Buna’s 12th Market

Participant User Group

Online Workshop

September 10th, 2020

Abu Dhabi, UAE
 AGENDA

1 2 3

Buna’s onboarding process Buna’s alignment to the

Latest updates on Buna’s
from a contractual and KYC Principles of Financial Market
approach to transfer charges
perspective Infrastructure (PFMI)

2
 AGENDA

1 2 3

Buna’s onboarding process Buna’s alignment to the

Latest updates on Buna’s
from a contractual and KYC Principles of Financial Market
approach to transfer charges
perspective Infrastructure (PFMI)

3
 CONTRACTUAL ARRANGEMENT

Buna’s rules, procedure, and participation agreement set the key contractual foundations that govern the
relationship between Buna and its participants

Participation Agreement

Sets out the legally binding rights and

obligations applicable between the two parties

Rulebook
Rules Procedures
Describes the arrangements,
applicable procedures and Reflects the technical standards and
administrative standards of the protocols relating to best practices;
system; that are not susceptible to that are susceptible to change
change

Buna’s rulebook and participation agreement provide a common legal arrangement applicable to all
participants that is necessary to protect the system and its participants and to ensure effective delivery of
services. As such, these document cannot be amended or changed on a bilateral basis

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 ELIGIBILITY CRITERIA

In order to ensure the safety of its ecosystem, Buna only accepts applications from financial institutions who meet a
set of eligibility criteria

National Pre- The Applicants should be licensed financial institutions that are supervised, regulated and authorized by
requisites government authorities

Participation
The Applicants should complete and execute Buna’s Participation agreement
Agreement

The Applicant should adhere to AML/CFT, anti-corruption, international sanctions lists and all other
Compliance compliance requirements with adequate capabilities to detect and act on suspicious activities

Operational and
The Applicants should have technical and operational capabilities and should meet all the relevant
Technical requirements to securely connect and transact through the Buna platform
Specifications

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 DUE DILIGENCE PROCESS

As part of the participation application process, Buna will conduct due diligence on all applicants in line with
internationally recognized practices

Document & Risk-based Participant Ongoing Participant

Information Capture Due Diligence Due Diligence

Collect Documents & Validate & Verify Monitor Participant Activity

Information Information & Annual Reports
Check and Review Perform Checks & Request Information
Documents Screening Periodically
Participation Onboard
Request Analyze Risks & Participant and Review Risk Rating
Apply Risk Rating Finalize Contractual
Arrangements
If needed

Enhanced Due
Diligence

Collect Additional Information

Perform Additional Assessment

and Screening

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 COLLECTION OF INFORMATION

Applicants will be requested to provide information and relevant documentation necessary for Buna’s due
diligence process

1 The institution’s bank license issued by the Central Bank of your host country

2 All necessary information regarding the composition of the Board of Directors; this includes the list of members
and their qualifications

3 All necessary information regarding the Executive Management team; this includes but is not limited to the name,
date of birth, nationality, qualifications, country of residence, position, and valid passports of each member

4 The institution’s compliance policy along with any relevant information regarding the institution’s controls and
processes

5 A copy of the institution’s standard response of the Wolfsberg questionnaire

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 COMMITTEES

A participant onboarding committee will review the due diligence outcome to determine applicant's eligibility; The
steering committee will be ultimately responsible to approve applicant participant in the system

Participant Onboarding Committee Steering Committee

▪ Oversees and reviews due diligence outcome
▪ Ensures a consistent due diligence process
applied to all applicants
▪ Reviews risk profiles as well as the financial
crime of participants and approves risk rating
▪ Determine participant eligibility for final
approval by Steering Committee
▪ Periodically reviews due diligence processes
and onboarding program
▪ Reviews the recommendation performed by
the Onboarding Committee
▪ Aligns on key risks of the applicant’s
onboarding
▪ Provides final consent on whether to approve
or reject applicants
▪ Approves or reject participation application

