New requirements on banks’ contingency arrangements for cash

Today, the Ministry of Finance has clarified in a regulation that banks are required to have arrangements in place to be able to meet increased demand for cash owed to disruptions in the electronic payment systems.

“The Norwegian payment systems are stable and safe, but there is a need for more specific requirements on the capacity of contingency arrangements,” says Minister of Finance Siv Jensen.

“We are introducing requirements that will set a standard for banks’ ability to provide payment services. Banks are obliged to have sound arrangements in place to be able to meet increased demand for cash, but may take electronic contingency solutions into account when dimensioning their cash arrangements. They will therefore have flexibility to develop different solutions,” says the Minister of Finance.

Developments in banks’ cash distribution
Norwegian banks have a statutory obligation to accept cash from customers and make deposits available to customers in the form of cash in accordance with their customers’ expectations and needs. This obligation is laid down in the new Financial Undertakings Act, and is applicable from 1 January 2017. Such an obligation has, however, also been implied by earlier acts. Pursuant to the current Financial Undertakings Act, the Ministry of Finance may adopt further rules on banks’ obligation to make cash available to their customers.

Today, most bank customers mainly use electronic payment instruments, and banks have adapted their infrastructure for cash distribution accordingly. While most electronic payments are more cost-effective than cash payments, the structural changes may have impaired banks’ ability to handle situations where the demand for cash may increase. According to a joint assessment from Finanstilsynet (the Financial Supervisory Authority of Norway) and Norges Bank (the central bank), cash is still needed as a back-up, and there are weaknesses in banks’ cash distribution arrangements. In 2016, Finanstilsynet and Norges Bank proposed to the Ministry of Finance that a regulation be laid down, specifying that banks have a responsibility to distribute cash to customers in a contingency. The proposal was subject to a public consultation in 2017.

New requirements on contingency arrangements and plans
Based on the proposal and input received in the public consultation, the Ministry of Finance has adopted a regulation on banks’ cash contingency arrangements. Banks are required to have arrangements in place to be able to meet increased demand for cash as a result of disruptions in the electronic payment systems. The arrangements shall be designed in accordance with documented assessments of the risk of increased demand for cash, and described in a plan to be reviewed by Finanstilsynet as part of their banking supervision. Finanstilsynet may, if necessary, impose additional requirements. Banks may take electronic solutions into account when dimensioning their cash arrangements, and will therefore have the opportunity to reduce a potentially costly cash contingency requirement by strengthening their electronic contingency systems.

The requirements in the new regulation is applicable from 1 January 2019.

When adopting the regulation, the Government has accommodated a request from the Norwegian banking industry to put more emphasis on electronic solutions, without compromising the Financial Undertakings Act’s rules on cash distribution.