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Bank of England issues: A blueprint for a new RTGS service for the United Kingdom

After many, many months of work and consultation with all sorts of corporates and banks, etc., The Bank of England yesterday set out its blueprint for a renewed Real-Time Gross Settlement (RTGS) service that will, they claim, “deliver a resilient, flexible and innovative sterling payment system for the United Kingdom to meet the challenges posed by a rapidly changing landscape.” On an average day, RTGS settles around £500 billion between banks – around a quarter of the UK’s annual GDP – in sterling central bank money, so it is important not to mess it up.

The renewed RTGS service is designed to: 

  • respond to the changing structure of the financial system
  • meet user demand for simpler and more resilient payment pathways
  • build capacity to interface with new payment technologies as adoption increases
  • ensure continued resilience in the face of evolving threats such as cyber-attacks
  • support the evolution of regulatory and monetary policy tools.

Service characteristics of the renewed RTGS service

Source & Copyright©2017 - Bank of England

Key new design features 

Design features of the new generation of RTGS will include:

  1. Higher resilience: central to the renewed RTGS service is maintaining continuity of service and integrity of data across a wide range of possible scenarios, including but not limited to evolving threats such as cyber-attacks:
    • renewed RTGS will continue to offer best-in-class resilience that is fully in line with international standards through dual-site operation with a third stand-by settlement platform
    • strengthened contingency messaging arrangements will be introduced.
  2. Broader access: the Bank is seeking to increase the number and range of firms able to access RTGS directly in order to settle their payment flows:
    • by early summer, the bank will have finalised its framework for expanding RTGS eligibility to non-bank payment service providers, subject to appropriate safeguards. 
    • The Bank will also streamline the approval regimes for new direct members of RTGS, and enable third-party aggregators to provide technical connectivity for smaller firms.
  3. Wider interoperability:
    • greater flexibility to reroute payments if necessary 
    • new system will provide the tools to enable participants to streamline their back offices.
    • uses ISO 20022 messaging
    • system will be designed to interface with Distributed Ledger Technology in future.
  4. Improved user functionality: 
    • renewed RTGS will be designed to be technologically capable of near 24 hour operation during business days from the outset
    • potentially short settlement windows will be available at weekends
    • will have the capability to be upgraded to full 24x7 operation subject to future demand
    • will facilitate better access to RTGS data for participants, by introducing an external facing Application Programming Interface (API).
  5. Strengthened end-to-end risk management:
    • adoption of the ‘direct delivery’ model used in the overwhelming majority of jurisdictions globally
    • following transition to direct delivery, the Bank will become the HVPS (High Value Payment Service) scheme operator (currently CHAPS Co), alongside the Bank’s existing responsibilities for operating the RTGS infrastructure. (The Bank is working with CHAPS Co and its stakeholders to deliver a swift and orderly transition: the aim is to have heads of terms for a share purchase transaction ready by July, with the transition completed in the latter part of 2017.)

Delivery

In terms of the RTGS architecture, the Bank’s current intention is for the majority of the enhanced functionality in RTGS to be live by the end of 2020. Andrew Hauser, Executive Director for Banking, Payments and Financial Resilience, said: “The reforms outlined today will keep the UK at the leading edge globally by increasing resilience, broadening access and expanding functionality. Crucially, they are also designed to improve risk management across the system and ensure continuity of service.”

The Bank has consulted users on the proposal to move to a direct delivery model for the HVPS. The major CHAPS participants and shareholders are supportive of the change. 


CTMfile take: Wow!! This is a whole new chapter in the development of RTGS, and will, as CHAPS did before, be the model for many other countries to follow. The new flexibility in RTGS membership and systems raises two key questions for corporates - both large and small: “Who are you going to use to process your high value immediate payments? Will it still be bank?.”

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