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 AGENDA

1 2 3

Buna’s onboarding process Buna’s alignment to the

Latest updates on Buna’s
from a contractual and KYC Principles of Financial Market
approach to transfer charges
perspective Infrastructure (PFMI)

9
 PFMI

In line with the Principle for Financial Market Infrastructure (PFMI) guidelines and in accordance with
international practices, Buna has been designed encompassing the typical characteristics of a payment system

Buna, a Payment System

Falls under the category of
payment systems in
accordance with the PFMI
Ensures high level of Restricts participation to Has established an effective
soundness as well as institutions that only meet a legal framework to govern
operational and financial set of eligibility criteria the arrangement between the
resilience participants and the system
operator

Plays a key role in providing
critical payment settlement
services to the region similar
to other leading Financial
Market Infrastructures (FMIs)
Focuses on critical use cases Does not offer traditional
that meet the needs of the banking services to its
Arab region and beyond participants as Buna’s
services are more aligned to
that of an FMIs
Has engaged with the Fed and
the ECB throughout the design
and implementation phases
and no concerns where raised
by either institution

PFMI Guidelines International Practices

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 PFMI

In fact, the PFMI are international standards for Market Infrastructures issued by the CPMI and IOSCO and
considered essential to strengthening and preserving financial stability

Committee on Payments and Market Infrastructures (CPMI) International Organization of

– Bank for International Settlement (BIS) Securities Commissions (IOSCO)

▪ An international standard setter that promotes, monitors and
makes recommendations about the safety and efficiency of
payment, clearing, settlement
▪ The CPMI serves as a forum for central bank cooperation in
related oversight, policy and operational matters
▪ The international body that brings together the world's
securities regulators and is recognized as the global standard
setter for the securities sector
▪ The IOSCO develops and promotes adherence to internationally
recognized standards for securities regulation

The Principle for Financial Market Infrastructure (PFMI)

international standards for financial market infrastructures (i.e. payment systems, central securities depositories,
securities settlement systems, central counterparties and trade repositories) designed to ensure that the infrastructure
supporting global financial markets is robust and well placed to withstand financial shocks

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 PFMI

Accordingly, the Principles for Financial Market Infrastructures (PFMI) include 24 Principles across 9 key
considerations of which 16 are relevant to Buna
Principles for Financial Market Infrastructures
General Organization Credit and liquidity risk management Settlement

• Principle 1: Legal Basis • Principle 4: Credit risk

• Principle 8: Settlement finality
• Principle 2: Governance • Principle 5: Collateral
• Principle 9: Money settlements
• Principle 3: Framework for the comprehensive • Principle 6: Margin
• Principle 10: Physical deliveries
management of risks • Principle 7: Liquidity risk

Central securities depositories and Default management General business and operational risk
exchange-of-value settlement systems management

• Principle 11: Central securities depositories • Principle 13: Participant-default rules and • Principle 15: General business risk
• Principle 12: Exchange-of-value settlement procedures • Principle 16: Custody and investment risks
systems • Principle 14: Segregation and portability • Principle 17: Operational risk

Access Efficiency Transparency

• Principle 18: Access and participation
requirements
• Principle 19: Tiered participation arrangements
• Principle 20: FMI links
• Principle 23: Disclosure of rules, key
• Principle 21: Efficiency and effectiveness
procedures, and market data
• Principle 22: Communication procedures and
• Principle 24: Disclosure of market data by
standards
trade repositories

Relevant to Buna
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 PFMI

The PFMI assessment methodology include 3 steps, whereby initially the FMI conducts a self-assessment against
each principle following 5 ratings

Methodology

A self-assessment conducted by A review conducted by the main A review conducted by a third

the FMI overseeing Central Bank party (e.g. IMF, World Banks, etc.),
if possible

The FMI conducts a self-assessment against each principle following the below ratings:

