Payments System Strategy and Oversight Framework in Mongolia
Project Development Objective (PDO)
This project aims to help Mongolia improve safety, efficiency, reliability, and effectiveness of its national payments system by updating its national Payments and Settlement System Strategy and improving the legal and regulatory framework and oversight capacity of authorities.
The Bank of Mongolia (BoM) and Financial Regulatory Commission (FRC) are the relevant authorities for the national payments and securities systems. BoM has made significant progress in Mongolia’s payment systems in the past 10 years. It established the Switch and Clearing Center in 2006 and the Real-Time Gross Settlement (RTGS) system in 2009 and launched the National Payment Systems Strategy (NPSS) for 2009–14. The main purpose of the NPSS was “to hasten the growth of money circulation and to maximize sustainability, security, and safety of its entire financial market of Mongolia”.
However, authorities did not implement all aspects of the 2009–14 strategy. Specifically, a clear legal framework for Mongolia’s payment systems and an oversight framework for BoM were not completed. The 2009–14 strategy also did not address retail use or improved access to financial services by expanding innovative payment services.
BoM sought technical assistance for the following areas:
1. Update the 2009–14 NPSS (for 2015–19).
The 2009–14 Development Strategy on Payment and Settlement Systems laid out key issues toward developing the NPSS and was instrumental in achieving substantial progress in the area of payment systems. The updated strategy reflects recent reforms and provides an updated action plan to address the remaining challenges.
2. Improve the legal foundation of the national payments system.
The scope of the Central Bank Act and other relevant laws was limited and required upgrades. For example, payment services provided by non-bank financial institutions fell outside BoM’s payment system oversight, and there were possible conflicts of laws administered by BoM and the FRC. Specific legal and regulatory measures to be taken include (a) drafting a payment and settlement system act and (b) implementing relevant regulations.
3. Develop framework and build capacity to oversee the national payments system.
The oversight framework includes introductions and revisions of (a) an oversight policy; (b) the various tools for key oversight activities such as licensing, data collection, onsite inspections, and audits of payment service providers; (c) the oversight procedures; (d) risk management; and (e) joint oversight with the FRC, the securities regulator, and other relevant authorities.
The expected short- and medium-term outcomes of the project include the following:
1. Authorities will have a clear vision of a sequence of reforms needed to develop comprehensive
payments and settlement systems. This outcome needs the updated national payments system
2. A legal framework will be put in place that addresses the current gaps and allows BoM to have the
authority to (a) conduct effective regulation and (b) supervise and oversee electronic, innovative
payment services. This outcome needs the approval of the Payment System Act and conducive
regulations in place.
3. BoM will have sound policy, procedures, and tools to regulate the national payment system. It will
supervise a comprehensive payments and settlement systems effectively. This outcome needs to
have the framework for oversight of the national payment system implemented.