CHAPS Clearing Company Limited, the UK payments system that processes and settles both systemically important and time-dependent payments, have announced that it has received Letters of Intent from five major international banks to become Direct Participants. 

A Direct Participant of CHAPS can to send and receive irrevocable, guaranteed sterling payments with same-day settlement finality. The Letters of Intent express a commitment to join the CHAPS Scheme within an agreed time frame.

The five Banks who have decided to become settlement banks are: BNY Mellon, ING Bank N.V, Northern Trust, BNP Paribas and Société Générale. These banks are currently Indirect Participants of CHAPS. A total of twenty-five banks will be CHAPS Direct Participants by the end of 2015, an increase of eleven since the 2007-2008 financial crisis.

The banks which have expressed their intention to join CHAPS were identified as a result of changes brought about to reduce the systemic risk within the CHAPS system. This has been achieved by highlighting those Indirect Participants who process payments above a certain value threshold[1]. These changes are embodied within the CHAPS Tiering Criteria which were put in place in April 2012. 

(Last month, Svenska Handelsbanken AB joined CHAPS as a full Direct Participant independently of the Bank of England’s detiering initiative.)

1) Broadly, the CHAPS Tiering Criteria state that certain risk mitigation measures must be considered when the average daily value of payments made and received by an Indirect Participant of CHAPS exceeds 2% of the total gross value processed by CHAPS each day or 40% of the average daily value of CHAPS “own account payments” processed by the “sponsoring” Settlement Member. 

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This change is unlikely to have any impact on corporate treasury departments, but it does reduce the systemic risk in the UK’s financial system.