1.1 Each central bank that has identified the actual or proposed operation of a cross-border or multi-currency netting or settlement system, outside of the country of issue of the relevant currency or currencies, should inform other central banks that may have an interest in the prudent design and management of the system. These will normally include the central bank or central banks of issue of the currencies accepted in the system, the "host-country" central bank in whose domestic market the system is located or operating, and the "home-country" central bank or central banks of the charter or incorporation of both the participants and the netting provider. These central banks should, in turn, seek to inform supervisory authorities that have responsibilities for the participants, the netting provider, or the settlement agent or agents. In carrying out this responsibility, central banks may find it useful to impose a duty or responsibility on financial institutions to report their provision of, or participation in, any netting service or system.

1.2 Central banks are most concerned with the operation of large-scale or wholesale systems which are, or have the potential to become, significant mechanisms for interbank settlements. But central banks should inform one another of all netting arrangements. What may appear to be a small operation in relation to the market of the host country, for example, could be large in relation to the interbank market in the country of issue and vice versa. Relatively small operations can also grow over time and become more significant. Thus, there should be a presumption in favour of informing other central banks and supervisory authorities about the existence of a netting system without regard, in the first instance, to its apparent importance.

2.1 Cross-border and multi-currency netting and settlement systems should be subject to oversight by a central bank which accepts primary responsibility for such oversight and there should be a presumption that the host-country central bank will have this primary responsibility. However, in consultation with other relevant central banks and supervisory authorities it could be agreed that another authority would undertake the primary responsibility.

2.2 Although several national authorities may have interests in the operation of any one cross-border or multi-currency netting system, the host central bank will usually have the broadest interest in the systemic implications of the system's operation and in the risks experienced by the participants within its domestic market. The central bank or central banks of issue will have an interest in the prudence of the settlement procedures and the implications for its domestic money market of any failure to complete settlement. The home central banks and supervisory authorities of the netting provider and of the participants will be concerned for their liquidity and solvency. The host central bank, however, is likely to be the home central bank of many of the system's participants and of the netting provider and will, of course, be the host of any resident non-domestic participants. Thus, the host central bank will normally be in the best position to oversee the activities of the netting provider and to ensure that appropriate risk controls are in place. Where a single system is simultaneously provided directly to institutions located in different financial centres, consultations between the different "host" central banks may be needed to determine which among them should have primary responsibility to oversee the system's activities.

2.3 There may be occasions where the host central bank does not wish to assume primary responsibility and where another authority would be better placed to do so. For example, where a netting system is provided by a branch of a bank chartered in another country, the home supervisory authority or home central bank may be better able to oversee the netting provider's activities and, thus, to oversee the system as a whole. This may be particularly true where the home central bank is also the central bank of issue of the relevant currency. But there should be a presumption that the host central bank will be responsible in the absence of agreement to the contrary among the relevant authorities.

3.1 In its oversight of a system. the authority with primary responsibility should review the design and operation of the system as a whole and consult with other relevant authorities on its conclusions both in the first instance and, from time to time. with respect to developments in the system's status. The statement of minimum standards for the design and operation of cross-border and multi-currency systems should provide a starting point for this review. Thus, consideration should be given to the operational and financial soundness of the message carrier, the netting provider, and the settlement agent or agents and to the legal soundness of the netting process. Special attention should be applied to the system's risk-management procedures to ensure that the provider and the participants have a clear understanding of the credit and liquidity risks they bear and that they have both the incentives and the capabilities to manage and contain these risks.

3.2 The extent of consultations among the authorities may depend upon the size and importance of the system. With respect to the largest systems central banks may wish to communicate on a regular basis. However, in reaching its initial conclusions and in its continuing oversight of any system, the authority with primary responsibility should recognise the interests and concerns of other relevant central banks and supervisory authorities through a process of consultation. At the same time, central banks and supervisory authorities responsible for the participants or the currencies in a system should keep the authority with primary responsibility informed of relevant developments. Such continuing communication and co-ordination should provide a means of anticipating and containing the systemic risks which could be transmitted in the event of the failure of a participant, or of a system, or of other disturbances.

4.1 The determination of the adequacy of a system's settlement and failure-to-settle procedures should be the joint responsibility of the central bank of issue and the authority with primary responsibility for the system. A review of the soundness of the design and operation of any netting or settlement system will necessarily entail consideration of the adequacy of both its routine settlement procedures as well as those to be invoked in the event of a participant's inability to satisfy its settlement obligations. These procedures will need to be considered in relation not only to the system's overall risk-management arrangements but also in relation to the domestic money market in which settlement ultimately occurs. Because of its knowledge of its domestic money market, and its concern for this market's stability, the views of the central bank of issue will be particularly important in the assessment of a netting system's settlement arrangements. Thus, the authority with primary responsibility will need to consult with the central bank or central banks of issue in order to reach a joint determination of the adequacy of the system's settlement and failure-to-settle procedures.

5.1 In the absence of confidence in the soundness of the design or management of any cross-border or multi-currency netting or settlement system. a central bank should discourage use of the system by institutions subject to its authority and. if necessary identify the use of, or the provision of services to such a system as constituting an unsafe and unsound banking practice. In the course of their consultations, central banks should endeavour to ensure the prudent operation of cross-border and multi-currency systems on terms acceptable to all relevant central banks and supervisory authorities. However, if this is not possible in some cases, it is clear that each national authority must maintain its discretion to discourage the use of a system if, in its judgment, the system is not prudently designed or managed.