval by the PBOC, the CIPS operator prepared and issued the Cross-border RMB Payment System Participant Service Agreement and the Operating Guides on Cross-border RMB Payment System Business, the former of which stipulates rights and obligations of the CIPS operator and participants while the latter of which prescribes procedures and specific requirements of main businesses. Subsequently, the CIPS operator will stage the Running Rules of Cross-border RMB Payment System and the Technical Norms on Cross-border RMB Payment System.

　　

V. Who is in charge of running the CIPS (Phase I)?

　　

China International Payment Service Corp. (“the operator” hereinafter), a corporate entity, is responsible for running the CIPS (Phase I). On September 8, 2015, the operator was founded in Shanghai to take full charge of system operation & maintenance, service rendering to participants and business expansion of the CIPS (Phase I). After the launch of the CIPS (Phase I), the operator will gradually improve system features as required by market demands, enhance its internal management and increase clearing efficiency and competitiveness of the CIPS. In the future, the CIPS operator will step up in communication and cooperation with other international clearing organizations and financial infrastructure operators in a bid to explore the international market. In addition, to better run the CIPS, China International Payment Service Corp. may consider raising public funds for capital increase and transforming itself into a joint-stock limited company in due course.

　　

The company is under supervision and administration of the PBOC, which has formulated and promulgated the Measures for Supervision and Administration of Cross-border RMB Payment System Operators (Y.F. [2015] No.290) stipulating the business scope, the operation rules, etc.

　　

VI. How is the running sequence in time of CIPS (Phase I) arranged?

　　

The CIPC (Phase I) runs in Beijing time, with statutory work days of the People’s Republic of China as its system work days and each year’s last statutory work day of the People’s Republic of China as its year-end settlement day. The CIPS (Phase I) goes through the following four phases in sequence every day: preparation, day-time processing, cut-off point and day-end processing. Day-time processing of payment business lasts from 9:00 to 20:00. The running hours of the CIPS could be further lengthened in the future depending on market demands.

　　

VII. Who are the first batch of participants of the CIPS (Phase I)? How were they determined?

　　

There are 19 institutions in the first batch of participants including Industry and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Huaxia Bank, Minsheng Bank, China Merchants Bank, Industrial Bank, Ping An Bank, Shanghai Pudong Development Bank, HSBC Bank (China), Citibank China, Standard Chartered Bank (China), DBS China, Deutsche Bank (China), BNP Paribas China, ANZ China and The Bank of East Asia (China).

　　

The PBOC has preliminarily determined the list of the first batch of participating institutions in consideration of participating willingness of commercial banks, cross-border and offshore RMB business volume, technology development capability of all banks in mainland China, geographic distribution of foreign banks, and technical tests results, etc. During June and September 2015, the PBOC organized a simulation run, technical acceptance and business acceptance to examine whether the first batch of participants meet the technology and business conditions. CIPS was settled to launch with 19 participants on October 8.

　　

VIII. How are participants managed in the CIPS?

　　

CIPS participants are divided into two types: direct participant and indirect participant. The CIPS assigns every participant a bank code as its sole ID in the system. Direct participants open an account in the CIPS, directly send and receive messages through the CIPS, while indirect participants have indirect access to services provided by the CIPS through direct participants.

　　

To encourage direct participants to provide better services for indirect participants, CIPS business rules and system functions are designed favorably for establishment of business relationship between one indirect participant and multiple direct participants.

　　

IX. After the launch, how could other institutions join the CIPS (Phase I)?

　　

(I) Apply for direct participant

　　

According to the Interim Rules for Cross-border Interbank Payment System Business (Y.B.F. [2015] No.210), only banking institutions and financial market infrastructure operators legally incorporated  in mainland China can apply for direct participants of the CIPS (Phase I). Institutions in mainland China under the same legal entity can apply for only one direct participant identity.

　　

Qualifications for direct participants are:

　　

1) Institutions either in corporate capacity or designed by a legal entity, qualifications for handing RMB settlement business at home and abroad.

　　

2) Direct participants of the HVPS, capable for centralized business processing and STP processing.

　　

All these qualifications are elaborated in the Interim Rules for Cross-border RMB Payment System Business (Y.B.F. [2015] No.210). Please refer to the Operating Guides on Cross-border RMB Payment System Business for application procedure.

　　

(II) Apply for indirect participant

　　

All banking institutions legally incorporated at home or abroad can apply for indirect participants.

　　

Qualifications for indirect participants include: institutions either in corporate capacity or designed by a legal entity, capability of centralized processing of business in mainland China etc. The qualifications are elaborated in the Interim Rules for Cross-border RMB Payment System Business (Y.B.F. [2015] No.210). Please refer to the Operating Guides on Cross-border RMB Payment System Business for application procedure.

　　

X. What are the differences between CIPS indirect participant and correspondent bank?

　　

Compared with correspondent banks, indirect participants each has a bank code as their unique ID in the CIPS. Thus, when other participants send transactions, the remittance route can be accurately determined with the aid of this ID. In addition, indirect participants have access to bank code information of all CIPS participants, making it possible to offer their customers specific remittance route information and therefore more efficient and more convenient cross-border RMB payment services.

　　

XI. How are accounts managed in the CIPS?

　　

As approved by the PBOC, the CIPS opens a clearing account in the HVPS. This account is jointly used by all CIPS direct participants and all the funds therein are owned by all the CIPS direct participants, each of which enjoys share of interests as determined by the balance of their respective CIPS account. The CIPS clearing account in the HVPS doesn’t allow overdraft and the balance goes back to zero at the end of the day.

　　

When a direct participant joins the CIPS, the operator will open an account for it. Overdraft and accumulated interest are not allowed for this account, money is automatically transferred back to each participant’s account in the HVPS at the end of the day, keeping their day-end account balance in CIPS at zero.

　　

XII. How about liquidity management in the CIPS (Phase I)?

　　

During the day-time processing, direct participants have access to liquidity through their account in the HVPS by means of capital injection, capital increase, capital reduction operations in the system. In addition, direct participants can use the current trading platform of the National Interbank Funding Center to obtain liquidity through interbank offered credit according to relevant provisions. At present, CIPS (Phase I) doesn’t support direct participants for daytime overdrafts.

　　

To meet the needs of liquidity management of direct participants in the CIPS (Phase I), the PBOC has extended the running hours of its HVPS to 20:30 since September 21, 2015.

　　

XIII. What is the relationship between the CIPS (Phase I) and the HVPS?

　　

The CIPS (Phase I) is a RTGS system running independently. Adopting multiple measures, it aims to meet the demands of cross-border and offshore RMB use from banking financial institutions at home and abroad with business acceptance hours from 9:00 to 20:00. The HVPS system operated by the PBOC is a common platform for fund clearing and settlement of banking financial institutions in mainland China. It mainly provides fund clearing and settlement services for banks in mainland China with usual business acceptance hours from 8:30 to 17:00. The two systems are closely connected, the CIPS (Phase I) opening a clearing account in the HVPS and direct participants of the CIPS (Phase I) conducting capital injection, capital increase, capital reduction and zero clearing through their own account in the HVPS.

　　

XIV. How are CIPS participants charged by the operator?

　　

The CIPS operator only charges direct participants. Charges include annual membership fee, message processing fee, etc. The operator will exempt all direct participants from all charges before December 31, 2015. Afterwards, it will release a charging scheme after soliciting opinions from all parties concerned.