Request for Expressions of Interest
Extension Of Time And Invitation To Pre-Proposal Webinar, issued 5th March 2025
Selection of a Consulting Firm Quality and Cost Based Selection Method -QCBS
Detailed assessment to inform the design of a payment aggregation mechanism to improve economies of scale
Request for Expressions of Interest Extension Of Time And Invitation To Pre-Proposal Webinar, issued 6th March 2025 Selection of a Consulting Firm Quality and Cost Based Selection Method -QCBS Detailed assessment to inform the design of a payment aggregation mechanism to improve economies of scale
For the purposes of this feasibility study, the PPM is a multilateral arrangement that would ideally be capable of: (i) facilitating ongoing access to settlement accounts and correspondent banking services in key international and regional currencies; (ii) providing multicurrency payment clearing and settlement services; (iii) implementing centralized tools for improving efficiency and effectiveness of Anti-Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) compliance, and; (iv) providing technical assistance/support to prospective participating financial institutions. The duration of the assignment will be twenty for months (24). The consultant firm is expected to demonstrate, with supporting documentation, that they have the following qualifications and experience.:
Pacific Islands Forum Secretariat Attn: Rodney Kirarock, Program Officer/Timaima Qeranatabua, Procurement Officer Private Mail Bag, Suva, PO Box 856, Suva, Fiji. Tel: 679-3312600 E-mail: mailto:rodneyk@forumsec.org /mailto: timaimaq@forumsec.org
Terms of Reference Selection of a Consulting Firm Quality and Cost Based Selection Method -QCBS Detailed assessment to inform the design of a payment aggregation mechanism to improve economies of scale
The Pacific Island Countries (PICs) are vulnerable to the withdrawal of correspondent banking relationships (CBR) that underpin international trade, tourism, remittances, disaster relief, and humanitarian financial flows. CBRs are an essential feature of the global payment system – they enable individuals, businesses, and governments to make and receive cross-border payment services in foreign currencies related to remittances, e-commerce, trade, and official sector flows. The cross-border transactions that PICs require are in various currencies, primarily the US dollar, Euro, Australian dollar and New Zealand dollar. The withdrawal of CBRs, a global phenomenon affecting many emerging markets and developing economies, is generally motivated by unfavorable risk-return trade-offs; compliance risks/costs coupled with a lack of economies of scale are often cited as reasons to discontinue services. This phenomenon has adverse consequences for Pacific Islanders, including seasonal laborers, larger businesses, small and medium enterprises (SMEs), and vulnerable populations that rely on the ability to make and receive cross-border payments for their livelihoods, withstand shocks, and grow their businesses. Based on publicly available data, the number of active correspondents for Pacific banks has declined significantly since 2011 to unsustainably low levels, and a number of PICs are left with only one or two CBRs in the key currencies. Fewer CBR providers can also result in longer transaction chains and weak competition. Furthermore, despite recent innovations in payment services, the cost of sending money to the Pacific is still high based on international and regional comparisons. The cost of remittances, a critical safety net in the Pacific, tends to be comparatively higher in regions affected by shrinking CBRs; this might lead people to use informal channels, which is detrimental to financial inclusion and integrity. Enhancing payment infrastructure to reduce costs and mitigate the effects of CBR withdrawal, as well as improving AML/CFT compliance, would help in the overall development of the region. However, several PICs lack the basic foundations of a safe and efficient payment system; others have recently enacted comprehensive regulatory reforms and are gradually rolling out modern infrastructures. While money laundering/terrorism financing risks for remittances in the Pacific are low, the effective implementation of international AML/CFT standards remains a challenge (and a reputational liability) for several PICs. In this context, the Pacific Strengthening Correspondent Banking Relationships Project (Pacific CBR Project), approved by the World Bank Board of Executive Directors in August 2024 (see Annex 1), has a sub-component to undertake a feasibility study for the Pacific Payment Mechanism (PPM). The Pacific CBR Project is part of a medium-term engagement to provide both a short-term solution and medium-term resolution to CBR withdrawal. The project offers a temporary but immediate solution to CBR withdrawal by providing CBR services to eligible financial institutions if a country loses its last CBR in a key currency. In the short term, the project will contract a CBR CONSULTANT through an open international competitive procurement process. The CBR services provided by the project will be a fallback and are intended as a temporary solution. They will only be used when there is no commercially viable solution and until a more sustainable response can be developed, for instance, through a regional payment mechanism, based on this feasibility study. In the process of the Pacific CBR Project preparation, it has become clear that a more sustainable and comprehensive solution at the regional level is needed. At the same time, given the novelty and complexities of this undertaking and the need for a thorough feasibility analysis of the envisaged solution before embarking on implementation, the World Bank has opted for a two-phase approach – wherein this feasibility study is the first phase and supported under the Pacific CBR project. Based on the results of this feasibility study, it is envisaged that, under phase two, a future World Bank project is expected to support the establishment of the regional payment aggregation mechanism to address structural issues relating to low economies of scale.
For the purposes of this feasibility study, the PPM is a multilateral arrangement that would ideally be capable of: (i) facilitating ongoing access to settlement accounts and correspondent banking services in key international and regional currencies; (ii) providing multicurrency payment clearing and settlement services; (iii) implementing centralized tools for improving efficiency and effectiveness of Anti-Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) compliance, and; (iv) providing technical assistance/support to prospective participating financial institutions. By consolidating CBRs and aggregating transaction processing, the PPM aims at alleviating the pressure of low CBR profitability and economies of scale. The PPM would ideally lower costs and increase transaction speeds compared to current cross-border payment mechanisms. Furthermore, the PPM could be leveraged for the processing of domestic payments in the absence / as a substitute for a domestic payment system in smaller islands as well as for interlinking arrangements between the Pacific region’s payment systems and other national/regional payment systems. The feasibility study should help identify PPM “core services” to be implemented from the get-go versus optional and/or additional services to be implemented on a plug-and-play basis over time, different phasing options and evolution pathways.
Analyze the business case and design options for the PPM. Ideally the PPM would provide a stable, self-sustaining solution for market-based provision of CBRs to PICs, and cheaper, faster, accessible and transparent cross-border payments to/from PICs. Furthermore, the PPM may play a role in streamlining participating payment service providers (PSPs)’ AML/CFT controls thereby lowering compliance costs. The PPM design is expected to: (i) be grounded in a solid business case; (ii) ensure a sound and enforceable legal basis in all relevant jurisdictions; and would ideally (iii) be flexible with respect to payment types, market segments, payment instruments/assets and operating hours, and interoperable with other domestic, regional, and global payment systems; (iv) be aligned with international oversight standards for payment systems and financial market infrastructures and AML/CFT standards. The PPM could have functionality to support hosting of domestic payment systems for PICs with capacity and resource constraints and/or low volumes of payments.
