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Exchange Settlement Account System (ESAS)
Report to Account Holders
Year ended 30 June 2014
Reserve Bank of New Zealand
August 2014
Reserve Bank of New Zealand: ESAS System Annual Report 2014
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Table of contents
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Management commentary
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Key statistics
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Risk management
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Financial performance
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Plan for 2014-15
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System overview
Directory
Exchange Settlement Account System (ESAS)
System Operator: Reserve Bank of New Zealand
Email: rtgshelpdesk@rbnz.govt.nz
Telephone:
(64) (4) 471 3918
(64) (4) 471 3712
Fax:
Website:
www.rbnz.govt.nz/markets_and_payment_operations/esas/
ISSN
Copyright © 2014 Reserve Bank of New Zealand
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Reserve Bank of New Zealand: ESAS System Annual Report 2014
System overview
About ESAS
ESAS is New Zealand’s principal high-value payments system which is used to settle payment instructions
between accountholders. The system is charged with providing an efficient and safe process for the real time
electronic settlement of payments between accountholders.
The Reserve Bank has provided ESAS as a real-time gross settlement system since 1998.
Accountholders electronically submit instructions to debit an account and credit another account using an
authorised electronic submitting mechanism. Authorised submitting mechanisms include closed user groups
which utilise the SWIFT electronic messaging system, the NZClear system and direct entry of transaction
details to ESAS. The system is available for use by accountholders for 23.5 hours each business day. Each
business day commences at 9.00am on a working day and ends at 8.30am the following working day.
A payment will be settled (i.e. funds are transferred from one ESAS accountholder’s exchange settlement
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account to another ESAS accountholder’s exchange settlement account) once a transaction instruction is
authenticated, the payment instruction is authorised by the payer and the payer has sufficient funds in their
exchange settlement account to effect the transaction. Once a transaction is settled it cannot be revoked.
The ESAS system is operated by the Reserve Bank. The Reserve Bank’s Financial Services Group
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(“FSG”) is responsible for the administration of the operational aspects of the System. FSG is headed by
Mike Wolyncewicz, the Reserve Bank’s Chief Financial Officer, and day-to-day business support is provided
by the Payment and Settlement Services Team within FSG that is managed by the Manager of Payments
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and Settlement Services, Nathan Lewer.
FSG reports on the operation of ESAS to Mr. Geoff Bascand, Deputy Governor and Head of Operations.
The Reserve Bank’s Knowledge Services Group (“KSG”) supports the telecommunications network and
related security features utilised by the system. Software support, software development and operational
support services are provided by Datacom Systems (Wellington) Limited (“Datacom”).
The aggregate level of liquidity in the ESAS system is managed by the Reserve Bank’s Financial Markets
Department (“FMD”). FMD injects or withdraws liquidity from the system by undertaking transactions such
as foreign currency swap transactions, reverse repurchase agreements and issuance of Reserve Bank Bills.
FMD’s objective is to ensure that there is adequate aggregate liquidity in the system to ensure the efficient
operation of payment operations while also maintaining short-term wholesale interest rates at levels close
to the Official Cash Rate. Typically aggregate system liquidity is maintained in the range of $6 billion to $8
billion.
ESAS is a designated settlement system under Part 5C of the Reserve Bank Act 1989. The regulator
is the Prudential Supervision Department of the Reserve Bank. Institutional arrangements are in place to
ensure that dealings between the Financial Services Group and the Prudential Supervision Department
occur on an arm’s length basis.
Reserve Bank of New Zealand: ESAS System Annual Report 2014
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Management commentary
Year ended 30 June 2014
Key performance indicators are:
Key performance indicator
2014
2013
• System availability (%)
99.78
99.85
10,443
9,411
3,162
2,305
100
100
• Average daily transactions
• Revenue ($000)
Customer satisfaction - meets
or exceeds expectations (%)
The system was available to users 99.78% of core hours which was down on the 99.85% achieved in
2013. This was largely due to two incidents arising from software faults which prevented members who were
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not already in the system from being able to log in. However, automated processing was able to continue
for members as transactions are submitted to the system via the SWIFT interface and the business impact
of these outages was limited. No extensions to processing cut-off deadlines were required. A thorough postincident follow-up process occurs after each incident to ensure the root cause is understood and actions,
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such as systems or process changes, are agreed and implemented.
