This is a clear entry point and a good opportunity for both public and private sectors to coordinate their efforts. 1.6 Despite their inherent weaknesses, automated teller machines, debit cards, automated clearing house networks and credit cards have reached critical mass. However, smart cards and some e-cash systems, electronic bill payments and person-to-person internet payment methods are yet to catch up. Accessibility, but at a high price, can also put off people from opting to use such payment methods or instruments. Similarly, if there are no service providers to facilitate transactions, card usage cannot be made popular and people may continue to use cash, as they are uncertain whether the substitute or new instrument is as accessible as the old ones. Despite inherent inefficiencies of cheques, they are still popular due to easy accessibility, although the regulators keep worrying about the systemic risks involved in cheques. That’s why, in the recent past, India, Sri Lanka, Singapore and many others have introduced cheque imaging or fully automated cheque clearing processes. Given the reduced time from t+5-7 to t+1-2 and facilities at regional level, in Sri Lanka, people now tend to use more cheques compared to cards or electronic payments, which is a worry. The public policy objectives of payment system development thus demands that we allay the fear of non-accessibility and, where possible, offer appropriate incentives to users to move out of paper-based inefficient instruments. 1.7 Preserving the public policy goals is easier where the regulator is also the retail payments service provider.

This also means that supervisors should not carry out a mechanical assessment of these risks and their management by banks such as would result for example from the simple observation of a statistical confidence interval. The assessment must be more refined. In addition, Pillar 2 should ultimately serve to improve risk management in the areas that supervisors, at a given moment, deem to be crucial for financial stability, using a forwardlooking approach. Lastly, the recent financial turmoil has highlighted the difficulties and risks associated with the valuation methods used for certain financial instruments, particularly complex structured products but also some products regarded as more straightforward. Indeed, a sometimes very great disparity has been observed between the theoretical valuations derived from models and market values. However, the issue of the accurate estimation of the price of complex transactions has taken on particular importance with the gradual adoption across the board of fair value assessments since the entry into force of the new accounting standards (IFRS). In this respect, it seems necessary to include in risk assessments assumptions of an erosion of liquidity and a rise in volatility as well as, more generally, to ensure that processes for monitoring valuations within banks are strengthened. In particular, it is vital to reinforce critical, independent and regular analysis of valuations obtained for certain complex positions, which appear to have relied too often on external data supplied by external rating agencies or service providers, without real analysis of the characteristics of the underlying and collateral.