The key aspects the review should take into account are (i) Principle 1, Legal basis of the Committee for Payment and Market Infrastructure (CPMI)-International Organization of Securities Commission (IOSCO) Principles for Financial Market Infrastructures; (ii) CPMI-World Bank General Principles for International Remittances; and the relevant guidance published by the CPMI and Financial Stability Board (FSB) under the G20 cross-border payments program, including the Financial Stability Board (FSB)’s reports on Promoting Alignment and Interoperability Across Data Frameworks Related to Cross-Border Payments and the Recommendations for Regulating and Supervising Bank and Non-bank Payment Service Providers Offering Cross-border Payment Services. Conduct a comprehensive review of the legal and regulatory frameworks in the PICs that govern the following aspects: (i) the establishment, operations and oversight of domestic and cross-border payment systems, including licensing requirements; (ii) the provision of payment services and licensing/authorization requirements for non-bank PSPs; (iii) participation of domestic banks and non-bank PSPs in domestic and regional/international payment systems; (iv) access to payment systems and banking services by foreign financial institutions; (v) foreign exchange management operations and restrictions, including controls on capital outflows/inflows; (vi) data storage, including cross-border flow of data, privacy, protection and messaging standards; (vii) outsourcing framework, including outsourcing to international provider; (viii) access to central bank money for settlement by international PSPs and payment system operators. and; (ix) customer due diligence (CDD) requirements and AML/CFT preventive measures.
Assess gaps in PICs’ legal and regulatory frameworks against the common minimum benchmark for cross-border payments, and requirements for aligning PICs to the common minimum benchmark. The assessment should also capture additional regulatory gaps that are relevant but not captured by the common minimum framework. In particular, the gap analysis should identify:
Finally, the gap assessment should highlight areas where the current legal and regulatory frameworks may fail to meet stakeholder (payment service providers and end-user) requirements.
Map the institutions that govern cross-border payments in the PICs, and other relevant foreign institutions, based on their current and/or envisaged mandates and responsibilities towards a multilateral arrangement for cross-border payments and CBR.
The reform roadmap should outline the regulatory reforms to be undertaken by the PICs in the short, medium, and long term with a view to supporting a multilateral arrangement for cross-border payments. The roadmap should address the identified gaps (1.b) taking into consideration the roles of key stakeholders (1.c) with a view to enabling the establishment of the PPM. The recommended roadmap should review and analyze learning from other similar initiatives across other regions and should be aligned with the requirements of the international standards and best practices.
Review and map cross-border payment flows to/from PICs including wholesale/interbank payments, retail payments (business-to-business, business-to-person, person-to-business, and non-remittance person-to-person payments), and remittances. Estimate annual volumes and value of cross-border payments among PICs, and between PICs and major PIC trading partners/sending countries. Identify primary cross-border payment corridors and currencies. This estimation should also include potential transactions for countries which do not have a domestic infrastructure but could leverage the PPM for domestic payments.
Conduct an in-depth analysis to estimate the value of informal remittances and trade-related flows from/to PICs, including the main unregulated channels used for these flows. Based on these estimates, derive the overall market size, including both informal and formal cross-border payments.
Analyze the types of cross-border payment mechanisms used across the PICs (e.g., correspondent banking vs. proprietary channels/systems), evaluate the associated challenges and costs borne by payment service providers and end users, revenues associated with cross-border payment services, and time taken by different payment mechanisms. Highlight any new and emerging business models and/or technologies (e.g., closed-loop solutions based on e-money, banking-as-a-service, fintech solutions) with a potential to achieve regional scale. Estimate use of crypto-assets for cross-border payments.
Based on the cross-border payment flow (a and b above) and payment mechanism (c) analyses identify specific corridors for priority targeting to streamline domestic/cross-border payments. Prioritization should take into account corridors’ ML/TF risks.
Conduct a data gap analysis for tasks a to c above. Prepare and administer data requests, questionnaires and surveys to gather information that is not available through the World Bank team or other public sources/non-public sources facilitated by the World Bank team (e.g., country assessments, SWIFT data). Prepare tables, charts and other visuals.
Evaluate the existing payment system infrastructure in each country by benchmarking against global standards and best practices. Examine the interoperability of national payment systems and assess their compatibility with international standards. Review the business hours, availability, operational reliability and business continuity planning of the payment system infrastructure. Review access criteria and participation requirements. Benchmark such infrastructure against the requirements of Project Nexus to facilitate potential connections in the future. In countries where there is no National Payment System (NPS), examine the financial institutions capabilities to provide digital payments to citizens and corporates. This would provide the minimum requirements that must be imbibed by each country for integrated cross-border payment systems.
Compare payment messaging standards employed by each country with international norms, emphasizing ISO 20022 and other relevant standards. Assess the implementation of APIs in payment systems, considering their role in enhancing interoperability and innovation.
Review the technology frameworks governing cross-border payments to identify any inconsistencies or gaps. Analyze data processing capabilities, including the efficiency of transaction processing, settlement, data protection, access to data, and reconciliation processes.
Evaluate the cybersecurity measures in place for protecting payment systems, based on international guidance and standards, more specifically from the perspective of developing a PPM to support cross-border and domestic payments and facilitate CBR for PICs. Analyze fraud detection and prevention mechanisms, based on international experience.
Assess the readiness of domestic payment infrastructure to seamlessly integrate with cross-border payment systems. Analyze the adaptability of domestic systems to international standards for cross-border payments.
Identify the expectations and requirements of service providers and end-users involved in cross-border transactions, considering financial institutions, fintech companies, businesses, and individual consumers. Conduct a gap analysis to highlight areas where the current infrastructure and technology fail to meet user requirements and use cases that are not catered for by existing solutions. Assess the technological capabilities of banks and non-bank financial institutions to join the PPM.
Identify and analyze options for
In addition, the Consultant will:
Determine the business case of the PPM under different plausible scenarios (based on currencies supported, participating countries and types of payments, among others). Estimate costs (including one-time start-up costs and ongoing operating/running costs for all PPM core and ancillary services identified in 3.a) and revenues as well as benefits for central banks, PSPs) end-users and the economy as a whole, and perform a scenario-based comparison of PPM estimated costs and benefits with plausible alternative arrangements. Provide a breakdown of implementation costs and potential revenue streams and estimate per-transaction pricing for typical payback periods for such projects with relevant sensitivity analysis. Identify funding options and strategies to enable the PPM to become self-sustaining (cover operating costs and reinvestment needs) over a reasonable period of time.
Conduct a comparative analysis with similar studies and systems conducted/implemented in other regions, including developing regions and small states, drawing lessons from successful implementations and identifying challenges. Benchmark the progress and challenges in the PIC against global trends and initiatives in cross-border payments.
Tentative time plan regarding the implementation of the PPM based on recommended alternative designs. This should include timelines (legislative and operational, including necessary prerequisites), main milestones and envisaged requirements in terms of project management, critical success factors, and key risks and mitigation plan. The roadmap should include a phasing strategy, covering the short term and long-term options and evolution pathways.
The assignment is expected to take twenty-four (24) months duration commencing Q2 or Q3 2025. It is expected that the Consultant firm will travel extensively to the various member countries under PIFs. The Contract will be Lump Sum with the consultant expected to provide rates for each Key and non-key expert and state reimbursables as per technical and financial forms per the Request for Proposal Documents COVID and other Health practices will need to be followed with possible use of PPE , should any COVID like event escalate.
