According to the Central Bank of Lebanon (CBL) website, the central bank owns and operates the payment and settlement system in Lebanon, and it is also responsible for the safety and soundness of the system. Further, Law No. 133/99 of 1999 expands the role and responsibilities of the CBL, granting it greater powers for developing and regulating payment systems. The 2003 Committee on Payment and Settlement Systems (CPSS) report on "Payment Systems in Lebanon" notes that one of the key functions of the CBL is the provision of banking and settlement services. The 2006 Article IV Consultation report by the International Monetary Fund (IMF) mentions that the IMF has been providing technical assistance to Lebanon since 2004 in the area of payment systems, recommending ways to improve the efficiency as well as the liquidity management of the systems. The 2006 Article IV report also indicates that the IMF assessed the systems as to their compliance with the Core Principles for Systemically Important Payments Systems (CPSIPS) promulgated by the CPSS. However, there is little information publicly available regarding the results of this assessment. The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the Secure Electronic Banking and Information for Lebanon (SeBIL), which would lay the foundation to Lebanon's real time gross settlement (RTGS) system, to be developed in compliance with the CPSIPS. In this context, the CBL website states that the central bank has taken a number of steps to develop a "secure and reliable RTGS system," such as employing the services of an international company specialized in developing the RTGS infrastructure to study the possibility of making a RTGS system operational in Lebanon that is aligned with the CPSIPS.

General Overview

According to the Central Bank of Lebanon (CBL) website, the CBL owns and operates the payment and settlement systems in Lebanon, and is also responsible for the safety and soundness of the systems. The 2003 Committee on Payment and Settlement Systems (CPSS) report on "Payment Systems in Lebanon" further informs that the CBL was established by Decree No. 13513 of 1963, which promulgated the Money and Credit Code of 1963, and started operations in April 1964. One of the key functions of the CBL, as mentioned in the CPSS report, is the provision of banking and settlement services. The CBL website also discloses that it is responsible for, inter alia, processing of checks and interbank transfers.

The 2006 Article IV Consultation report by the International Monetary Fund (IMF) mentions that the IMF has been providing technical assistance to Lebanon since 2004, with three follow ups in 2005, in the area of payment systems. In the course of this work, the IMF offered recommendations to improve the efficiency as well as liquidity management of the systems. The IMF also assessed the systems as to their compliance with the Core Principles for Systemically Important Payments Systems (CPSIPS), however there is little information publicly available regarding the results of this assessment. The 2003 CPSS report also mentions the CBL's 2002 approval of a plan to launch the Secure Electronic Banking and Information for Lebanon (SeBIL), which would lay the foundation for Lebanon's real time gross settlement (RTGS) system, to be developed in compliance with the CPSIPS. In this context, the CBL website reports that the central bank has taken a number of steps to develop a "secure and reliable RTGS system," such as employing the services of an international company specialized in developing the RTGS infrastructure to study the possibility of making a RTGS system operational in Lebanon that is aligned with the CPSIPS.

The 2003 CPSS report enumerates the major initiatives planned to develop Lebanon's payment and settlement systems. They include launching a RTGS system; introducing legislation to facilitate electronic banking and interbank transfers; making electronic banking secure and minimizing risks; modernizing retail payments and improvising on the country's clearing systems, the Midclear and the Beirut Stock Exchange (BSE); and creating a banking portal to enable financial transaction data storage and retrieval. As mentioned in the 2003 CPSS report, Midclear - the Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East -- is Lebanon's clearinghouse and the central depository and central registrar for banks' shares. Apart from effecting the clearing and settlement of funds and securities transactions in the country, the Midclear, which is owned by the CBL, also acts as the custodian of financial instruments, and "proxy for companies issuing new shares in the market" (p.3). Other major public and private sector bodies associated with payment systems in Lebanon are the Higher Banking Commission (HBC), the Banking Control Commission (BCC), the Association of Banks in Lebanon (ABL), the National Deposit Guarantee Institution (NDGI), and Kafalat Corporation (KC).

