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Current Payment System in Palestine

· · · · PMA established in 1995 according to Oslo accords. There are 19 banks operating in Palestine, with 210 branches 350 money exchangers most licensed by PMA. No national currency 4 currencies used in Palestine, US $, Jordan Dinar JOD, Israeli shequel ILS, and Euro. · Two Cheque clearing houses operating in Gaza and Ramallah, one daily clearing session, Quasi manual clearing, No encoding,sorting,trancations or storage of cheques. · Cash is the main important means of payment in Palestine followed by cheques. · Incomplete and weak legal and regulation framework to support the financial markets activities particularly in payment and securities settlement areas.

Current situation

· Noncash pay instruments usage is growing but remains modest and dominated by cheques and paper based direct transfer orders. · Settlement carried out on PMA accounting system on gross basis on Multilateral Net Settlement on (DNS)basis. · No unwinding procedures if settlement fails. · No public securities issued(PMA,PNA)some private sector securities issued and traded in Palestine stock market under supervision of Palestine Capital Market Authority. · Currently no interbank electronic switching capability for card transactions, hence all ATM and POS transactions are confined to their respective issuing banks. · As at the end of 2009,there are 315 ATMs,285228 debt cards and visa electron,30,000 Credit cards,1745 POS terminals in more than 500 merchants.

The way forward to Reforms

· PMA Top Management through its adapting Strategic Transforming Plan(STP)to transfer PMA toward Afull fledge central bank decided payment system reforms will be one of the top priorities. · In order to obtain appropriate funding and Guidance in the overall reforms, the PMA requested external support and technical assistance from the World Bank, Arab Monetary Fund and Banca Ditalia to play advisory role in the project,WB accepted to fund aTA program and paysys advisory services provided by WBPSG started on march 2007. · AMF is funding the bulk of the system implementation

Palestine National Payment System Reforms and ATS rollout strategy

VISION FOR THE NPS:The study undertaken by the World Bank produced a vision for the National Payment System in terms of 9 pillars. These pillars are explained below based on two stage approach. the first stage covers the first 5 pillars as short term which will span over 2-3 years and the second stage covers the last 4 pillars. Pillar 1: Legal framework Pillar 2: Settlement mechanisms for large value and time critical payments Pillar 3: Retail payment systems Pillar 4: Government payments Pillar 5: Cooperative framework Pillar 6: Interbank money markets Pillar 7: Securities depository, clearance and settlement arrangements Pillar 8: International remittance services Pillar 9: Oversight framework

Palestine National Payment System Reforms and ATS rollout strategy Items 6 to 9 were viewed as longer term objectives in the original strategy. The World Bank framework identified the following vision statements for each pillar:

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 1: Legal framework ·Payment systems in Palestine work in a sound and robust legal environment that is able to support settlement finality and the efficiency of payment arrangements. ·To ensure finality and irrevocability of both payment and settlement. ·enable management reduction and containment of systemic and other payment risks. ·No zero hour rule in PNPS. ·PMA strongly support and encourage as fundamental to ensuring Stability and efficiency legislation on clearing and settlement of payment and securities orders including rules on collaterals. ·payment system oversight ·electronic transfers to permit full recognition of modern ways of payment and support interoperability. ·Presidential Decree will be signed to cover the above issues.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 2: Settlement mechanisms for large value and time critical payments (BURAQ RTGS) .Settlement mechanisms for large value and time critical payments in Palestine are safe and efficient and comply fully with the Core Principles for Systemically Important Payment Systems · We will launch our RTGS on 1st November 2010 as the backbone for the National Payment System. ·Management tools to handle liquidity risks. ·mobilizing the compulsory reserve for daily liquidity. · Swift as the primary Network Carrier. ·Access criteria including exit and exclusion be clearly defined. ·Multicurrency's will be settled through BURAQ rtgs. ·We installed the system and last week we successfully finished the pilot testing with the participants.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 3: Retail payment systems Retail payment systems in Palestine are efficient, sound and interoperable and support a wide range of payment instruments and services. .PMA will continue to play a role in retail system as settlement agent, operator,participante,overseer and as catalyst for change. · PMA clearing house in Palestine are appropriately linked to the RTGS application for settlements. · We are working to launch clear component in next April 2011 · all retail systems will be overseen by PMA in terms of their safety and efficiency.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 4: Government payments Government collections and disbursements are fully and efficiently integrated with the National Payments System in Palestine and support its smooth functioning.

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Highly co-operation between PMA and Ministry of Finance to handle all the government payments

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 5: Cooperative framework Effective, structured and fruitful cooperation is in place within the NPS. .A national Payment council is created in Palestine under the leadership of the PMA. -NPC include representatives from all major stockholders PMA,banks,banks association in palestine,Palestine Capital Market Authority,minstry of finance. · highly Co-operation between all parties.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 6: Interbank money markets - Interbank Money Markets are fully developed and closely integrated with settlement systems. -The interbank money market is an important element for liquidity management and its improvements should run in parallel to those of settlement systems.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 7: Securities depository, clearance and settlement Arrangements -Securities Clearance, Settlement and Depository Systems are safe and efficient, fully comply with international standards, and contribute to support the development of capital markets. . Securities settlement system in Palestine will comply wit the CPSSIOSCO recommendations for securities settlement systems. · Negotiation and co-operation with Palestine Capital Market Authority for the settlement of the Palestine stock Market transactions through RTGS. · The settlement of securities and funds will be linked to allow these securities transactions be settled on a DVP basis, thus eliminating principle risks.

Palestine National Payment System Reforms and ATS rollout strategy

Pillar 8: International remittance services International family remittances and other cross-border payments are distributed rapidly and conveniently in Palestine, and are also efficient from the perspective of the cost for end users at both ends. PMA will work with the market to ensure that international remittance services in Palestine comply with the CPSS-WB general principles. PMA will ensure the regulatory perspective covers payment system issues in particular efficiency, transparency, and risk management in addition to traditional Issues of balance of payment, and money laundry in coordination with other authorities.

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Palestine National Payment System Reforms and ATS rollout strategy

Pillar 9: Oversight framework The oversight and supervisory framework for payments and securities settlement systems is clearly defined, and the PMA exercises its oversight authority effectively in cooperation with other regulators and supervisors PMA tends to exercise effectively the function of payment system oversight in Palestine , and PMA seeks legal empowerment to establish the oversight anchor. PMA will oversee all clearing and settlement arrangements in Palestine including retail payments.

Lessons learned

Legal framework has an essential role in pay-sys reforms success and it must be strong and highly protected and clearly covers oversight function. adapting reforming on phases is the best way for pay-sys reforms success. Consulting, co-operations and commitments of all participants and stakeholders is crucial and very important for success. Having a clear reform Plan is very crucial. Consult and sharing experience with others to start from where the others ends.

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