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Bank of England considers synchronised settlement


The modernised 'real time gross settlement' (RTGS) service operated by the Bank of England could simultaneously record the exchange of money and assets for which the payments are associated, it has said.

The Bank of England previously outlined its plans to update the RTGS following a review carried out in the aftermath of a major outage in 2014. Earlier this summer the Bank said that it could allow businesses transacting via blockchain technology to settle payments through the updated RTGS.

Now the Bank has announced it is considering building a 'synchronised settlement' feature into the updated RTGS and is looking for help from businesses to help it understand demand for the new feature and "the design implications" it could have for the renewed RTGS.

According to its proposals under consideration, a 'synchronisation operator' would act as a "trusted third party" to "connect and offer synchronisation services to the market".

"The synchronisation operator would have permissions to earmark and order the transfer of funds between participating institutions’ accounts in RTGS, but would not hold an account," the Bank said. "The service could be used by multiple synchronisation operators, and, if implemented, the functionality designed would be neutral as to what asset transfer the fund movements were being synchronised with."

Synchronised settlement could "make the payment, land registration and stamp duty process involved in house purchases quicker and more efficient", as well as reduce the "risk profile" of, and "manual effort and liquidity cost involved" in, corporate transactions, according to examples cited by the Bank.

In future, the feature could also be used to "achieve simultaneous settlement across currencies", it said.

Businesses have been invited to register their interest in engaging in the development of the synchronised settlement feature.

The Bank said: "We want to work with a small group of organisations to help us think more closely about: how a synchronisation operator could connect to the renewed RTGS service; what functionality and capabilities the renewed RTGS service might need in order for third parties to offer innovative synchronisation services; what functionality a synchronisation operator might need in its own systems in order to deliver synchronisation services; and the Bank’s policy with regards to how it expects this functionality to be used (and by which infrastructures)."

The development was welcomed by banking and payments law experts at Pinsent Masons, the law firm behind Out-Law.com.

Henry Burkitt said: "It is easy to appreciate the benefits associated with synchronisation in the context of an expedited conveyancing process, which has certainty of both availability of funds as well as the simultaneous transfer of funds and title. Once that concept is extrapolated out and viewed in the context of large corporate transactions, including those made across various currencies and multiple asset classes, the true scale of what might be achieved through synchronisation in terms of certainty and efficiency can be appreciated."

"It will be interesting to see which entities put themselves forward to engage with the Bank as potential synchronisation operators and the additional use cases that are proposed as part of the call for interest," he said.

Tony Anderson said: "Obviously synchronised settlement, when implemented, will have huge ramifications for the incumbent intermediaries of any delivery-versus-payment or payment-versus-payment settlement models both in the UK and internationally. Such parties would do well to contemplate its impact."

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