Holding their own settlement account at the Bank enables these non-bank PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.
Publishing a revised Settlement Account Policy that includes non-bank PSPs delivers on a commitment made by the Governor of the Bank of England in summer 2016.1 This policy change is designed to ensure that the UK’s payments infrastructure keeps pace with the changing structure of the financial system. It marks the first step in a much broader renewal programme designed to deliver a materially stronger, more resilient, flexible and innovative sterling settlement system for the United Kingdom in the years ahead.2
The Governor of the Bank of England said today: “I am delighted that the Bank of England, the FCA and HM Treasury are working together to stimulate competition and innovation in payment services by widening access to the UK’s payment systems to non-bank payment service providers. In parallel this should support financial stability through greater diversity and risk-reducing payment technologies.”
These changes will enable non-bank PSPs to compete on a more level playing field with banks. In turn, reduced dependence on bank competitors for access to payment systems will allow non-bank PSPs to offer a wider range of payment services. These factors will all help to increase competition and innovation in the provision of payments services. In the longer term, the innovation which stems from this expanded access should promote financial stability by:
- creating more diverse payment arrangements with fewer single points of failure;
- identifying and developing new risk-reducing technologies; and
- expanding the range of transactions that can take place electronically and be settled in central bank money.
At the same time, as the Governor made clear last summer, these benefits cannot be allowed to come at the cost of reduced resilience of RTGS. That is why the Bank has been working over the past year with the Financial Conduct Authority (FCA), HM Treasury, HM Revenue & Customs, the Payment Systems Regulator (PSR) and the payment system operators to develop a comprehensive risk management framework to ensure the continued resilience of the Bank’s RTGS service.
Before non-bank PSPs can open a settlement account, they will need to demonstrate compliance with this risk management framework. A number of legislative changes also need to complete their passage through Parliament. As a consequence, the Bank’s expectation is that the first non-bank PSPs will join RTGS during 2018.
To assist firms interested in exploring direct access to UK payment systems and RTGS, the Bank, FCA and the major payment systems operators are today publishing a separate guide providing more detail on the requirements and application process. In the first instance, interested firms should contact the relevant payment systems operator to discuss these issues further.
1. See the Governor’s speech: Enabling the FinTech transformation: Revolution, Restoration, or Reformation?
2. Further details of this programme are given in ‘A blueprint for a new RTGS service for the United Kingdom’, published in May 2017.