We currently support four settlement models: real-time gross settlement, delivery versus payment (DvP), and prefunded and unfunded models for deferred net settlement.
We provide settlement services for the CHAPS payment system, the payment system embedded within the CREST securities settlement system and a number of retail payment systems that settle on a net basis. Each system determines its own access criteria as well as the number and duration of any settlement cycles.
Final sterling settlement for CLS, a foreign exchange settlement system that eliminates settlement risk in participating currencies, is carried out through CLS’s direct participation in CHAPS.
Payments under our Note Circulation Scheme (NCS) are also settled in our RTGS service. NCS allows its members – wholesale cash operators – to hold notes in custody for us within their network of cash centres.
Real-time gross settlement
This model is currently only used by CHAPS.
CHAPS is a sterling same-day system that is used to settle high-value wholesale payments as well as time-critical, lower-value payments like buying or paying a deposit on a property. Responsibility for the CHAPS system transferred to the Bank of England in November 2017. Read more about this in our CHAPS section and in the blueprint for a new RTGS service.
Direct participants in CHAPS include the traditional high-street banks and a number of international and custody banks. Many more financial institutions access the system indirectly and make their payments via direct participants. This is known as agency or correspondent banking.
Payment obligations between settlement participants are settled individually on a gross basis in RTGS throughout the business day.
Settlement risk is eliminated, at the cost of an increased need for liquidity, making this model best suited to a high-value payment system with the largest potential systemic risk. We support settlement of CHAPS payments by providing secured intraday liquidity to the direct participants. We also make a liquidity saving tool available to help reduce intraday liquidity needs for CHAPS settlement.
How has the liquidity saving mechanism reduced banks' intraday liquidity costs in CHAPS?
Delivery versus payment (DvP)
This model is currently only used to support final settlement in CREST. CREST is used to settle transactions for UK securities (gilts, equities and money market instruments). It is operated by EUI.
Sterling settlement in CREST takes place in a series of very high-frequency cycles throughout the day. After each cycle, we are advised of the debits and credits to be made to the CREST settlement banks’ accounts in our RTGS service. We support settlement in CREST by providing intraday liquidity to the CREST settlement banks (a process known as auto-collateralisation). Settlement risk is eliminated as transactions are settled with finality in real time against segregated liquidity.
Deferred net settlement
Accounts in RTGS are used to settle the net obligations arising from customer transactions for the main sterling retail payment systems: Bacs, Cheque & Credit, Faster Payments, LINK and Visa Europe.
Bacs processes direct debits (for example utility bills) and direct credits (for example salaries and benefits) across a three-day cycle. Net settlement takes place in the RTGS service once a business day.
- Faster Payments Service
The Faster Payments Service provides near real-time payments 24/7. It is used for standing orders, internet and telephone banking payments. Net settlement takes place three times each business day in the RTGS system.
- Cheque & Credit Clearing Company
The Cheque & Credit Clearing Company settles cheques and paper credits between financial institutions in the RTGS system on a three-day cycle. A new image-based clearing system launched in October 2017. It is prefunded and settles on a next-day basis once a business day.
LINK is the UK’s ATM network, which settles in 24-hour cycles. Cycles that take place over weekends and public holidays all settle on a net basis in the RTGS system the following business day.
- Visa Europe
Visa Europe is one of the card systems that settles in 24-hour cycles. Cycles that take place over weekends and public holidays all settle on a net basis in the RTGS system the following business day.
How does deferred net settlement work?
Each of these systems settles on a multilateral, deferred net basis. Under the deferred net settlement model, details of customer payments are first exchanged between banks in batches or individually. RTGS does not need to be open for this exchange of customer payments. Some payments are already available to customers 24/7, such as Faster Payments and card payments. Processing customer payments occurs in other infrastructure, outside RTGS.
In the periods between settlement cycles, potential settlement risk can therefore arise between settlement members. Final settlement of the resulting net movements takes place in the RTGS system once or more each business day, depending on the payment system.
Prefunded deferred net settlement: Prefunding eliminates settlement risk in systems that use it by capping the maximum net obligations of settlement members in that system. Settlement members must hold funds in a cash collateral account in RTGS equal to that cap. If a settlement member defaults, the cash set aside can be used to complete settlement. This eliminates credit risk between settlement members.
