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Home > Markets and Payments > Overview of payment system settlement

Overview of payment system settlement

Payments are essential to the functioning of modern economies. Most payments are made via payment systems, each one of which consists of a set of rules and procedures that govern the transfer of funds between the financial institutions that participate in that payment system.

A payment system requires a settlement agent to provide the final settlement of funds between participants. ​The Bank provides such settlement via the transfer of balances between accounts that system participants hold with the Bank. Such use of ‘central bank money’ provides the ultimate, risk-free means of settling obligations. The Bank has performed this role for payment systems, known as acting as a ‘settlement agent’, since the 19th century.

In this context, the Bank operates a Real-Time Gross Settlement (RTGS) system to hold accounts for financial institutions so that they can:

  • Settle in real-time in the CHAPS payment system as well as the payment system embedded within the CREST securities settlement system.
  • Settle on a deferred, net basis in the retail payment systems (Bacs, Cheque & Credit, Faster Payments, LINK and Visa). The clearing and exchange of customer payments occurs in other infrastructure, outside of the RTGS system and operated by other organisations.

The Bank’s settlement account policy (see Related Links) sets out: 

  • Criteria against which payment systems will be assessed if the Bank is to agree to provide settlement services; and
  • Criteria used when deciding whether an institution will be granted a settlement account. 

Certain institutions can participate in the Bank’s Sterling Monetary Framework (SMF), including through holding reserves accounts in RTGS. A separate policy is published for participation in SMF. The SMF is part of the operational framework for implementing the Bank’s monetary policy decisions and to reduce the cost of disruption to the liquidity and payment services supplied by banks to the UK economy.

Governance of RTGS
The Bank’s Deputy Governor for Markets & Banking has overall responsibility for the Bank’s RTGS Service under the Bank’s internal application of the Senior Managers Regime (see related links). The Bank has dedicated governance arrangements for the RTGS Service. The key committees are:
  • RTGS Strategy Board: Chaired by the Deputy Governor for Markets & Banking and is attended by the Bank’s Chief Operating Officer, Chief Information Officer and other senior representatives from the Bank. The Board is responsible for the future strategy of RTGS.
  • RTGS Delivery Board: Responsible for reviewing and overseeing all proposed changes to RTGS; any significant changes will also require approval of the Strategy Board.
As the final record of sterling interbank transfers, the resilience of the RTGS system is paramount. It has a vital role in the safe functioning of the UK financial system and in fulfilling the Bank’s Mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. It therefore needs to be extremely operationally reliable.
  • RTGS is managed within a clear governance framework – covering strategy, delivery and risk management.
  • Changes to RTGS are carefully considered and tested – the Bank engages on potential changes with the systems that settle in RTGS and relevant direct participants of those systems.
  • It operates on fault-tolerant computer hardware which is replicated on a second site; and with the business operation also conducted on a split site basis.
  • The Bank also has the option of using a third site and alternative technology in the form of SWIFT’s ‘Market Infrastructure Resiliency Service’.
  • The RTGS system is subject to regular internal and external audits.

View the RTGS service availability statistics.