Danish central bank recommends security upgrade for payment systems

The National Bank of Denmark says the nation’s retail payment systems should be improved with new cyber security and risk management measures, and stress tests.

It recommends that Finance Denmark, the association of commercial financial institutions, implements a series of steps to reduce security and liquidity risks.

While the central bank proposes some areas of improvement in the assessment, published on May 9, “no deficiencies have been identified which could be serious if not immediately addressed”.

“Finance Denmark should prepare a strategy for cyber security in the retail payment systems, approved at top management level,” the report says. This strategy should include the main elements of guidance put forward by the Committee on Payments and Market Infrastructures in June 2016.

The CPMI guidance specifies a cyber framework should provide for the comprehensive management of risks at financial market infrastructures. Systems need to be able to recover within two hours in order to deliver final settlement by the end of the day. The CPMI guidance also recommends the creation of mechanisms to identify plausible internal and external sources of operational risk and mitigate their impact.

The central bank recommends the financial association “perform a comprehensive review of risk management rules and procedures to ensure they are up to date and consistent across documents”, which should allow financial institutions to avoid confusion and establish a clear distribution of responsibility for reporting and addressing risks.

Stress tests

The payment system already has a liquidity module that produces forecasts before each settlement, enabling participants to set aside the liquidity required. In addition, participants have free access to collateralised intraday credit through Danish real-time gross settlement system Kronos.

Usually, participants have sufficient liquidity to reduce risk and ensure transactions are rarely delayed. However, the central bank considers new measures would boost security.

“Finance Denmark should regularly perform stress tests to assess the liquidity risks that may arise among the participants,” says the National Bank of Denmark. “Among other factors, the possible consequences of postponement of one or more critical participants in the settlement should be considered.”