There is a possibility of Downstream work, dependent upon results of the Feasibility Study and the Performance of Consultants
Team Composition & Qualification Requirements for the Key Experts (and any other requirements which will be used for evaluating the Key Experts under Data Sheet 21.1 of the Instruction to Consultants of the issued RFP). The firm should demonstrate that it has qualified human resources with professional experience relevant to the fulfillment of this contract. CVs of the management Team and senior persons may be submitted. CVs of individuals proposed are not required at the REOI stage and will not be evaluated. Technical Experience Qualifications may be supported by presentations, brochures, and past contracts. The assigned team should include a combination of proven expertise in various areas under the Scope of Work (see below), including legal and regulatory, risk management, IT, AML/CFT and business planning.
4.2. Key Experts and expected inputs (firm to provide these details) It is the Consultant Firm’s responsibility to propose suitably qualified and experienced consultants to ensure delivery of all outputs and objectives of the assignment. Note that this is suggested only. The firm must also nominate time in country and at home office in sufficient numbers of days to support PIFS and participating countries and achieve quality deliverables.
5.1 Deliverables The Advisor should accordingly deliver the following:
The deliverables will be discussed with and cleared by the World Bank and the Pacific De-Risking Group in coordination with the Pacific CBR Project’s institutional and implementation arrangements. All deliverables will be in English. The Advisor should comply with the following timetable for the deliverables: all reports are to be in one hard copy and one soft copy in easily accessible files. Table of Deliverables
Consultants should include within their proposals the information supporting their capabilities in line with the Scope of Work. This documentation should include: All forms as indicated in the Request for Proposal Bidding Documents Section 1, Instructions to Consultants Clause 10.1 and Section 2 Data Sheet, Clause 10.1 Technical Proposal Forms Technical Forms Tech 1-Tech 8 and Financial Proposal Forms Fin 1-Fin 4.
Annex 1. Pacific Strengthening Correspondent Banking Relationships Project (Pacific CBR Project) The Project Development Objective (PDO) is to enable continuous access to correspondent banking services in the participating Pacific Island countries. The Pacific Island Countries (PICs) covered by the regional project are Fiji, Kiribati, Marshall Islands, Samoa, Tonga, Tuvalu, and Vanuatu. The project design provides an inclusive framework for incorporating additional countries as and when they are ready to participate in the project and opportunities for parallel financing, including from bilateral and multilateral partners, to achieve impact at scale.[1] The project has two components (1) Ensuring continuous access to correspondent banking services, and (2) Improving the enabling environment and regulatory harmonization.
Annex 2. PPM Network Model In the context of the Pacific CBR Project, the PPM is envisaged as a multilateral arrangement/mechanism among financial institutions in the PICs, primarily intended for cross-border payments. The functions to be fulfilled by the PPM point to the need to establish a common technical platform and governance framework. This model is referred to as “multilateral payment platform” by the Committee on Payments and Market Infrastructures (CPMI) (see Figure 1, lower right-end panel). A multilateral platform is defined as a “payment system for cross-border payments that is multi-jurisdictional by design” that “enables customers of any participating PSP (e.g., a commercial bank) in one jurisdiction to pay customers of any other participating PSP (e.g., an e-money institution) in another jurisdiction”. Under this project, this model may provide some advantages compared to other models (see Figure 1), e.g., greater scale of operations, highest levels of harmonization, inclusiveness and flexibility. Notably, the common platform may be leveraged also for domestic transactions by countries that lack a national payments system and/or have very low transaction volumes. Furthermore, the MLP could be used as an (additional) contingency mechanism for domestic payment systems. Nevertheless, other models should be considered for completeness and/or as an alternative to the MLP. The main features of the single access point model, the bilateral link model, and the hub and spoke models are summarized below.
Figure 1: Types of interlinking arrangements
Source: BIS-IMF-WB, “Exploring multilateral platforms for cross-border payments”, January 2023
Under a single access point model, participants in one (domestic) payment system have access to a foreign system through a single “gateway” entity that directly participates in the foreign system (Graph 1, upper left-hand panel). This model bears a resemblance to correspondent banking arrangements but differs in that it ensures access to the foreign systems based on common rules, service level agreements (SLAs) and access criteria. Despite simplicity and low cost, the single access point has scalability limitations. One example of this model is euroSIC. Another example is the Hong Kong’s RMB CHATS links with Mainland China’s payment systems.
Two payment systems can also be directly connected to each other (Graph 1, upper right-hand panel). This model typically enables participants in one system to directly reach all direct participants in the other (foreign) payment system instead of just the single gateway entity. Among other things, a bilateral link requires efficient mechanisms for accounting, clearing and settling inter-system positions between interlinked systems, and this process is usually done through nostro/vostro accounts that linked systems hold with each other. Establishing a bilateral link can be relatively cost-effective and serve as an interim step towards a more centralized approach. However, a multitude of bilateral links results in complex processes, as multiple interoperability arrangements must be maintained. An example of a bilateral link model is Directo a México, which was set up in 2005 between the Federal Reserve's automated clearing house (FedACH) and the Mexican RTGS system (SPEI). Another example is the link between India (UPI) and Singapore (PayNow).
A hub and spoke model is a multilateral interlinking arrangement capable of linking more than two systems (Graph 1, lower left-hand panel). In this model, the inter-system accounting and clearing are done at a common intermediary (the hub). In some jurisdictions, the hub itself could be qualified as a multilateral payment system, with the connected payment systems as participants. The hub can effect settlement on its own books or use a settlement agent. An example of this model is the Regional Payment and Settlement System (REPSS) of the Common Market for Eastern and Southern Africa.
[1] In addition to the seven participating PICs, other countries in the region (Palau, Papua New Guinea, and Solomon Islands) have expressed interest in participating in the project. Additional partner funding would facilitate the participation and onboarding of the non-IDA countries (e.g., Nauru, Palau) and enable the participation of other PICs (e.g. Cook Island, Niue). |
Pacific Strengthening Correspondent Banking Relationships Project |
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Project Number |
P502591 https://projects.worldbank.org/en/projects-operations/project-detail/P502591 |
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Activity and Reference Number (STEP) |
Consulting Firm Detailed Assessment To Inform The Design Of A Payment Aggregation Mechanism To Improve Economies Of Scale Activity No. FJ-PIFS-468931-CS-QCBS |
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Implementing Agency Names and Country |
Pacific Islands Forum Secretariat, FIJI |
- The Pacific Island Forum Secretariat (PIFS) advises all eligible and interested parties that the deadline for submission of Proposals has been extended until 17-00 hours Fiji time on the 31st March 2025
- The Pacific Island Forum Secretariat (PIFS) also invites interested parties to attend a WEBINAR on Monday 10th March at 10-00am to discuss further the requirements, intent and support for the PPM advisory Services and the socializing of the Feasibility study . All Firms downloading the REOI will be directly invited to the Webinar by Friday 7th March 2025
- There are no further changes within this REOI and TOR.
