The Bank's role as settlement agent - providing the ultimate, risk-free means of discharging payment obligations between parties - emerged in the mid-19th century with the provision of settlement accounts for the banking sector. Since 1996, these accounts have been held within the Bank's Real-Time Gross Settlement (RTGS) system, which provides for real-time posting with finality and irrevocability of debit and credit entries to participants' accounts.
The Bank has a Settlement Account Policy (see Key Resources below) which details (a) the criteria against which payment systems will be assessed if the Bank is to agree to act as settlement agent; and (b) the criteria used when deciding whether an institution will be granted a settlement account.
The RTGS system settles for all the major sterling interbank payment systems or schemes. By values settled, the two most important are CHAPS and CREST payments.
CHAPS is the same-day electronic funds transfer system, operated by the bank-owned CHAPS Clearing Company, that is used for high-value/wholesale payments but also for other time-critical lower value payments (such as house purchase). CHAPS payment instructions are routed via the RTGS system and settled individually across the paying and receiving CHAPS banks' settlement accounts. The Bank supports the timely settlement of CHAPs payments through its provision of additional intraday liquidity to the settlement banks; this is provided via same-day repos of eligible securities between the CHAPS banks and the Bank.
One particularly important category of CHAPS payments settled in RTGS are CLS (Continuous Linked Settlement) payments. CLS is the foreign exchange settlement system that was introduced in 2002 to eliminate foreign exchange settlement risk in participating currencies.
CREST is the UK's securities settlement system, operated by Euroclear UK & Ireland, which since November 2001 has provided real-time Delivery versus Payment ultimately against central bank money for transactions in UK securities (gilts, equities and moneymarket instruments). The CREST system settles in a series of very high-frequency cycles through the day; after each cycle the RTGS system is advised of the debits and credits to be made to the CREST settlement banks' accounts as a result of the settlement activity performed by CREST in that cycle. The Bank supports the real-time settlement process in CREST through the provision of intraday liquidity to the CREST settlement banks; and again this is provided via a same-day repo (under a procedure known as auto-collateralisation).
RTGS also settles, on a multilateral net basis, the interbank obligations arising in the following payment schemes:
- Bacs. The UK's automated clearing house, processing in particular Direct Debits and Direct Credits
- Faster Payments Service. The same-day settlement service for standing orders, internet and telephone banking payments.
- The paper-based cheque and credit clearings.
- LINK, the UK's ATM network.
Payments under the Note Circulation Scheme (NCS) are also settled in RTGS. NCS allows its members (commercial banks, cash-in-transit companies and the Post Office) to hold notes in custody for the Bank within their network of cash centres.
As the final record of sterling interbank transfers, the resilience of the RTGS system is paramount. As such, 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 operates the RTGS system on a full cost recovery basis. There are separate tariffs, paid by the members, for each of the various payment systems settling across RTGS. For more details, see the Key Resources below.
RTGS is the system which operates the Bank's Reserves Accounts.