According to the 2007 U.S. Department of Commerce report on "Doing Business in Lebanon," cash is the most commonly used means of payment, and check and credit card payment are also universal. Bank automated teller machines (ATM) are also widespread and give out cash in Lebanese pounds or U.S. dollars.

The Principles

I. The system should have a well-founded legal basis under all relevant jurisdictions.

II

There is little information publicly available addressing the compliance of Lebanon with this Principle. According to the CBL website, Law No. 133/99 of 1999 expands the role and responsibilities of the central bank, granting it powers for "(1) developing and regulating payment systems, especially with regard to ATMs and payment cards; (2) developing and regulating transfer payments, including electronic transfers; and (3) developing and regulating clearing and settlement operations related to payment systems and financial instruments." Further, Basic Decision No. 7548 issued by the CBL in 2000 lays down the rules pertaining to transparency, integrity and security in electronic banking and financial operations of banks and other financial institutions in Lebanon supervised by the CBL. The CBL, in cooperation with the BCC, the ABL, and other public and private institutions, also formed the Commission for Developing and Modernizing Financial and Banking Laws, pursuant to Internal Circular No. 1612 in 2001 to update existing laws relating to payment systems in Lebanon. In addition, the CBL formed a Committee on Modern Banking and Financial Techniques and Information Technology (COBIT), also in collaboration with the BCC and the ABL, to lay out a comprehensive strategic plan for modernizing the payment and settlement systems with the use of electronic means, and especially the technique of the SWIFT network in Lebanon.

The 2003 CPSS report on Payment Systems in Lebanon further observes that the Commercial Code of 1943 forms a primary part of the legal framework for commercial activities in Lebanon and contains the fundamental principles governing the use of bills of exchange and checks. The CPSS report also enumerates some other legal and regulatory instruments and developments relevant to payment and settlements in Lebanon. They are: (1) Law No. 138 of 1999, creating the Arab Clearing House (ACH) for stock settlements in Arab markets; (2) Law No. 139 of 1999, creating the Midclear within the CBL as the central depository, custodian, and clearing house for financial instruments for Lebanon and the Middle East; (3) Law No. 159 of 1999, introducing a book entry system for securities and movable assets in bearer form; (4) the CBL's Amendment of Basic Decision No. 7299 of 1999, creating one standard payment card accepted by all ATMs, which would clear domestically without using international networks; and (5) the CBL's Basic Decision No. 7548 of 2000, introducing measures to monitor electronically conducted financial and banking transactions.

The 2003 CPSS report also mentions the CBL's 2002 approval of a plan to launch the Secure Electronic Banking and Information for Lebanon (SeBIL), which would lay the foundation for Lebanon's real time gross settlement (RTGS) system, to be developed in compliance with the CPSIPS. In this context, the CBL website reports that the CBL has taken a number of steps to develop a "secure and reliable RTGS system," such as employing the services of an international company specialized in developing the RTGS infrastructure to study the possibility of making a RTGS system operational in Lebanon that is aligned with the CPSIPS.

II. The system's rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

III. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

IV. The system should provide prompt final settlement on the day of value, preferably during the day and at a minimum at the end of the day. (Systems should seek to exceed the minima included in this Core Principle.)

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. This system, according to the report, will enable banks to transfer and settle large-value payments electronically and in real time. In anticipation of the SeBIL going live, the Midclear clears and settles payment transactions in Lebanon on a net basis, with end of the day settlement. Fund accounts are maintained at the CBL, and the provisional balance of the debit and credit to each account is continually calculated, to be finally settled at the end of the day, if the accounts show adequate funds for the transaction to go through. At this instance all settlements are final and irrevocable. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

V. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation. (Systems should seek to exceed the minima included in this Core Principle.)