Deferred net settlement: This is periodic batch settlement between settlement members on a multilateral net basis. A feature of this model is that settlement risk exists in these payment systems, mitigated by arrangements in the individual systems.
Accessing and using reserves and settlement accounts
Banks and other financial institutions can hold accounts in our real-time gross settlement system (RTGS) for holding reserves or settling net obligations from payment systems. Non-bank payment service providers can hold settlement accounts in the RTGS system. Further information is available on direct and indirect access to the CHAPS system
Settlement accounts policy
Access for non-bank payment service providers
Reserves accounts are effectively sterling current accounts for participants in the Sterling Monetary Framework.
Reserves account holders must be banks or building societies that are authorised to take deposits in the UK, investment firms authorised by the Prudential Regulation Authority, or central counterparties.
Settlement accounts can be used to settle obligations that arise from participating in payments systems in central bank money. Reserves accounts can also be used as settlement accounts.
To be eligible for a settlement account, a firm must hold a reserves account or be a financial market infrastructure or an e-money or payment institution authorised in the UK by the Financial Conduct Authority. They must also meet the criteria for settlement participation in the relevant payment systems.
Cash collateral accounts
We have created special accounts for direct settlement participants to hold funds to cover the maximum possible net debit positions they could reach in certain retail payment systems.
For institutions that hold a reserves account, these balances form part of their overall reserves balance and are remunerated at the same rate. Cash collateral accounts are also available to non-bank payment service providers.
If a participant defaults, the cash set aside can be used to complete settlement. This eliminates credit risk between direct participants.
These accounts are provided to direct settlement participants in Bacs and the Faster Payments Service and, from October 2017, the Image Clearing System for cheques.
Requirements for use of RTGS accounts
Holders of RTGS accounts must enter into Terms and Conditions. Annexes cover particular purposes for which the account is used.
Agreements are also in place with the operators of payment systems that settle in RTGS.
Account holders can use an online system to manage accounts in RTGS and their CHAPS payment queues. A detailed RTGS reference manual is available for RTGS account holders.
RTGS accounts terms and conditions (plus annexes)
RTGS reference manual (password-protected for account holders only)
Fees for accounts
We charge fees to participants, which are reviewed annually and set in advance for the coming year. There are separate tariffs for each system. We operate on a full cost recovery basis over a defined time frame.
The tariffs for CHAPS and CREST take the form of an annual membership fee for each participant and a per-item fee reflecting volume settled via the RTGS service.
For the retail systems, there is an annual charge per participant. We do not charge a per-item fee.
The organisations that operate the payment systems set their own, separate, charges.
Changes to the RTGS service
RTGS Renewal Programme
The RTGS Renewal Programme will deliver the next generation of our real-time gross settlement (RTGS) service. The programme is currently in its definition phase, during which we will establish the priorities, sequencing and timetable for transitioning to a new RTGS system.
A blueprint for a new RTGS service
Consultation: A new RTGS service - safeguarding stability, enabling innovation
Progress update: Blueprint for a new RTGS system
Speech: A new heart for a changing payments system
The new RTGS service will deliver a range of new features and capabilities. This is necessary because the way payments are made has changed dramatically in recent years, reflecting changes in the needs of households and companies, changes in technology, and an evolving regulatory landscape.
Throughout the transition we will take the utmost care to make sure the service currently provided is available, given the system’s importance to the UK economy.
We will continue to engage with the payments community throughout the programme definition period, to ensure that the next generation of RTGS service creates a world-leading payments landscape for the UK.
External advisory body: RTGS Renewal Programme
One of the commitments we made in the RTGS blueprint was to set up an external advisory body to advise us on implementing the renewed service. We have now established the advisory body, which represents a broad range of interests, from current RTGS members, prospective members and trade bodies.
The advisory body’s objectives are to:
- Support an ongoing and effective dialogue between the Bank and our stakeholders during the RTGS Renewal Programme.
- Provide a senior forum for the Bank to gather informed views on all aspects of the programme from a cross-section of experienced stakeholders.
- Give a means for the Bank to understand and, where appropriate, challenge the industry’s implementation plans.