- The Pacific Island Forum Secretariat (PIFS) and seven pacific island member countries (Fiji, Kiribati, Marshall Islands, Samoa, Tonga, Tuvalu, and Vanuatu) have received financing (grants and credits) from the World Bank (WB) Group’s International Development Association (IDA) towards the “Pacific Strengthening Correspondent Banking Relationships Project” (the Project) and will apply part of these proceeds to the contract for Detailed Assessment to Inform the Design of a Payment Aggregation Mechanism to Improve Economies of Scale. The PIFs will act as the Implementing Agency for the regional project.
- The Pacific Island Countries (PICs) are vulnerable to the withdrawal of correspondent banking relationships (CBR) that underpin international trade, tourism, remittances, disaster relief, and humanitarian financial flows. CBRs are an essential feature of the global payment system – they enable individuals, businesses, and governments to make and receive cross-border payment services in foreign currencies related to remittances, e-commerce, trade, and official sector flows. In this context, the Pacific Strengthening Correspondent Banking Relationships Project, has a sub-component to undertake a feasibility study for the Pacific Payment Mechanism (PPM). The Consulting Services (“the Services”) require a consulting firm to provide both a short-term solution and medium-term resolution to CBR withdrawal. The project offers a temporary but immediate solution to CBR withdrawal by providing CBR services to eligible financial institutions if a country loses its last CBR in a key currency.
For the purposes of this feasibility study, the PPM is a multilateral arrangement that would ideally be capable of: (i) facilitating ongoing access to settlement accounts and correspondent banking services in key international and regional currencies; (ii) providing multicurrency payment clearing and settlement services; (iii) implementing centralized tools for improving efficiency and effectiveness of Anti-Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) compliance, and; (iv) providing technical assistance/support to prospective participating financial institutions. The duration of the assignment will be twenty for months (24).
The consultant firm is expected to demonstrate, with supporting documentation, that they have the following qualifications and experience.:
CRITERIA |
THE FIRMS QUALIFICATIONS AND EXPERIENCE. |
1 |
The Firm is expected to have, as a minimum, fifteen (15) years proven history, supported by documentation in the following qualification s and experience. The Firm must be able to demonstrate an excellent knowledge of the Pacific context and familiarity with the structure of PICs’ financial and payment systems. |
2 |
Demonstrated experience in correspondent banking services/networks |
3 |
Demonstrated experience cross-border payments and AML/CFT. |
4 |
Demonstrated experience in designing and implementing regional cross-border clearing and settlement arrangements. |
5 |
Demonstrated three years’ experience in project management experience in donor funded, public sector projects |
6 |
Prior experience in advising similar projects |
7 |
Demonstrated high level interpersonal skills including managing complex relationships. Experience in the Pacific will be an advantage. |
- PIFS, on behalf of the participating member countries, now invites eligible Firms (“Consultants”) to indicate their interest in providing the Services. Interested Consultant Firms should provide information demonstrating that they have the required qualifications and relevant experience to perform the Services (attach curriculum vitae and a cover letter with description of experience in similar assignments, similar conditions, etc.). PIFs is not requesting CVs of Key Experts, but you may provide an organisational chart and CVs of senior Management person to be involved with this assignment
- The attention of interested Consultants (including firms) is drawn to paragraph 3.14, 3.16 and 3.17 of the World Bank’s Procurement Regulations for IPF Borrowers, dated September 2023 (“the Regulations”), setting forth the World Bank’s policy on conflict of interest. A Consultant will be selected in accordance with the Quality and Cost Based selection method set out in the World Bank Consultant Guidelines, Pacific Focus September 2023.
- The detailed Terms of Reference (TOR) for the assignment is attached below and provides details of the scope of the services required along with specific deliverables expected. Further information can be obtained at the address below during office hours [insert office hours if applicable, i.e., 0900 to 1700 hours]. The TOR can also be found at www.tenders.net/forumsec
- Expressions of interest must be delivered in a written form to the address below (in person, or by mail, or by e-mail) no later than 17:00 hours (Fiji Time) on Monday 31st March 2025
- Address for Enquiries and Submission of EOIs
Pacific Islands Forum Secretariat
Attn: Rodney Kirarock, Program Officer/Timaima Qeranatabua, Procurement Officer
Private Mail Bag, Suva, PO Box 856, Suva, Fiji.
Tel: 679-3312600
E-mail: mailto:rodneyk@forumsec.org /mailto: timaimaq@forumsec.org
Terms of Reference
Selection of a Consulting Firm
Quality and Cost Based Selection Method -QCBS
Detailed assessment to inform the design of a payment aggregation mechanism to improve economies of scale
Project Name |
Pacific Strengthening Correspondent Banking Relationships Project |
Project Number |
P502591 https://projects.worldbank.org/en/projects-operations/project-detail/P502591 |
Activity and Reference Number (STEP) |
Consulting Firm: Detailed assessment to inform the design of a payment aggregation mechanism to improve economies of scale Activity No. FJ-PIFS-468931-CS-QCBS |
Implementing Agency Names |
Pacific Islands Forum Secretariat |
Country |
Fiji |
- BACKGROUND/CONTEXT
The Pacific Island Countries (PICs) are vulnerable to the withdrawal of correspondent banking relationships (CBR) that underpin international trade, tourism, remittances, disaster relief, and humanitarian financial flows. CBRs are an essential feature of the global payment system – they enable individuals, businesses, and governments to make and receive cross-border payment services in foreign currencies related to remittances, e-commerce, trade, and official sector flows. The cross-border transactions that PICs require are in various currencies, primarily the US dollar, Euro, Australian dollar and New Zealand dollar. The withdrawal of CBRs, a global phenomenon affecting many emerging markets and developing economies, is generally motivated by unfavorable risk-return trade-offs; compliance risks/costs coupled with a lack of economies of scale are often cited as reasons to discontinue services.
This phenomenon has adverse consequences for Pacific Islanders, including seasonal laborers, larger businesses, small and medium enterprises (SMEs), and vulnerable populations that rely on the ability to make and receive cross-border payments for their livelihoods, withstand shocks, and grow their businesses. Based on publicly available data, the number of active correspondents for Pacific banks has declined significantly since 2011 to unsustainably low levels, and a number of PICs are left with only one or two CBRs in the key currencies. Fewer CBR providers can also result in longer transaction chains and weak competition. Furthermore, despite recent innovations in payment services, the cost of sending money to the Pacific is still high based on international and regional comparisons. The cost of remittances, a critical safety net in the Pacific, tends to be comparatively higher in regions affected by shrinking CBRs; this might lead people to use informal channels, which is detrimental to financial inclusion and integrity.
Enhancing payment infrastructure to reduce costs and mitigate the effects of CBR withdrawal, as well as improving AML/CFT compliance, would help in the overall development of the region. However, several PICs lack the basic foundations of a safe and efficient payment system; others have recently enacted comprehensive regulatory reforms and are gradually rolling out modern infrastructures. While money laundering/terrorism financing risks for remittances in the Pacific are low, the effective implementation of international AML/CFT standards remains a challenge (and a reputational liability) for several PICs.
