Bank of England sets out plans to modernise real-time gross settlement payment service

The move follows a major outage incident in 2014 which affected the Bank's real-time gross settlement (RTGS) payment service.

"The current split of responsibilities for the United Kingdom’s HVPS [high volume payment system] (in which the Bank operates the central infrastructure but the private sector firm CHAPS Co owns the rulebook and is responsible for system-wide risk management) is unusual internationally, and presents some structural obstacles to tackling future risks in the ‘end-to-end’ way now expected by regulators," the Bank said in its blueprint for reform (30-page / 1.45MB PDF).

"Following transition to direct delivery, the Bank will be responsible for operating both the HVPS scheme and the RTGS infrastructure, giving it the ability to manage risks across the system as a whole," it said.

The Bank said there is agreement with CHAPS Co, and the "major" users of the payment system, to work together on "a smooth transition to direct delivery before end-2017".

In October 2014, an approximate nine-hour outage of the RTGS system caused delays to the processing of 142,759 CHAPS payments valuing a total of £289.3 billion. Deloitte conducted an independent review, commissioned by the Bank, into the incident and recommended a series of reforms to strengthen the resilience of the RTGS service, which the Bank committed to undertake.

In its blueprint for a new RTGS service, the Bank outlined plans to design a revised system that is more resilient to threats to data loss, integrity and confidentiality, among other things, and to ensure that all members of CHAPS are subject to "a materially more efficient" testing regime on issues of resilience and security.

In addition, it said it would build a third settlement platform as a contingency for the two sites the service will run on ordinarily.

"This contingency platform will continue to operate from a separate location, on a completely different implementation of the software, in order to create resilience to catastrophic failures such as the loss of both data centres, or a cyber attack which renders the core RTGS software inoperative," the Bank said.

The reforms will also see communications relating to RTGS conform to the ISO 20022 messaging standard, and a move towards 24/7 operation. UK payment service providers (PSPs) that are not banks, such as many emerging financial technology (fintech) firms, will also be given broader rights of access to the new payment system too, under the Bank's plans.

"By extending RTGS access, the Bank’s aim is to increase competition and innovation in the market for payments by allowing non-bank PSPs that are able to meet appropriate standards of resilience to compete on a more level playing field, reducing their dependence on competitors and extending the benefits of settlement in central bank money to a wider range of payments services," the Bank said.

Andrew Hauser, executive director for banking, payments and financial resilience, said: “RTGS affects everybody across the country, so it is vital that this critical piece of national infrastructure keeps pace with a fast-changing payments landscape. This blueprint sets out a vision of a renewed RTGS service that will safeguard financial stability whilst enabling innovation."

“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," Hauser said.