Overall transactions volumes continue to grow, partly reflecting higher use of the Settlement before
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Interchange (SBI) interface.
The 2013/14 year has seen a significant lift in costs due to charges for SWIFT’s support service which
had previously been waived, and also as a result of an increase in IT costs for work performed to improve
system security and to implement changes necessary to respond to updates and changes made to software
products which the system utilises. As a result, from 1 July 2013 the Bank increased the ESAS fees in order
to fully recover the cost of operating the system, as provided for in the ESAS Terms and Conditions.
In 2014/15, the Bank will continue a programme of work to further improve systems security. The major
development initiative involves completing the replacement of CASmf software which interfaces ESAS with
SWIFT. Satisfactory progress is being made on this project and we expect industry testing will be undertaken
in the December quarter.
During the 2013/14 financial year the Bank commenced a payment systems strategic review, with a key
objective to develop a roadmap for the systems prior to undertaking further major technology investments.
An industry consultation paper was issued in May 2014, with submissions due by 18 July 2014. The
consultation paper set out the Bank’s vision and suggested key principles for development of its payment
system operations, and asked for feedback on those matters as well as the Bank’s involvement in securities
settlement operations. The Bank will report back to stakeholders in coming months summarising the
submissions and consulting further on the proposed roadmap.
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Reserve Bank of New Zealand: ESAS System Annual Report 2014
Key statistics
There are three primary interfaces or “Accountholder Submitting Systems” which are used by ESAS
Accountholders to submit payment instructions to ESAS:
•
directly from the NZClear system.
• via the SWIFT system where members of the Assured Value Payment “AVP” closed user group use
ESAS to pay other members of that closed user group. The Reserve Bank is the administrator of the AVP
closed user group.
• via the SWIFT system where members of the Settlement Before Interchange “SBI” closed user group
use ESAS to pay other members of that closed user group. Payments NZ Limited is the administrator of
the SBI closed user group. Once an SBI settlement has been effected in ESAS, a confirmation is sent
to SWIFT which then allows an associated interchange file containing underlying payment details to be
Transactions – All
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released to the destination bank.
There is steady growth in the volume of
transactions submitted to ESAS. The daily average
value of transactions passing through the system
declined markedly immediately post the period of
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the Global Financial Crisis in 2008 to 2010. This
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decline is in common with that experienced by other
Transactions – Sourced from SWIFT “AVP”
central banks which operate RTGS systems. More
recently, the decline has abated and average daily
transaction values have been more stable
Transactions submitted to ESAS via the main
SWIFT closed user group known as “AVP” dominate
overall ESAS activity, both in terms of volumes
and values. Transaction numbers are growing at
a steady rate and the average daily value of AVP
transactions appear to no longer be declining.
Reserve Bank of New Zealand: ESAS System Annual Report 2014
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The SBI interface to ESAS commenced
Transactions – Sourced from SBI
operation in February 2012. Volumes are growing
slowly as banks submit more files to ESAS during
the banking day.
Transactions sourced from the NZClear system
Transactions –Sourced from NZClear
reflect high NZClear turnover in recent years which
results from high activity on the New Zealand share
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market.
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System outages year ended 30 June (hours: mins)
2010
2011
2012
2013 2014
Application – all
users
1:47
1:58
1:36
1:20 0:07
Application –
subset of all
users
0:10
1:22
0:50
4:45 8:32
Connectivity
1:17
0:02
0:00
0:00 0:00
•
The system was available 99.78% during
core support hours (2013: 99.85%).
• There were two main outages totalling
512 minutes, but the business impact
of these incidents was very limited
because automated processing was able
to continue. All incidents are followed
up in order to minimise the chance of
recurrence.
Customer satisfaction
2010
2011
2012
2013
2014
• The 2014 annual customer satisfaction
Exceed
expectations
68%
89%
82%
79%
81%
survey showed that customer satisfaction
Meet
expectations
30%
11%
18%
21%
19%
2%
0%
0%
0%
0%
100%
100%
100%
100%
100%
Does not meet
expectations
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remains at a high level.