In this context, the Pacific Strengthening Correspondent Banking Relationships Project (Pacific CBR Project), approved by the World Bank Board of Executive Directors in August 2024 (see Annex 1), has a sub-component to undertake a feasibility study for the Pacific Payment Mechanism (PPM). The Pacific CBR Project is part of a medium-term engagement to provide both a short-term solution and medium-term resolution to CBR withdrawal. The project offers a temporary but immediate solution to CBR withdrawal by providing CBR services to eligible financial institutions if a country loses its last CBR in a key currency. In the short term, the project will contract a CBR CONSULTANT through an open international competitive procurement process.
The CBR services provided by the project will be a fallback and are intended as a temporary solution. They will only be used when there is no commercially viable solution and until a more sustainable response can be developed, for instance, through a regional payment mechanism, based on this feasibility study. In the process of the Pacific CBR Project preparation, it has become clear that a more sustainable and comprehensive solution at the regional level is needed. At the same time, given the novelty and complexities of this undertaking and the need for a thorough feasibility analysis of the envisaged solution before embarking on implementation, the World Bank has opted for a two-phase approach – wherein this feasibility study is the first phase and supported under the Pacific CBR project. Based on the results of this feasibility study, it is envisaged that, under phase two, a future World Bank project is expected to support the establishment of the regional payment aggregation mechanism to address structural issues relating to low economies of scale.
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- the Pacific Payment Mechanism (PPM) Feasibility Study
For the purposes of this feasibility study, the PPM is a multilateral arrangement that would ideally be capable of: (i) facilitating ongoing access to settlement accounts and correspondent banking services in key international and regional currencies; (ii) providing multicurrency payment clearing and settlement services; (iii) implementing centralized tools for improving efficiency and effectiveness of Anti-Money Laundering (AML)/ Countering the Financing of Terrorism (CFT) compliance, and; (iv) providing technical assistance/support to prospective participating financial institutions. By consolidating CBRs and aggregating transaction processing, the PPM aims at alleviating the pressure of low CBR profitability and economies of scale. The PPM would ideally lower costs and increase transaction speeds compared to current cross-border payment mechanisms. Furthermore, the PPM could be leveraged for the processing of domestic payments in the absence / as a substitute for a domestic payment system in smaller islands as well as for interlinking arrangements between the Pacific region’s payment systems and other national/regional payment systems. The feasibility study should help identify PPM “core services” to be implemented from the get-go versus optional and/or additional services to be implemented on a plug-and-play basis over time, different phasing options and evolution pathways.
- OBJECTIVE(S) OF THE ASSIGNMENT
Analyze the business case and design options for the PPM. Ideally the PPM would provide a stable, self-sustaining solution for market-based provision of CBRs to PICs, and cheaper, faster, accessible and transparent cross-border payments to/from PICs. Furthermore, the PPM may play a role in streamlining participating payment service providers (PSPs)’ AML/CFT controls thereby lowering compliance costs. The PPM design is expected to: (i) be grounded in a solid business case; (ii) ensure a sound and enforceable legal basis in all relevant jurisdictions; and would ideally (iii) be flexible with respect to payment types, market segments, payment instruments/assets and operating hours, and interoperable with other domestic, regional, and global payment systems; (iv) be aligned with international oversight standards for payment systems and financial market infrastructures and AML/CFT standards. The PPM could have functionality to support hosting of domestic payment systems for PICs with capacity and resource constraints and/or low volumes of payments.
- SCOPE OF SERVICES, TASKS (COMPONENTS) AND EXPECTED DELIVERABLES
- Legal and regulatory gap assessment
- Comprehensive review of the legal and regulatory framework for domestic and cross-border payments in the PICs.
The key aspects the review should take into account are (i) Principle 1, Legal basis of the Committee for Payment and Market Infrastructure (CPMI)-International Organization of Securities Commission (IOSCO) Principles for Financial Market Infrastructures; (ii) CPMI-World Bank General Principles for International Remittances; and the relevant guidance published by the CPMI and Financial Stability Board (FSB) under the G20 cross-border payments program, including the Financial Stability Board (FSB)’s reports on Promoting Alignment and Interoperability Across Data Frameworks Related to Cross-Border Payments and the Recommendations for Regulating and Supervising Bank and Non-bank Payment Service Providers Offering Cross-border Payment Services.
Conduct a comprehensive review of the legal and regulatory frameworks in the PICs that govern the following aspects:
(i) the establishment, operations and oversight of domestic and cross-border payment systems, including licensing requirements;
(ii) the provision of payment services and licensing/authorization requirements for non-bank PSPs;
(iii) participation of domestic banks and non-bank PSPs in domestic and regional/international payment systems;
(iv) access to payment systems and banking services by foreign financial institutions;
(v) foreign exchange management operations and restrictions, including controls on capital outflows/inflows;
(vi) data storage, including cross-border flow of data, privacy, protection and messaging standards;
(vii) outsourcing framework, including outsourcing to international provider;
(viii) access to central bank money for settlement by international PSPs and payment system operators. and;
(ix) customer due diligence (CDD) requirements and AML/CFT preventive measures.
- Gap assessment.
Assess gaps in PICs’ legal and regulatory frameworks against the common minimum benchmark for cross-border payments, and requirements for aligning PICs to the common minimum benchmark. The assessment should also capture additional regulatory gaps that are relevant but not captured by the common minimum framework. In particular, the gap analysis should identify:
- whether there is a legal impediment or other regulatory barriers to multilateral arrangements for cross-border payments, potentially operated by a foreign entity authorized by a foreign regulator, and the use of hosted platform for domestic transactions;
- the requirements for such arrangements to be authorized to operate across PICs, including in the event that the arrangement is operated by a foreign entity authorized by a foreign regulator;
- requirements of the issuing countries of the currencies transacted on the platform, and;
- any obstacles to cooperative oversight arrangements.
Finally, the gap assessment should highlight areas where the current legal and regulatory frameworks may fail to meet stakeholder (payment service providers and end-user) requirements.
- Institutional mapping of key stakeholders.
Map the institutions that govern cross-border payments in the PICs, and other relevant foreign institutions, based on their current and/or envisaged mandates and responsibilities towards a multilateral arrangement for cross-border payments and CBR.
- Regulatory reform roadmap.
The reform roadmap should outline the regulatory reforms to be undertaken by the PICs in the short, medium, and long term with a view to supporting a multilateral arrangement for cross-border payments.
The roadmap should address the identified gaps (1.b) taking into consideration the roles of key stakeholders (1.c) with a view to enabling the establishment of the PPM. The recommended roadmap should review and analyze learning from other similar initiatives across other regions and should be aligned with the requirements of the international standards and best practices.
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- Market sizing and mapping of payment flows
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- Comprehensive cross-border payment flow analysis.
Review and map cross-border payment flows to/from PICs including wholesale/interbank payments, retail payments (business-to-business, business-to-person, person-to-business, and non-remittance person-to-person payments), and remittances. Estimate annual volumes and value of cross-border payments among PICs, and between PICs and major PIC trading partners/sending countries. Identify primary cross-border payment corridors and currencies. This estimation should also include potential transactions for countries which do not have a domestic infrastructure but could leverage the PPM for domestic payments.