- Drive a smooth and timely transition to the new service by promoting industry collaboration on cross-cutting industry risks and issues.
The first meeting of the advisory body was held in July 2017.
Terms of reference: RTGS Renewal Programme external advisory body
ISO 20022 working groups
As part of the RTGS Renewal Programme, the Bank will implement ISO 20022 compliant messaging standards in the High Value Payment System. The Bank will adopt the following objectives in designing the new messaging standard:
- Support broader UK public policy goals by enabling the transportation of richer payments data, thereby:
i. Improving macroeconomic data analysis
ii. Improving industry’s ability to meet their compliance responsibilities, such as AML/KYC
- b. Implement an interoperable and harmonised messaging standard, thus:
i. Enhancing system resilience by removing a barrier to the redirection of payment traffic between domestic payment systems
ii. Creating the potential for bank efficiency gains in the cross-border payments industry via harmonised international messaging standards
- c. Support the development of innovative new technologies and systems by improving the structure and quality of the data carried within payment messages
- d. Facilitate the delivery of a better end-user experience by providing the capacity at the centre to support more functionality and efficiency in end-to-end processes
The Bank has established two Working Groups focused on ISO 20022, comprising representatives from across the payments industry. These groups will advise the policy decisions that must be taken in relation to the new messaging standard.
- The Data Working Group will advise on potential enhancements to payments messages, taking advantage of the ISO 20022 standard data carrying capabilities.
- The Interoperability Working Group provides industry experience and technical advice regarding the design of the new standard, seeking to enhance interoperability with the UK retail schemes, and harmonise with international high value systems, also implementing ISO 20022.
The first Data Working Group met in October and the first Interoperability Group met in November. The reading packs and minutes for these meetings can be found in the links below.
At this time, membership of the groups has been determined, but the Bank welcomes feedback and input on our progress which can be directed to ISO20022@BankofEngland.co.uk
Reading Pack for First Interoperability Working Group
Reading Pack for Second Interoperability Working Group
Record of Second Interoperability Working Group
Data Working Group:
Reading Pack for Second Data Working Group
Reading Pack for Third Data Working Group
Record of meeting of the Third Data Working Group
Direct Delivery of CHAPS
One of the earliest changes under the RTGS Renewal Programme was the move to a direct delivery model for CHAPS in November 2017.
Extended CHAPS and CREST settlement day
On 20 June 2016, the CHAPS and CREST settlement day was extended by an hour and 40 minutes to a new later end-of-day of 6pm. The CHAPS deadline for customer payments changed to 5.40pm, although customer cut-off times set by providers may be earlier. We enabled these changes by extending the operating hours of the RTGS service.
Identified benefits included enhanced risk management for financial market infrastructures, increased flexibility in market participants’ balance sheet management, and greater flexibility for end users. The Bank and the operators of CHAPS and CREST completed a review in late-2017 covering whether the identified benefits have been enabled by providers and adopted by users. The review included engagement with relevant stakeholders and considered whether further actions are required to encourage the realisation of benefits.
Greater flexibility for end-users. CHAPS and CREST service providers have passed on later cut-off times to customers. In summer 2017, an average of 6.1% of CHAPS daily values and 5.3% of volumes settled in the additional 100 minutes. We found that the change in hours enabled more customer CHAPS payments instructed late in the business day to settle on the same day.
Improved risk management. Some CHAPS and CREST service providers thought the extension has enabled improvements to operational stability through reduced time-pressure, providing additional time to manage incidents and calmer end-of-day processing.
Improved balance sheet management. As expected, there have been no significant changes to the timings of sterling money market or foreign exchange flows (and few trades that would need to settle later the same day). Separately, FMI members now have greater flexibility over how they meet their financial commitments to the FMI.
Next steps. The Bank has no current plans for changes to the operating hours of RTGS. In building the next generation of our RTGS service, the Bank will build the technical capability to operate at close to 24 hours during business days for real-time gross settlement and potentially to carry out periodic net settlement of retail systems over the weekend. This will ensure that there is flexibility to change the operating hours in the future in light of user demand.
RTGS operating hours review (November 2014)
Extending the CHAPS and CREST settlement day: May 2015 report
Extended settlement day market-wide forum documents
Frequently asked questions: extended settlement day