Not Applicable Not Observed Partly Observed Broadly Observed Observed

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 BUNA PRE-ASSESSMENT

Following a comprehensive self-assessment, Buna’s business model was determined to be consistent with the
principles across legal basis, governance, risk management, credit risk, collateral and liquidity risk
NON-EXHAUSTIVE
General Organization Credit and liquidity risk management

▪ Buna has a well-founded and enforceable legal and

▪ Credit risk is mitigated in the system as Buna adopts a
regulatory framework that promotes the safety and Principle 4 –
Principle 1 – efficiency of the organization prefunding model and settlement takes place if, and
Credit Risk only if, there is provision in the account of the payer
Legal Basis ▪ The Buna Rulebook and the Agreement that constitute
the contractual agreement that govern the relationship
between Buna and the participants
Principle 5 - ▪ At this stage, cross-currency collateralization is not
▪ Buna has a robust governance model that will be Collateral supported in the system
comprised of the Board of Directors and its Committees
Principle 2 – and an Executive Management
Governance ▪ Buna will establish and Oversight Committee with the
main mandate of ensuring the safety of the system and
to mitigate any systemic risk that might arise Principle 6 -
▪ Not Applicable
Margin
Principle 3 - ▪ Buna will develop a robust risk management framework
Framework for across key identified risks
the ▪ Buna will perform regular stress tests and risk checks ▪ Buna offers liquidity management tools such as
comprehensive to assess and mitigate any risk that may arise Principle 7 - technical netting and queue management for
management of ▪ Buna will ensure that its participants are in compliance Liquidity risk participants to manage liquidity and ensure smooth
risks with its risk policies and procedures functioning of the payment system

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 BUNA PRE-ASSESSMENT

Buna was also found compliant with the different principles across settlement finality, money settlement, and
participant default rules and procedures
NON-EXHAUSTIVE
Settlement Default management

▪ Buna will provide real-time settlement finality of Principle 13 -

Principle 8 - individual transactions on its books Participant- ▪ In accordance with the Buna Rules and Procedures, Buna
▪ Finality of payments in Buna will be also supported will terminate the membership of a Participant following
Settlement through the provisions of its Rules, Procedures and in
default rules the occurrence of an Event of Default with respect to that
finality the Agreement with Participants and Fund Holding and Participant
Institutions procedures

▪ Buna holds a single account with the Central Bank of

Principle 9 - issuance per currency in which Buna conducts payments Principle 14 -
in
Money ▪ In the absence of a single account with the Central Bank,
Segregation ▪ Not Applicable
settlements Commercial Banks will be utilized as the FHI, subject to and portability
robust regulatory and technical requirements

Principle 10 -
Physical ▪ Not Applicable
deliveries

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 BUNA PRE-ASSESSMENT

With respect to settlement and default management, Buna was found consistent with general business risk,
custody and investment risks, operational risk and access and participation requirements
NON-EXHAUSTIVE
General business and operational risk management Access

▪ General business risk is mitigated to a large extent as Principle 18 - ▪ The Buna Rulebook, define the obligations that
Principle 15 - Buna will adopt a cost recovery model applicants must fulfil and satisfy and maintain in order
Access and
General ▪ Buna will always maintain sufficient cash flow to meet to become participants and list the conditions in which
participation
business risk daily operational needs and high-quality liquid financial participants can remain participants, withdraw from
resource requirements Buna, be suspended or terminated

▪ To mitigate custody risk, participants funds are held

Principle 16 - with the Central Banks of issuing currency or the Principle 19 -
Custody and Commercial Banks for foreign currency Tiered
▪ Not Applicable
investment ▪ Additionally, funds will not be held overnight and will be participation
risks distributed back to the participants accounts at the end arrangements
of the operating day

▪ Impact from operational risk is mitigated by ensuring a

Principle 17 - resilient technical infrastructure to enable the safe
Principle 20 -
Operational failover of systems during a disaster event and FMI links ▪ Not Applicable
risk establishing a robust Business Continuity Plan to ensure
timely recovery of critical systems and processes