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- Estimation of informal remittances and trade flows.
Conduct an in-depth analysis to estimate the value of informal remittances and trade-related flows from/to PICs, including the main unregulated channels used for these flows. Based on these estimates, derive the overall market size, including both informal and formal cross-border payments.
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- Payment mechanism analysis.
Analyze the types of cross-border payment mechanisms used across the PICs (e.g., correspondent banking vs. proprietary channels/systems), evaluate the associated challenges and costs borne by payment service providers and end users, revenues associated with cross-border payment services, and time taken by different payment mechanisms. Highlight any new and emerging business models and/or technologies (e.g., closed-loop solutions based on e-money, banking-as-a-service, fintech solutions) with a potential to achieve regional scale. Estimate use of crypto-assets for cross-border payments.
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- Prioritization.
Based on the cross-border payment flow (a and b above) and payment mechanism (c) analyses identify specific corridors for priority targeting to streamline domestic/cross-border payments. Prioritization should take into account corridors’ ML/TF risks.
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- Data collection and analysis.
Conduct a data gap analysis for tasks a to c above. Prepare and administer data requests, questionnaires and surveys to gather information that is not available through the World Bank team or other public sources/non-public sources facilitated by the World Bank team (e.g., country assessments, SWIFT data). Prepare tables, charts and other visuals.
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- Assessment of payment system infrastructure and technology issues
- Understanding the requirements of a well-functioning payment system infrastructure at the national level.
Evaluate the existing payment system infrastructure in each country by benchmarking against global standards and best practices. Examine the interoperability of national payment systems and assess their compatibility with international standards. Review the business hours, availability, operational reliability and business continuity planning of the payment system infrastructure. Review access criteria and participation requirements. Benchmark such infrastructure against the requirements of Project Nexus to facilitate potential connections in the future. In countries where there is no National Payment System (NPS), examine the financial institutions capabilities to provide digital payments to citizens and corporates. This would provide the minimum requirements that must be imbibed by each country for integrated cross-border payment systems.
- Payment messaging standards and access to infrastructure using Application Programming Interfaces (APIs).
Compare payment messaging standards employed by each country with international norms, emphasizing ISO 20022 and other relevant standards. Assess the implementation of APIs in payment systems, considering their role in enhancing interoperability and innovation.
- Data/transaction processing.
Review the technology frameworks governing cross-border payments to identify any inconsistencies or gaps. Analyze data processing capabilities, including the efficiency of transaction processing, settlement, data protection, access to data, and reconciliation processes.
- Cybersecurity standards and fraud detection.
Evaluate the cybersecurity measures in place for protecting payment systems, based on international guidance and standards, more specifically from the perspective of developing a PPM to support cross-border and domestic payments and facilitate CBR for PICs. Analyze fraud detection and prevention mechanisms, based on international experience.
- Capability of domestic infrastructure to support cross-border payments.
Assess the readiness of domestic payment infrastructure to seamlessly integrate with cross-border payment systems. Analyze the adaptability of domestic systems to international standards for cross-border payments.
- End-user requirements and gap analysis.
Identify the expectations and requirements of service providers and end-users involved in cross-border transactions, considering financial institutions, fintech companies, businesses, and individual consumers. Conduct a gap analysis to highlight areas where the current infrastructure and technology fail to meet user requirements and use cases that are not catered for by existing solutions. Assess the technological capabilities of banks and non-bank financial institutions to join the PPM.
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- PPM design and implementation
- PPM Institutional and operating model.
Identify and analyze options for
- PPM legal (the legal status of the entity operating the PPM) and operational structure, and country of incorporation;
- licensing regime, oversight and supervision arrangements;
- ownership (public, private or a combination thereof) and governance arrangements;
- architectural options (see Annex 2) including the possibility to leverage Project Nexus for PPM functions;
- settlement model (real-time gross-settlement vs deferred net);
- type of payments (cross-border, option to process domestic payments for countries without NPS), including pros and cons analysis of including processing of domestic payments, and market segments (wholesale, retail, remittances)
- type of currency arrangement (multicurrency, cross-currency) and currencies supported, including differentiated options for PIC currencies and international currencies, as appropriate, and analysis of implications for other aspects of PPM design covered in this section;
- settlement assets (e.g., central bank money, commercial bank money, tokenized claims);
- FX conversion arrangements, FX risk management and potential FX providers, as applicable;
- participation model, taking into consideration the recommended network model(s);
- liquidity management features to minimize liquidity costs;
- technology infrastructure to optimize cost and flexibility;
- communication protocols (e.g., APIs, xml message) and messaging standards;
- operating hours;
- desirable ancillary services based on the user requirements analysis;
- access policies, record keeping, information sharing and transaction screening for AML/CFT compliance;
- centralized tools that can support enhancing AML/CFT, combating fraud, and fulfilling foreign exchange controls and other compliance requirements of the participants;
- key risk factors (including financial risks, operational risk, general business risk, ML/TF risk, legal risk, etc.) and mitigation mechanisms, and
- the proposed PPM to obtain and maintain its own CBRs in relevant currencies.
In addition, the Consultant will:
- Assess AML/CFT implications of different PPM designs in compliance to FATF requirements, and their impact on the efficiency and security of cross-border transactions. Examine what specific tools can PPM implement, for e.g. access policy, reporting mechanisms for AML/CFT, transparency and accountability, considering international reporting standards, etc. that would support enhancing the AML/CFT compliance.
- Identify relevant alternative designs and/or solutions that allow meeting the Objective, and analyze pros and cons (e.g., fit the requirements and guiding principles, complexity, inclusiveness, impact), in particular identify incentives/requirements for an existing CBR provider to undertake one or more PPM functions.
- Business case analysis:
Determine the business case of the PPM under different plausible scenarios (based on currencies supported, participating countries and types of payments, among others). Estimate costs (including one-time start-up costs and ongoing operating/running costs for all PPM core and ancillary services identified in 3.a) and revenues as well as benefits for central banks, PSPs) end-users and the economy as a whole, and perform a scenario-based comparison of PPM estimated costs and benefits with plausible alternative arrangements. Provide a breakdown of implementation costs and potential revenue streams and estimate per-transaction pricing for typical payback periods for such projects with relevant sensitivity analysis. Identify funding options and strategies to enable the PPM to become self-sustaining (cover operating costs and reinvestment needs) over a reasonable period of time.
- Comparative analysis with other regions.
Conduct a comparative analysis with similar studies and systems conducted/implemented in other regions, including developing regions and small states, drawing lessons from successful implementations and identifying challenges. Benchmark the progress and challenges in the PIC against global trends and initiatives in cross-border payments.
- Implementation roadmap.
Tentative time plan regarding the implementation of the PPM based on recommended alternative designs. This should include timelines (legislative and operational, including necessary prerequisites), main milestones and envisaged requirements in terms of project management, critical success factors, and key risks and mitigation plan. The roadmap should include a phasing strategy, covering the short term and long-term options and evolution pathways.
