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Brazilian bank awarded BCM certification

30 April 2008

Nossa Caixa, the seventh largest bank in Brazil, is the first financial institution in the world to be granted BS 25999 certification. The certification covers its interaction with the Brazilian Payment System (SPB*). Jose Carvalho, Nossa Caixa’s IT Security Division Manager, claims both investors and the Brazilian Central Bank now consider Nossa Caixa more reliable. "The certification shows we were in line with the industry’s leading practices" he said.

Following certification, Nossa Caixa is now preparing to become the first Brazilian bank to be granted certification in the Brazilian version of Business Continuity Management (ABNT NBR 15999-1).

Read the full Banco Nossa Caixa case study.

* Background on the Brazilian Payment System

The Brazilian Financial System is recognized as one of the most developed banking systems in the world. Decades of high inflation obliged banks to develop some complex instruments and information systems, in order to meet demand for agility and structured financial products. In 1999 the Brazilian Central Bank agreed to overhaul the operation of the Brazilian Financial System. In the payment system in operation until then, the Brazilian Central Bank sometimes had to give the green light to trade transactions even when the financial institution did not have the necessary funds on reserve. The transactions were given a green light in the hope that future same day transactions would restore the necessary reserves to the financial institution. In order to allow for the operation of the system, the Brazilian Central Bank was forced to risk up to R$ 6 billion (approx. US$ 2 billion or £1.5 billion) of taxpayer's money, in the hope that the financial institutions would redeem their positions at the end of a day's trade. To avoid this problem, measures have been taken which include the modernization of procedures, credit risk reduction and the improvement of banking transaction security. This new system, called the Brazilian Payment System (SPB in Brazilian), went live in 2000.

The system has the following characteristics:-

1. Each bank's reserve is now monitored on a real-time basis and is not allowed to become negative at any time.
2. A Large-Value Transfer System (LVTS) is now in place to transfer large monetary values. This system operates through Real-Time Gross Settlement (RTGS) to allow financial institutions to redeem their positions instantly.
3. Clearing houses that operate through Deferred Net Settlement now have to install mechanisms to allow for the completion of a day's trade even if the Central Bank refuses payment due to lack of the necessary funds. In other words, the clearing houses should provide certainty of settlement.
4. Another requirement for the operation of a RTGS system is the finality of the transactions. Requested payments should be irrevocable and unconditional. This requirement implies that the system should provide a high degree of reliability and availability. The security architecture of the system should address these two issues.

The whole Brazilian financial system now operates through this network for transactions of large value. The amount of money that goes through the network is huge and so security is of the utmost concern.