3. Legal Framework

The BIS Principles for Financial Market Infrastructures provide the global standards for designing and regulating financial market infrastructures, including instant payment systems. These principles ensure systems are safe, resilient, efficient, and transparent.

Regulators are expected to adopt and embed these principles into domestic regulatory frameworks, and System Operators are expected to assess their systems against the PFMIs to ensure alignment and compliance with global best practices.

The PFMI consists of 24 principles, of which 17 directly apply to payment systems, structured into the following categories:

• General Organization: Establish a sound legal basis, robust governance arrangements, and comprehensive risk management frameworks.


• Credit and Liquidity Risk: Maintain effective tools to monitor, manage, and contain credit and liquidity exposures to preserve financial stability.


• Default Management: Define clear procedures and rules to manage participant defaults without disrupting overall system operation.


• Access Criteria: Ensure fair and open access, while managing risks associated with different types of participants.


• Settlement Finality: Guarantee the irrevocability and finality of payments, ideally in central bank money.


• Efficiency and Effectiveness: Operate efficiently to meet market and participant needs at minimal cost.


• Transparency: Disclose rules, procedures, and performance data to promote informed decision-making and confidence among stakeholders.

In addition to the principles themselves, the PFMI outlines five key responsibilities for public authorities (e.g., Central Banks and market regulators) in charge of regulating and overseeing FMIs.

National laws and regulations governing payment systems provide the essential legal foundation for the effective operation of Instant Payment Schemes. These legal instruments must align with international standards, such as the PFMI, while reflecting each Country’s unique legal, economic, and social environment.

National Laws typically provide the legal foundation for the recognition and protection of payment systems. They define the oversight responsibilities of central banks or other designated regulatory authorities and set out the core principles governing system operation. These laws may include provisions related to, among others, settlement finality (see the EU Financial Settlement Directive[^3]), recognition and use of financial instruments such as collateral, system resilience, licensing and designation of payment systems, eligibility criteria for participants, risk management obligations, consumer protection, data privacy, and enforcement mechanisms.

In addition to primary legislation, supplementary regulations issued by Central Banks or financial regulators offer detailed operational and compliance requirements. For instant payment systems, these regulations often include specific measures tailored to the unique features and risks of real-time payments, such as transaction speed, continuous availability, and fraud prevention. An example is the EU Regulation on Instant Credit Transfers, which sets mandatory requirements for euro-denominated instant payments within the European Union.[^4]

Participation agreements establish the contractual foundation between the Scheme Manager and all participants in the Scheme. They play a crucial role in translating international standards and national regulations into specific, legally binding obligations that participants must fulfil to gain and maintain access to the Scheme.

Typically, participation agreements include comprehensive contractual provisions that define the rights, responsibilities, liabilities, and dispute resolution procedures for both the Scheme operator and participating institutions.

Beyond the bilateral relationship between each participant and the Scheme Manager, these agreements also establish a multilateral legal framework governing interactions among participants, including rules for cooperation, operational conduct, and liability allocation in case of disputes.

The Scheme rules serve as the core operational framework of the Instant Payment Systems. They operationalize the high-level requirements set out in international standards, national regulations, and participation agreements by defining detailed parameters and procedures that govern the day-to-day functioning of the Scheme. These rules typically cover the following key areas:

1. Governance Framework: Governance is defined as a “set of relationships between an FMI’s owners, board of directors (or equivalent), management, and other relevant parties, including participants, authorities, and other stakeholders (such as participants’ customers, other interdependent FMIs, and the broader market”.[^5]

These rules establish the governance structure that defines how decisions are made, including the development, approval, review, and modification of rules over time. This governance structure ensures the Scheme remains adaptable to changing participant needs and market dynamics while upholding alignment with higher-tier obligations. It also ensures the protection of the system’s integrity, stability, and long-term viability, with active involvement from stakeholders such as scheme operators, regulators, and participants, all of whom play a crucial role in the governance process.

2. Participant Eligibility and Onboarding: The Scheme rules should establish clear eligibility criteria and onboarding procedures for prospective participants, ensuring that only institutions meeting the necessary regulatory, financial, and operational standards are allowed to join the Scheme. This process safeguards the reliability and efficiency of the system by maintaining high standards for participation.
3. Payment Processing Rules: The Scheme rules should provide comprehensive coverage of the entire payment process, addressing various key aspects such as the types of supported transactions, message formats and content standards, processing flows and timeframes, and transaction validation and authorization requirements. In addition, the rules define the settlement model, outlining the timing and finality of settlements, procedures for managing settlement risk, and protocols for handling exceptions, such as failed or rejected payments.
4. Operational Resilience and Service Levels: Beyond payment processing, the Scheme rules also cover broader operational requirements, including defined service levels and availability targets, business continuity and disaster recovery arrangements, and procedures for managing operational incidents. These procedures encompass communication protocols and escalation paths to ensure smooth and efficient operations in the event of disruptions
5. Risk Management and Compliance: The Scheme's risk management approach is outlined through measures focused on fraud prevention, anti-money laundering (AML) and counter-terrorism financing (CTF) compliance, and cybersecurity safeguards. These measures are designed to ensure the security, integrity, and resilience of the Scheme, protecting it against various threats.
6. Dispute Resolution and Complaints Handling: Scheme rules also include provisions for resolving disputes, whether between participants or between participants and their customers. These procedures ensure fair handling of complaints and foster trust in the Scheme.