Payment and Settlement Systems
Real Time Gross Settlement (RTGS)
In April 1996, the UK Clearing Banks switched to a new electronic system for settling same day sterling payments. Payments are processed through the Clearing House Automated Payment System (CHAPS) individually and continuously during the day in real time. Previously, payments were processed as a single net transaction at the end of the day and exposed the settlement banks to massive losses if one of the banks were to fail.
With the advent of the euro in January 1999 a real-time cross border payment system was needed in order to provide the payment procedures necessary for implementing the single monetary policy and to promote sound and efficient payment mechanisms in the EU. This was achieved by linking euro RTGS systems in all the EU central banks with each other and with the ECB to create the TARGET system. Accordingly the UK RTGS system was developed to accommodate euro accounts (CHAPS Euro) so that members could make domestic and cross-border euro payments.
RTGS is run on two fault tolerant computers and utilises SWIFTNet (the secure IP-based communications solution built by SWIFT) for payment message exchange.
Following the response to the Bank of England's 1998 Securities Settlement Priorities Review, the Bank, with Euroclear UK & Ireland Limited (formerly CRESTCo), introduced (26 November 2001) full-scale Delivery versus Payment (DvP) against central bank money for the settlement of securities in CREST, currently gilts, equities and also money market instruments. That is, a simultaneous exchange of central bank cash for securities. This is achieved by each CREST settlement cycle resulting in transfers between RTGS accounts in respect of the payments generated in that cycle, debiting each sending bank with the sum of the gross debits advised by CREST and crediting the receiving bank in central bank funds.
On a daily basis RTGS also settles -
- CLS (Continuous Link Settlement) payments in sterling and enables members to meet their euro CLS obligations via the TARGET system. CLS was introduced to eliminate Foreign Exchange settlement risk in participating currencies, arising from time zone differences.
- The net effect of the BACS (Bankers’ Automated Clearing Service) clearing. The BACS system settles Direct Debit, Direct Credit, and standing orders.
- NCS (Note Circulation Scheme) payments. 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.
- Cheque and Credit Clearings in sterling and euro.