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 BUNA PRE-ASSESSMENT

Finally, Buna was also found consistent with the principles across efficiency and effectiveness, communication
procedures and standards as well as disclosure of rules, key procedures, and market data
NON-EXHAUSTIVE
Efficiency Transparency

Principle 23 - ▪ Buna has developed clear and publicly disclosed Rules

The Buna team has been engaging with Central Banks Disclosure of and Procedures for participants that include system
Principle 21 - ▪
design, participants rights and obligations and fees;
and participants, since the beginning, to ensure that rules, key
Efficiency and Buna value proposition and technical and operational procedures,
among others
effectiveness ▪ Buna will also provide participants with the necessary
requirements meet their needs and market documentation and trainings to facilitate their
data understanding of the system

▪ Buna has put in place effective communication Principle 24 -

Principle 22 -
procedures based on Swift to facilitate the Disclosure of
Communication market data by
communication between Buna, the FHIs and the ▪ Not Applicable
procedures and participants with respect to any changes to the system, trade
standards operational matters and incidents, among others repositories

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 AGENDA

1 2 3

Buna’s onboarding process Buna’s alignment to the

Latest updates on Buna’s
from a contractual and KYC Principles of Financial Market
approach to transfer charges
perspective Infrastructure (PFMI)

18

Market participants adopt three main transfer charge instructions when settling a payment: OUR, SHA, or BEN
instruction models
OUR
▪ The processing charges,
that is the originating bank,
beneficiary bank and Buna
fees are expected to be
paid by the sender
▪ This means the payment
value is expected to be
delivered in full to the
receiver’s account
SHA
▪ Only the originating bank
fees are expected to be
paid by the sender while
the beneficiary bank and
Buna fees should be paid
by the receiver
▪ This means the payment
value is expected to be
delivered minus the
beneficiary bank fees and
Buna fees to the receiver’s
account
TRANSFER CHARGES OVERVIEW
BEN
▪ The processing charges,
that is the originating bank,
beneficiary bank and Buna
fees are expected to be
paid by the receiver
▪ This means the payment
value is expected to be
delivered minus all
processing charges to the
receiver’s account
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 GENERAL OVERVIEW

After the session covering Buna’s approach to transfer charges, a questionnaire was circulated to gather input
from our community and better serve participants

Most Commonly Least Commonly

Used Model Used Model

SHA Model BEN Model

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 OUR MODEL INSIGHTS

The questionnaire revealed four key insights on the OUR model, most prominently the equal preference and
usage of the request to pay and the preset amount approach among market participants

REQUEST TO PAY VS PRESET AMOUNT

There is equal preference for request to pay and preset amount approach among responders

ANNOUNCEMENT OF BANK CHARGES

The majority of responders encourage the announcement of bank charges in advance to facilitate
the preset amount approach

FIXED BANK CHARGES

The majority of responders also prefer that Buna develops a fixed bank charges pricing scheme
for all market participants

MT 191 MESSAGE TYPE

The majority of responders prefer MT 191 message type for the request to pay approach

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 IMPACT ON OUR MODEL

Buna has since internalized the insights and translated them into improvements; Buna market participants will
as such be asked to announce their bank charges in advance to facilitate the preset amount approach
-7 -5
1 -3.5 -1,000

Sender
Pay amount to transfer,
originating & beneficiary
bank fees, and Buna fees

5 Billing at end of cycle

1,000 -3.5

Originating
2 7
Send payment Pay Buna fees due at end

Bank
instruction to Buna of billing cycle

5
1,000
3 6
Settle transaction (DR
Bill originating bank with

Buna
originating bank and CR The amount transferred
through Buna remains Buna fees
beneficiary bank)
untouched
5
Announce Bank Charges 1,000