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. In anticipation of the SeBIL going live, the Midclear clears and settles payment transactions in Lebanon on a net basis, with end of the day settlement. In case the Midclear members are unable to cover all their transactions, Midclear "selectively removes the failing member's individual transaction(s) until the resulting net debit can be covered by the balance on the member's account," (p. 26) and then retries to settle the transaction for one business day by allowing the member to make up for the deficiency in funds. If that recourse fails, the incident is referred to the CBL which then, in accordance with established procedures, withdraws the funds from the collateral kept in reserve by the member at the CBL as part of its membership agreement. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

VI. Assets used for settlement should preferably be a claim on the central bank; where other assets are used, they should carry little or no credit risk and little or no liquidity risk.

II

There is little information publicly available addressing the actual compliance of Lebanon with this Principle. The CBL website states that all domestic interbank payment transactions of account holders at the CBL are finally settled at the CBL, which is also the ultimate source of liquid funds to the payment systems. International transfers not settled by the CBL are executed through the proprietary networks of the participating banks. Further, payments are settled on the basis of accounts maintained by the participating banks at the CBL. This role of the CBL has the statutory backing of Basic Decision No. 6367 of 1996 issued by the CBL in relation to transfer services. Transfers are processed on a gross basis, with end of the day final settlement; mostly through SWIFT. The 2003 CPSS report notes that under the membership agreement between banks and other financial institutions and the CBL, the members are required to maintain a separate sub account with the CBL as collateral for future transactions. The balance of these accounts is constantly transmitted to Midclear by the CBL, which settles the accounts accordingly. The 2003 CPSS report also mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS.

VII. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. In this context, the CBL website notes that the bank has taken a number of steps to develop a "secure and reliable RTGS system," such as employing the services of an international company specialized in developing the RTGS infrastructure to study the possibility of making a RTGS system operational in Lebanon that is aligned with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

VIII. The system should provide a means of making payments which is practical for its users and efficient for the economy.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. The CBL website adds that the CBL formed COBIT in collaboration with the BCC and the ABL to lay out a comprehensive strategic plan for modernizing the payment and settlement systems with the use of electronic means, and especially the technique of the SWIFT network in Lebanon. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

IX. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. The CBL website states that all banks, whether they are domestic or foreign, as well as the CBL, must be members of the Midclear and hold accounts with the CBL. Further, as per Basic Decision No. 6911 of 1998, the cost of participating varies and must be borne by the member banks. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

X. The system's governance arrangements should be effective, accountable and transparent.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

A. The central bank should define clearly its payment system objectives and should disclose publicly its role and major policies with respect to systemically important payment systems.

II

There is insufficient information publicly available as to Lebanon's compliance with this principle. According to the CBL website, Law No. 133/99 of 1999 expands the role and responsibilities of the CBL, granting it powers for "(1) developing and regulating payment systems, especially with regard to ATMs and payment cards; (2) developing and regulating transfer payments, including electronic transfers; and (3) developing and regulating clearing and settlement operations related to payment systems and financial instruments." Further, Basic Decision No. 7548 issued by the CBL in 2000 lays down the rules pertaining to transparency, integrity and security in electronic banking and financial operations for banks and other financial institutions in Lebanon supervised by the CBL. The CBL, in cooperation with the BCC, the ABL, and other public and private institutions, also formed the Commission for Developing and Modernizing Financial and Banking Laws, pursuant to Internal Circular No. 1612 in 2001 to update existing laws relating to payment systems in Lebanon. In addition, the CBL formed COBIT, also in collaboration with the BCC and the ABL, to lay out a comprehensive strategic plan for modernizing the payment and settlement systems with the use of electronic means, and especially the technique of the SWIFT network in Lebanon.

B. The central bank should ensure that the systems it operates comply with the Core Principles.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

C. The central bank should oversee compliance with the Core Principles by systems it does not operate and it should have the ability to carry out this oversight.

II

The 2003 CPSS report mentions the CBL's 2002 approval of a plan to launch the SeBIL, which would lay the foundation for Lebanon's RTGS system, to be developed in compliance with the CPSIPS. However, there is insufficient information publicly available regarding Lebanon's compliance with this Principle.

D. The central bank, in promoting payment system safety and efficiency through the Core Principles, should cooperate with other central banks and with any other relevant domestic or foreign authorities.

II

There is insufficient information publicly available as to Lebanon's compliance with this principle.