Bank of England to develop the next generation of Real-Time Gross Settlement (RTGS) for payments
The Bank of England is consulting on the next generation of its Real-Time Gross Settlement (RTGS) service.
RTGS is not a household name. But it lies at the heart of safeguarding the Bank’s mission for monetary and financial stability, providing the platform for sterling central bank reserves (the electronic counterpart to banknotes), and the ultimate risk-free means of final payment. On an average day, RTGS settles around £500 billion between banks; almost a third of the UK’s annual GDP. Given its central role, the Bank must anticipate the demands that could be placed on RTGS in the medium term, safeguarding stability whilst also enabling innovation within a rapidly-changing payment ecosystem.
The consultation paper is informed by a wide-ranging outreach programme launched in January 2016 by Minouche Shafik, Deputy Governor for Markets and Banking. A dedicated review team has met with current and potential future users of the service, authorities, payment system operators, experts, and broader public interest groups. Those stakeholders highlighted five key strategic requirements for the next generation of RTGS. They were that the service must:
- Be capable of responding to the changing structure of the financial system;
- Recognise that payment system users want simpler and more resilient pathways for their payments;
- Be capable of interfacing with a range of new technologies being used in the private sector, including distributed ledgers, if/when they achieve critical mass;
- Remain highly resilient to the increasingly diverse range of threats to continuity of service; and
- Have the capacity to support the future evolution of regulatory and monetary policy tools.
To respond to these drivers, stakeholders agreed that now was the right time for the Bank to develop the next generation of RTGS.
Stakeholders strongly encouraged the Bank to retain as its primary objective the safeguarding of the stability of the payments system as a whole, through the provision of a highly reliable, resilient and robust method of providing real-time gross settlement in central bank money of the largest, most system-critical, payments in the economy.
Where they are consistent with its primary objective of safeguarding stability, the Bank has chosen proposals judged likely to enable innovation, efficiency and competition in payments arrangements – both as a contributor to the UK’s medium-term economic prospects, and as a means of safeguarding financial stability, by reducing market concentration, identifying new risk-reducing technologies, and increasing the scope for electronic settlement in central bank money. That is consistent with the Bank’s strategy for enabling financial innovation.
Taken together, the Bank’s proposals are aimed at delivering a new RTGS that is resilient but flexible, with a high proportion of payments in the UK economy continuing to take place in (or backed by) central bank money, however the structure of financial markets and payments technology develops. Compared to the RTGS of today, the Bank’s proposals are intended to provide broader access, higher resilience, greater interoperability, and a wider range of user functionality. The proposals are summarised in the table overleaf.
A key enabler for delivering these changes will be a comprehensive rebuild of the RTGS technology platform. The Bank will make decisions on its resilience, including in particular its cyber defences, in consultation with intelligence partners. The cost of the rebuild will be recouped from future users in the normal way over time through a temporary increase in the RTGS tariff. A timetable for delivery of the new service will be published in 2017 with the provisional aim of completion in 2020.
Andrew Hauser, Executive Director for Banking, Payments and Financial Resilience, said:
“The world of payments is changing rapidly, and central banks need to keep pace if we are to deliver our mission of monetary and financial stability effectively in the years to come, whilst also enabling innovation and competition where we can. The proposals in this consultation document set out the changes the Bank of England believes are needed to deliver a new generation of RTGS service to meet that challenge. Taken together with prospective reforms to retail payments underway in the industry, these changes are designed to keep the UK payments infrastructure at the leading edge globally whilst underscoring our commitment to maintaining stability and confidence”.
Source: Bank of England