Beneficiary
4 Credit customer’s
Market participants will be asked

Bank
account and general
to announce their bank charges in ledger
advance on the Buna website for
the remaining participants to have 1,000
5 Legend for Simplicity
Receiver

access to, and facilitate the preset Receive full payment -1,000 Payment value -3.5 Buna fees
amount approach value - 7 Originating bank fees
-5 Beneficiary bank fees

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 REQUEST TO PAY APPROACH

If market participants do not wish to disclose their bank charges, they can still adopt the request to pay
approach which will also be facilitated through the platform through the MT 191 message type
-1,000
-7
1 -3.5
Sender

Pay amount to transfer,

originating bank fees,
and Buna fees

Billing at end of cycle

1,000 -5 -3.5
Originating

2 8 12
Debit sender’s account
Send payment Pay Buna fees due at end
Bank

The amount transferred and send payment

instruction to Buna of billing cycle
through Buna remains instruction to Buna
untouched

1,000 5
3 7 9 Settle transaction (DR 11
Settle transaction (DR
Forward request to pay Bill originating bank with
Buna

originating bank and CR originating bank and CR

beneficiary bank charges Buna fees
beneficiary bank) beneficiary bank)
Through
Through MT 202
MT 191
1,000 +5
Beneficiary

4 6 10 Receive beneficiary bank

Credit customer’s Send request to pay
Bank

charges and credit

account beneficiary bank charges
general ledger

1,000
5 Legend for Simplicity
Receiver

Receive full payment -1,000 Payment value -3.5 Buna fees

value - 7 Originating bank fees
-5 Beneficiary bank fees

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 IMPACT ON SHA MODEL

With respect to the SHA model, the questionnaire revealed that the preference of market participants was for
the beneficiary bank to be charged for the Buna fees
-1,000
1 -7
Sender

Pay amount to transfer and

originating bank fees

1,000
Originating

2
Bank

Send payment instruction to Buna

The amount transferred Billing at end of cycle

1,000 through Buna remains
3 untouched 7
Settle transaction (DR originating Bill beneficiary bank with Buna
Buna

bank and CR beneficiary bank) fees

Deduct Buna fees from
1,000 payment value
-3.5
-5 +5 -3.5
Beneficiary

4 6 8
Credit customer’s account minus Pay Buna fees due at end of billing
Bank

Credit General Ledger

beneficiary bank fees cycle

991.5
5 Legend for Simplicity
Receiver

Receive deducted payment value -1,000 Payment value -3.5 Buna fees
- 7 Originating bank fees
-5 Beneficiary bank fees

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 BEN MODEL

As for the BEN model, responders were mostly in agreement with the original Buna approach and as such no
changes have been made; the originating bank and Buna fees are incurred by the beneficiary bank

1 -1000
Sender

Pay amount to transfer and

originating bank fees
Deduct originating bank
1,000 fees from payment value
-7
Originating

2
Bank

Send payment instruction to Buna

Billing at end of cycle

993 The amount transferred
3 through Buna remains 7
Settle transaction (DR originating untouched Bill beneficiary bank with Buna
Buna

bank and CR beneficiary bank) fees

Deduct Buna fees from
993 payment value
-3.5
-5 +5 -3.5
Beneficiary

4 6 8
Credit customer’s account minus Pay Buna fees due at end of billing
Bank

Credit General Ledger

beneficiary bank fees cycle

984.5
5 Legend for Simplicity
Receiver

Receive deducted payment value -1,000 Payment value -3.5 Buna fees
- 7 Originating bank fees
-5 Beneficiary bank fees

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 DISCLAIMER
This presentation has been prepared by Buna, the Arab regional payment
system. All information contained herein is for informational purposes only.
BUNA does not represent that the information herein is comprehensive,
complete or accurate. Accordingly, no person should rely on any information
contained herein.

The information contained in this document is proprietary and confidential. If you

are not the intended recipient, please note that any use or circulation of this
document is not permitted or may be cause for legal action.

Buna is the payment system operated by the Arab Monetary Fund.

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