- DURATION OF CONTRACT
The assignment is expected to take twenty-four (24) months duration commencing Q2 or Q3 2025. It is expected that the Consultant firm will travel extensively to the various member countries under PIFs. The Contract will be Lump Sum with the consultant expected to provide rates for each Key and non-key expert and state reimbursables as per technical and financial forms per the Request for Proposal Documents
COVID and other Health practices will need to be followed with possible use of PPE , should any COVID like event escalate.
- DOWNSTREAM WORK
There is a possibility of Downstream work, dependent upon results of the Feasibility Study and the Performance of Consultants
- TEAM COMPOSITION KEY EXPERTS
Team Composition & Qualification Requirements for the Key Experts (and any other requirements which will be used for evaluating the Key Experts under Data Sheet 21.1 of the Instruction to Consultants of the issued RFP).
The firm should demonstrate that it has qualified human resources with professional experience relevant to the fulfillment of this contract. CVs of the management Team and senior persons may be submitted. CVs of individuals proposed are not required at the REOI stage and will not be evaluated. Technical Experience Qualifications may be supported by presentations, brochures, and past contracts.
The assigned team should include a combination of proven expertise in various areas under the Scope of Work (see below), including legal and regulatory, risk management, IT, AML/CFT and business planning.
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- Firm’s Experience and Qualifications
CRITERIA |
THE FIRMS QUALIFICATIONS AND EXPERIENCE. |
1 |
The Firm is expected to have, as a minimum, fifteen (15) years proven history, supported by documentation in the following qualification and experience. The Firm must be able to demonstrate an excellent knowledge of the Pacific context and familiarity with the structure of PICs’ financial and payment systems. |
2 |
Demonstrated experience in correspondent banking services/networks |
3 |
Demonstrated experience cross-border payments and AML/CFT. |
4 |
Prior experience in cybersecurity assessments |
5 |
Demonstrated experience in designing and implementing regional cross-border clearing and settlement arrangements. |
6 |
Demonstrated three years’ experience in project management experience in donor funded, public sector projects |
7 |
Prior experience in advising similar projects |
8 |
Demonstrated high level interpersonal skills including managing complex relationships. Experience in the Pacific will be an advantage. |
4.2. Key Experts and expected inputs (firm to provide these details)
It is the Consultant Firm’s responsibility to propose suitably qualified and experienced consultants to ensure delivery of all outputs and objectives of the assignment. Note that this is suggested only. The firm must also nominate time in country and at home office in sufficient numbers of days to support PIFS and participating countries and achieve quality deliverables.
Key Expert Position |
Qualifications, Skills, and Experience |
Person Months (*maximum 24 months per position). Consultant to determine best number of months and split between Home Office and in-country Work. |
Key Expert 1 Advisor/Team Leader |
The team leader should have at least a masters degree in finance, economics, business administration, or associated field from a recognised tertiary Institution At least 15 years’ experience in;
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24 months* |
Expertise and Consultants with in-country and home based inputs to be assigned by Consultant Firm |
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Key Expert 2 Payments Technology
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24 months* |
Key Expert 3 Cyber Security Expert |
The expert should possess the following qualification and experience
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24 months* |
Key Expert 4 Legal Advisor |
The expert should possess the following qualification and experience
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24 months* |
Key Expert 5 Risk Management |
The risk management expert should have
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24 months* |
Key Expert 6 AML/CFT Anyi-Money Laundering/Combating Financing for Terrorism |
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24 months* |
Key Expert 7 Payments expert |
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24 months*
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- REPORTING REQUIREMENTS AND TIME SCHEDULE FOR DELIVERABLES
5.1 Deliverables
The Advisor should accordingly deliver the following:
- Inception report including Annotated Report Outline: A Word document or PowerPoint presentation outlining a plan to address all aspects covered in the TORs as well as a brief literature review/list of references being used and the proposed structure of the Report.
- Documents for stocktake and benchmarking: Survey instruments used/administered, interview guides for discussions with stakeholders, and case studies on comparable systems / initiatives that would be used for benchmarking.
- Interim Presentations: Comprehensive PowerPoint presentations outlining the key findings, preliminary analysis, and initial recommendations. These presentations will encompass (i) Legal and regulatory reform covering: (a) a preliminary review of the legislative and regulatory frameworks, (b) review of global best practices and identification of a common benchmark, (c) identification of key stakeholders in cross-border payments and (d) summary of policy gaps and capacity constraints in PICs; (ii) market size - including informal remittances and payments, trade-related flows, cross-border payments and CBRs; and (iii) market infrastructure covering: (a) differences in market infrastructure and technology constraints across the countries, (b) snapshot of the current state of readiness in each country, and (c) offer initial insights into potential synchronization challenges and opportunities. These presentations should also cover implications for the likely design of the PPM.
- Follow-up Presentation on PPM Design: Following the Interim Presentation, a follow-up detailed PowerPoint focusing on the PPM Operating Model and Business Case Analysis.
- Final Report: A detailed report consolidating the findings, analysis, and comprehensive recommendations based on the study's outcomes. This report will encompass all aspects covered in the approved annotated report outline, taking into consideration the feedback received by the World Bank in the interim and follow-up presentation. Supporting data/charts, and a final PowerPoint point presentation should be annexed to the report.
The deliverables will be discussed with and cleared by the World Bank and the Pacific De-Risking Group in coordination with the Pacific CBR Project’s institutional and implementation arrangements. All deliverables will be in English.
The Advisor should comply with the following timetable for the deliverables: all reports are to be in one hard copy and one soft copy in easily accessible files.
Table of Deliverables
ITEM |
Deliverable |
Timeline |
1 |
Annotated Report Outline |
Within 2 months of awarding the contract |
2 |
Documents for stocktake and benchmarking |
Within 3 months |
3 |
2 Interim presentations |
At 6 and 9 months (TBC) |
4 |
Follow-up presentation on PPM design |
Within 12 months (TBC) |
5 |
Final report |
Within 18 months (TBC) |
6 |
Approvals by Stakeholders |
Within 24 months (TBC) |
ITEM |
Reports |
Timeline |
1 |
Inception Report |
Within two Months |
2 |
Monthly Progress Reports. As well as a general update and mobilised consultants please include, in periodic progress reports, status of compliance to cyber security risk management and any foreseeable cyber security risk mitigation |
Monthly commencing 3rd Month |
3 |
Notify the Client of any cyber security risks related to the consulting services contract |
Immediately at occurrence |
- PROPOSAL REQUIREMENTS
Consultants should include within their proposals the information supporting their capabilities in line with the Scope of Work. This documentation should include:
All forms as indicated in the Request for Proposal Bidding Documents Section 1, Instructions to Consultants Clause 10.1 and Section 2 Data Sheet, Clause 10.1
Technical Proposal Forms Technical Forms Tech 1-Tech 8 and Financial Proposal Forms Fin 1-Fin 4.
- CLIENT’S INPUT AND COUNTERPART PERSONNEL
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- Services, facilities and property to be made available to the Consultant by the Client
- Professional and support counterpart personnel to be assigned by the Client to the Consultant’s team
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Annex 1. Pacific Strengthening Correspondent Banking Relationships Project (Pacific CBR Project)
The Project Development Objective (PDO) is to enable continuous access to correspondent banking services in the participating Pacific Island countries.
