4. Participation Agreements

Participation agreements form the contractual backbone of an instant payment Scheme, defining the legal relationship between the system operator and participating institutions. To ensure effective governance, operational clarity, and legal certainty, these agreements must comprehensively address the following key components:

1. Rights and Obligations: Participation agreements should clearly articulate the respective rights and responsibilities of both the Scheme operator and participants. These include provisions related to system access, compliance with Scheme rules, service delivery standards, and operational conduct.
2. Liability and Risk Allocation: Robust liability clauses are essential to allocate responsibility for losses resulting from operational errors, participant misconduct, or external events. These provisions help to mitigate disputes and clarify expectations in the event of incidents or failures.
3. Confidentiality and Information Sharing: Confidentiality provisions should safeguard sensitive information while enabling necessary data sharing for operational, compliance, and supervisory purposes. These provisions should balance privacy with transparency and collaboration.
4. Change Management: Participation agreements must establish structured procedures for modifying terms and conditions. These should include notice periods, consultation processes, and mechanisms for participants to review or respond to material changes.
5. Compliance Monitoring and Enforcement: Effective participation agreements must include mechanisms for ongoing compliance monitoring and enforcement. Key elements include:

• Monitoring Frameworks: System operators should be empowered to verify compliance through participant reporting, audits, and performance assessments.


• Enforcement Mechanisms: Proportional enforcement tools designed to address varying degrees of non-compliance, ranging from minor to severe. These may include warning letters for minor breaches, financial penalties for moderate violations, mandatory remediation plans to address systemic issues, participation restrictions in response to serious concerns, and termination clauses for fundamental breaches of the Scheme's rules.

6. Dispute Resolution and Governing Law: Effective dispute resolution mechanisms and clearly defined governing law provisions are essential to ensure that any conflicts arising under the agreement are resolved fairly, efficiently, and consistently. These provisions establish the legal foundation for managing disputes, including the use of arbitration under the UNCITRAL Rules[^6] and relevant laws as a final recourse. They also preserve each party’s right to seek interim legal or injunctive relief when warranted.
7. Termination and Exit Provisions: Participation agreements must also provide a structured framework for both voluntary and involuntary termination of participation:

• Voluntary Exit: Provisions should outline notice periods (typically 90–180 days), final settlement requirements, data retention obligations, and communication responsibilities.


• Involuntary Termination: Grounds for termination should include material breaches of agreement, insolvency, persistent non-compliance, or regulatory sanctions.


• Emergency Suspension: The agreement should allow the Scheme operator to temporarily suspend a participant’s access in cases where continued participation poses a risk to system integrity. Such actions must follow governance oversight and due process.


• Transitional Arrangements: To minimize disruption, exit provisions should address the orderly transfer of customer accounts, open transactions, and obligations to other participants.

8. Additional Legal Considerations

Beyond the core provisions already mentioned, participation agreements should address several additional legal considerations to ensure comprehensive coverage of all potential issues

• Intellectual Property Rights: Clear provisions should establish that intellectual property provided by either party remains vested in the original owner, with access granted under limited license that expires upon termination. The agreement should address ownership of jointly created intellectual property and include warranties against third-party infringement claims.


• Force Majeure: Agreements should define force majeure events (such as natural disasters, pandemics, war, labor disputes, regulatory changes, utility failures) and establish procedures for notification, relief from obligations, and potential termination if force majeure conditions persist beyond a specified period (typically 3 months)


• Liability and Indemnity: Agreements should include carefully crafted liability and indemnity provisions that allocate responsibility for losses resulting from breaches, negligence, or misconduct. These provisions may include limitations of liability for certain types of damages while ensuring accountability for direct losses caused by a party's actions or omissions.


• Confidentiality: Robust confidentiality provisions should protect sensitive information shared between parties while allowing for necessary disclosures for legal proceedings, regulatory filings, or other circumstances required by law. These provisions should survive termination of the agreement.