Reserve Bank of New Zealand: ESAS System Annual Report 2014
Risk management
The internal controls of the ESAS system are audited each year by PricewaterhouseCoopers (“PwC”), as
required by the ESAS Terms and Conditions. PwC act on behalf of the Reserve Bank’s external auditor, the
Auditor-General. The scope of this audit includes the controls performed by the Reserve Bank’s third party
independent service provider, Datacom. The Auditor’s annual assurance report is addressed to the Governor
of the Reserve Bank and is reviewed by the Reserve Bank’s Audit Committee, with external auditors, Reserve
Bank governors and management in attendance. A copy of the assurance report is sent to accountholders,
and is published on the Bank’s website.
ESAS is also subject to internal audit by the Reserve Bank’s Audit Services division.
The main elements of risk management for the System entail:
procedures and controls are adhered to;
•
measures to manage operational risk, as described below;
•
business continuity plans are in place and tested regularly; and
•
ongoing oversight and audit of operations
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Managing operational risk in the Reserve Bank is seen as an integral part of day-to-day operations.
Operational risk management includes Bank-wide corporate policies that describe the standard of conduct
required of staff, a number of mandated requirements (e.g. a project management template), and specific
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internal control systems designed around the particular characteristics of various Reserve Bank activities.
The Reserve Bank has a small office in Auckland. As a result, day-to-day operating activities are shared
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between staff based in Auckland and those based in Wellington. Staff in the Auckland office will provide
on-going continuity of business operations should a region-wide disaster impact ESAS’s Wellington staff. A
second computer site is located in Auckland and is used alternately with the Wellington computers for live
production.
Reserve Bank of New Zealand: ESAS System Annual Report 2014
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Financial performance
A short-form Statement of Financial Performance for the ESAS business is:
20142013
$000$000
Income
3,1622,305
Expenses
3,1282,278
Net profit 1
3427
As noted above, the Bank incurred higher IT costs in respect of the ESAS system due to work performed
to improve system security and to implement changes necessary to respond to updates to software products
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which the system utilises, and also due to new costs incurred in respect of SWIFT support. The system is
becoming more expensive to maintain and the Bank is giving thought to undertaking major reinvestment and
as noted above, an initial consultation has been undertaken with accountholders and other stakeholders.
Members were advised of the expected financial impact of the cost of replacing the CASmf software
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which is the primary interface between ESAS and SWIFT. These costs will be amortised and recovered from
members when the new software goes live, which, subject to testing, is scheduled to occur in the December
quarter.
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The ESAS business is attributed costs by the Reserve Bank. This includes charges for use of the
Reserve Bank’s resources, such as staff, occupancy, internal audit, governance, accounting and information
technology. Indirect costs incurred by the Reserve Bank are allocated to the ESAS System based on
estimated costs that the business would incur on a stand-alone basis.
The ESAS business is operated as a division of the Reserve Bank. The above figures are extracted from
the Reserve Bank’s accounting records. Income and expenditure for the ESAS business is calculated using
the accounting policies specified in the Reserve Bank’s financial statements.
Under the ESAS terms and conditions, the Bank may only recover the costs of operating the system. The
small net profit recorded reflects project costs related to the SBI development which were expensed in earlier
years for financial reporting but which are being recovered via fees charged over 5 years.
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No provision for tax has been made on reported net profit as the Reserve Bank is exempt from liability for
income tax. Had the Bank been liable for income tax, a tax charge of $9,520 (2013: tax of $7,560) would have
been reported, and the net return after tax would have been a reported profit of $24,480 (2013: $19,440).
Reserve Bank of New Zealand: ESAS System Annual Report 2014
Plan for 2014-15
ESAS’s plan for the Year Ended 30 June 2015
The following project work is planned:
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Continue work on enhancing system security.
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Undertake a modest programme of enhancements and fine tune daily operations (continuous process
improvement).
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Upgrade SWIFT interface software to replace CASmf.
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Continue the payment systems strategic review and develop a roadmap for the Bank’s payment systems
operations.
•
Publish a self-assessment for ESAS against the Principles for Financial Market Infrastructures.
As part of business as usual we will target to:
Have the system available for members for at least 99.90 percent of core business hours.
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Have the system subject to an external audit.
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Survey accountholders’ satisfaction levels and report back to accountholders by May 2015.
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Reserve Bank of New Zealand: ESAS System Annual Report 2014
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