The Pacific Island Countries (PICs) covered by the regional project are Fiji, Kiribati, Marshall Islands, Samoa, Tonga, Tuvalu, and Vanuatu. The project design provides an inclusive framework for incorporating additional countries as and when they are ready to participate in the project and opportunities for parallel financing, including from bilateral and multilateral partners, to achieve impact at scale.[1]
The project has two components (1) Ensuring continuous access to correspondent banking services, and (2) Improving the enabling environment and regulatory harmonization.
- Component 1 will ensure continuous access to CBR services by a qualifying financial institution operating in eligible PICs facing the complete loss of CBRs in a key currency. The component aims to ensure continuous access to CBR services and avoid disruptions in financial flows to and from PICs. The component will finance temporary correspondent banking services for qualified financial institutions in eligible PICs. The project will contract a CBR Service Provider ( or providers, given the range of currencies and countries) responsible for pre-assessing the qualifications of financial institutions in eligible PICs and capable of establishing contractual relationships with an institution at short notice upon evidence of a triggering event— the actual or impending loss of a country’s last CBR in one or more key currencies. The CBR services provided by the project will be a fallback and are intended as a temporary solution. They will only be used when there is no sustained commercially viable solution and until a more sustainable response can be developed, for instance, through a regional payment aggregation mechanism, based on the feasibility study described in Component 2.
- Component 2 will support improved AML/CFT supervision, payment systems oversight, regional harmonization, and project management. Key elements supported include:
- Support to access CBR services and improve AML/CFT compliance: Component 2 will support the assessment of participating PICs against the minimum qualifications for accessing the CBR services and support PICs with developing and implementing remedial plans tailored to country-specific circumstances and risk exposure.
- Feasibility study for a Pacific Payments Mechanism: Component 2 will support the realization of a comprehensive feasibility study to inform the design of a regional payment aggregation mechanism. The feasibility study would inform subsequent engagements following the project, aiming to address structural issues relating to low economies of scale. Accordingly, a future World Bank project is expected to finance capital contributions towards the establishment of a longer-term regional facility (the PPM), aiming to aggregate transaction processing, provide sustainable CBR services, and improve cross-border payments.
- Payment System Oversight and Regulation. Component 2 will provide support for payment systems, regulatory harmonization and strengthening oversight at the domestic level. Activities will build on World Bank-IFC technical assistance under the Pacific Payments Remittances and Securities Initiative (PAPRI) and will be tailored to the specific needs of each country. This component will also finance institutional strengthening programs to increase the capacity of domestic financial institutions to access the potential PPM and meet minimum eligibility criteria. The component will support the collection of relevant remittance data and gender-disaggregated data on usage of financial services.
- Regional TA Support and Institutional Capacity Building. Component 2 will support delivery of tailored technical assistance provided by a team of experts recruited by the project with expertise in CBR Contract Management, AML/CFT supervision, payment systems oversight and development. These technical experts will be responsible for working with the Ministries of Finance of participating PICs, and relevant financial sector supervisory authorities, to provide tailored technical support and institutional capacity building.
- Gender-disaggregated remittance data. Component 2 will also support collection of relevant remittance data and gender-disaggregated data on usage of financial services across participating PICs. This will enable PICs to identify gender-specific challenges related to remittances inflows, their contribution to financial inclusion, and economic development at household level.
- Project Management, Stakeholder Coordination, and Outreach. Participating PICs will establish a Project Management Unit (PMU) within the Pacific Islands Forum to coordinate closely with participating Ministries of Finance on implementing all project activities.
Annex 2. PPM Network Model
In the context of the Pacific CBR Project, the PPM is envisaged as a multilateral arrangement/mechanism among financial institutions in the PICs, primarily intended for cross-border payments. The functions to be fulfilled by the PPM point to the need to establish a common technical platform and governance framework. This model is referred to as “multilateral payment platform” by the Committee on Payments and Market Infrastructures (CPMI) (see Figure 1, lower right-end panel). A multilateral platform is defined as a “payment system for cross-border payments that is multi-jurisdictional by design” that “enables customers of any participating PSP (e.g., a commercial bank) in one jurisdiction to pay customers of any other participating PSP (e.g., an e-money institution) in another jurisdiction”.
Under this project, this model may provide some advantages compared to other models (see Figure 1), e.g., greater scale of operations, highest levels of harmonization, inclusiveness and flexibility. Notably, the common platform may be leveraged also for domestic transactions by countries that lack a national payments system and/or have very low transaction volumes. Furthermore, the MLP could be used as an (additional) contingency mechanism for domestic payment systems. Nevertheless, other models should be considered for completeness and/or as an alternative to the MLP. The main features of the single access point model, the bilateral link model, and the hub and spoke models are summarized below.
Figure 1: Types of interlinking arrangements
Source: BIS-IMF-WB, “Exploring multilateral platforms for cross-border payments”, January 2023
- Single access point model
Under a single access point model, participants in one (domestic) payment system have access to a foreign system through a single “gateway” entity that directly participates in the foreign system (Graph 1, upper left-hand panel). This model bears a resemblance to correspondent banking arrangements but differs in that it ensures access to the foreign systems based on common rules, service level agreements (SLAs) and access criteria. Despite simplicity and low cost, the single access point has scalability limitations. One example of this model is euroSIC. Another example is the Hong Kong’s RMB CHATS links with Mainland China’s payment systems.
- Bilateral link model
Two payment systems can also be directly connected to each other (Graph 1, upper right-hand panel). This model typically enables participants in one system to directly reach all direct participants in the other (foreign) payment system instead of just the single gateway entity. Among other things, a bilateral link requires efficient mechanisms for accounting, clearing and settling inter-system positions between interlinked systems, and this process is usually done through nostro/vostro accounts that linked systems hold with each other. Establishing a bilateral link can be relatively cost-effective and serve as an interim step towards a more centralized approach. However, a multitude of bilateral links results in complex processes, as multiple interoperability arrangements must be maintained. An example of a bilateral link model is Directo a México, which was set up in 2005 between the Federal Reserve's automated clearing house (FedACH) and the Mexican RTGS system (SPEI). Another example is the link between India (UPI) and Singapore (PayNow).
- Hub and spoke model
A hub and spoke model is a multilateral interlinking arrangement capable of linking more than two systems (Graph 1, lower left-hand panel). In this model, the inter-system accounting and clearing are done at a common intermediary (the hub). In some jurisdictions, the hub itself could be qualified as a multilateral payment system, with the connected payment systems as participants. The hub can effect settlement on its own books or use a settlement agent. An example of this model is the Regional Payment and Settlement System (REPSS) of the Common Market for Eastern and Southern Africa.
[1] In addition to the seven participating PICs, other countries in the region (Palau, Papua New Guinea, and Solomon Islands) have expressed interest in participating in the project. Additional partner funding would facilitate the participation and onboarding of the non-IDA countries (e.g., Nauru, Palau) and enable the participation of other PICs (e.g. Cook Island, Niue).