BoE speaks on core payments infrastructure and policies

Victoria Cleland, Executive Director for banking, payments and innovation, spoke about how BoE is enhancing its core payments infrastructure and policies using technological innovation.

The focus was on wholesale settlement in central bank money and the enhancements underway. Central bank wholesale money is the most liquid and widely accepted settlement asset in the UK economy and BoE makes this available via its Real Time Gross Settlement (RTGS) service. This involved BoE providing reserves accounts to banks and building societies eligible for the Sterling Monetary Framework, settlement accounts to payment system participants and settlement agency services to FMIs.

BoE hopes to improve wholesale settlement efficiency and encourage a competitive ecosystem of firms, while minimising credit and operational risk by enhancing the RTGS service. To do this, several actions are being taken, which are outlined below.

RTGS infrastructure is being renewed

The ISO 20022 global messaging standard was implemented in June 2023 and this year, there will be a transition to a new core settlement engine. BoE insists that the benefits of ISO 20022 will come only if the industry embraces and uses the new system. So there will be mandatory purpose codes and LEIs in specific CHAPS payments beginning from November 2024, and structured addresses and remittance data from November 2025. A new user interface for RTGS (BERTI) and APIs will also increase user functionality.

Improving access to RTGS

BoE points to several policy changes it has made in the recent years to increase RTGS access, including opening access to NBPSPs and introducing an omnibus account. It has taken steps to build capacity to support broader participation, offer a more streamlined onboarding and introduce a more proportionate risk-based assurance model, butwants to go further. BoE has asked for feedback on 4 potential enhancements, which are:

  • Whether the new strengthened assessment and ongoing assurance processes need further adjustments to make onboarding easier for NBPSPs;
  • To help foreign banks better understand the costs-benefits to direct access;
  • Whether introducing a new assurance regime for non-systemic FMIs can make it easier for less mature firms to use RTGS without compromising risk requirements; and
  • Whether the 2% CHAPS value threshold and the factors considered for withdrawing consent when an indirect participant exceeds it should be reviewed.

BoE is also reviewing the case for extended RTGS operating hours.

Further initiatives to foster wholesale settlement innovation

BoE wants to introduce more synchronisation. This would enable access to central bank money settlement further by coordinating settlement in RTGS with the transfer of one or more assets on another ledger. This could deliver atomic settlement, ensuring that transfers of assets or funds between parties happen conditionally and irrevocably. Synchronising RTGS system with other ledgers has the benefits of producing efficiency savings, eliminating settlement risk, lowering transaction costs and enhancing security and transparency. To achieve this goal, prototypes such as the Distributed Ledger Technology based synchronisation operator have been developed.

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