Security is increasingly becoming a key concern for the U.S. payments system and remains one area among several that mark the need for system-wide improvement, Federal Reserve Bank of Kansas City President Esther George said in a speech Friday (June 26).
In remarks delivered at the Kansas City Fed as part of the International Payments Policy Conference, George, whose speech was titled “The Federal Reserve’s Role in the Payments System,” stated, “I sense a greater degree of consensus around the security challenges we face.” And, said the official, “although the Federal Reserve is relatively unique among central banks in terms of its retail payments operator role, public authorities around the world have become more active in raising concerns about retail payments security.”
In some cases, George continued, some authorities act under specific public mandates, while in other regions, leadership can help produce voluntary change within the payments arena. The Fed, George stated, looks to foster a collaborative approach among industry participants with a nod to the fact that the Fed has, since inception, been a key overseer of the payments system through its overall supervision of U.S. financial institutions. The collaborative approach — between the Fed, financial institutions and various industry participants — has led to innovations in the past that have included routing numbers on checks and the emergence of ACH.
The collaborative mindset has in turn led to the creation of two separate task forces, George said in her remarks. One task force has been charged with developing safer and faster payments capability across the U.S. As had been reported earlier this month, the Fed had tapped Gordon Werkema of the Chicago Fed as payments strategy director.
Werkema, who had been COO and vice president at the Chicago Fed, is tasked with carrying out changes to the nationwide payments system outlined in a paper published earlier this year titled “Strategies for Improving the U.S. Payment System.” Among the changes recommended in the paper, released by the Fed in January, are improvements in payment speed and efficiency and stronger capabilities in cross-border transactions.
One area that bears monitoring, according to George: As an operator, the Fed “must consider and ensure the security of its own clearing and settlement activities, and this directly influences a large segment of U.S. retail payments.” Security remains the province of the other task force mentioned by George in her speech. This focus on security ties directly in with the move toward faster payments, and “in the near term, we will look to the secure payments task force to articulate key priorities.”
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