Payments are essential to the UK’s economy. Most payments are made through payment systems. We have been acting as a settlement agent for payment systems since the nineteenth century. We are currently in the definition phase of a renewal programme to deliver the next generation of our settlement service, which supports our role as settlement agent.
Find out more about what payment systems are and how they work:
Payment systems are a set of common rules and procedures that support the transfer of funds between people, businesses and financial institutions. Most payment systems are managed by operators, and supported by one or more infrastructure providers of hardware, software, and communication networks. Some financial institutions have direct access to each payment system and provide payment services to their customers.
Not all accounts are held at the same payment service provider, so when a customer makes a payment to a business that has an account with a different provider, the customer’s provider owes the business’s provider the value of the payment. This creates a level of risk, so a payment system needs to use an intermediary, known as a settlement agent, for the final settlement of funds between providers.
Banks and other institutions can hold accounts with us, which are used to settle money moved between them. We provide these accounts to support our mission of maintaining monetary and financial stability. There is a financial stability advantage for a settlement agent being a central bank like the Bank of England. As we are financially supported by the Government, this removes the risk of account holders losing money held in, or moved between, accounts held with us.
We operate the real-time gross settlement (RTGS) service, infrastructure that holds accounts for banks, building societies and other institutions. The balances in these accounts can be used to move money in real time between these account holders. This delivers final and risk-free settlement.
We also operate CHAPS, the UK’s high-value payment system which provides efficient, settlement risk-free and irrevocable payments. There are over 30 direct participants and several thousand indirect participants that make CHAPS payments through one of the direct participants.
Our strategy for RTGS and CHAPS, which is set by the RTGS/CHAPS Board, is to provide services that, in addition to providing value for money, are:
We have dedicated governance arrangements for the RTGS infrastructure and CHAPS payment system.
The RTGS/CHAPS Board (the Board) provides strategic leadership for the RTGS infrastructure and CHAPS payment system. The Board operates within the Bank’s wider governance structure, reporting to the Governor and Court.
The Board supports the delivery of the Bank’s mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. It also seeks to promote efficiency, innovation and competition in sterling payments, wherever that can be safely done without impairing stability.
As operator of a systemically important payment system, the Bank is accountable for the end-to-end risk management of the CHAPS payment system. The Board supports this through the oversight of all risks that could affect the payment system's resilience.
For both RTGS and CHAPS, the Board is responsible for:
The Board is chaired by the Bank’s Deputy Governor for Markets and Banking, Dave Ramsden. Its membership includes four independent, external appointees, to provide additional challenge, broader experience and insight into the Board’s decision-making. The Board takes appropriate input from RTGS and CHAPS users, including through the CHAPS Strategic Advisory Forum.
The members are:
The RTGS/CHAPS Board works closely with The Renewal Executive Board (REB) – a committee of the Bank responsible for overseeing the RTGS Renewal Programme (the Programme). The REB is responsible for decisions on the overall scope of the Programme, financial management of the Programme and provision of appropriate resources to the Programme.
The REB will inform and, where appropriate, consult the RTGS/CHAPS Board on all relevant matters as these pertain to the live service, industry and scope change. This will include sight of the “go/no-go” decision-making process (including any material risks to the live service identified in any recommendation to go live) for the different Transition States. Information flows are in place between the REB and the RTGS/CHAPS Board on matters that would affect each other’s responsibilities.
The Board has delegated the monitoring of the CHAPS and RTGS risk management framework, risk tolerance and risk profiles to the RTGS/CHAPS Board Risk Committee. This committee comprises four board members: Steve Bell, Kevin Brown, Michael D'Souza and Rebecca Jackson.
In March 2023, we published an updated self-assessment of the RTGS and CHAPS services against the CPMI-IOSCO Principles for Financial Market Infrastructures, with point of assessment 31 October 2022.
The principles are internationally agreed standards considered essential to strengthening and preserving financial stability. In carrying out the self-assessment, we considered the CPMI-IOSCO guidance on how the principles apply to financial market infrastructures operated by central banks. As a payment system, CHAPS has been self-assessed as standard against the CPMI-IOSCO principles. While the RTGS service is not a payment system or a financial market infrastructure, we have undertaken the self-assessment for RTGS aspects against the principles that apply to payment systems.
This year we judged that of the 17 principles that apply to RTGS and CHAPS, we ‘observe’ 15 and ‘broadly observe’ two – risk management and operational risk. A number of the principles only apply to RTGS or CHAPS, not both.
Our self-assessment to remain ‘broadly observed’ on risk management is based on continuing conservative view that we would like to see residual areas mature further. We also moved to ‘broadly observed’ for operational risk, reflecting two risks – resourcing risk and change management risk – which led us to reassess our processes for managing change and change-related risks against the backdrop of a period of intense internal and external change.
We complete the self-assessment as operator of the RTGS and CHAPS services and not in our capacity as supervisor of financial market infrastructures or banks.
The RTGS service needs to be very operationally reliable to support final settlement between accounts that providers hold with us. The service is managed within a clear governance framework. This covers strategy, delivery and risk management.
We carefully consider and test all changes to the RTGS service because they could affect our mission of maintaining monetary and financial stability. We discuss potential changes with account holders and the operators of the payment systems that settle in RTGS.
The RTGS service operates on fault-tolerant computer hardware that is replicated on a second site. The business operation is conducted on a split-site basis. We have the option of using a third site and alternative technology in the form of SWIFT’s ‘Market Infrastructure Resiliency Service’ (MIRS). Further information on MIRS is below, including background information for invoking MIRS for RTGS and CHAPS settlement.
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.
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 and provide a user guide alongside other information to help DPs understand how to use the liquidity saving features.
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.
Accounts in RTGS are used to settle the net obligations arising from customer transactions for the main sterling retail payment systems: Bacs, Faster Payments, Image Clearing System, LINK, Mastercard Europe, PEXA Payment scheme, 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. It is operated by Pay.UK.
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. It is operated by Pay.UK.
The Image Clearing System settles based on images of cheques and paper credits on a two-day cycle. Net settlement takes place once each business day in the RTGS system. It is operated by Pay.UK.
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.
Mastercard Europe is a card system 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.
PEXA's payment scheme is dedicated to orchestrate property transaction payments. Settlement takes place six times each business day in the Bank’s RTGS system.
Visa Europe is a card system 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.
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.
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.
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.
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 access to CHAPS system.
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.
Organisations interested in applying for a reserves account should refer to information for SMF participants and may contact our SMF applications team at applications@bankofengland.co.uk.
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. Given the transition to the new core ledger and settlement engine as part of the RTGS Renewal Programme, we expect the next available slots for settlement accounts will be in the first half of 2025.
Organisations interested in applying for a settlement account should contact us:
Omnibus accounts can be used by a recognised payment system operator to pool participant funds. This allows the operator to fully fund wholesale settlement – on their platform – with central bank money and mitigate credit and settlement risk.
The funds in the account can be held both during and outside of RTGS operating hours. Balances are remunerated at Bank Rate. To directly participate in the relevant payment system using an omnibus account, an organisation has to hold a reserves accounts. Our Omnibus Account Policy explains the eligibility requirements in detail.
A payment system operator has to be recognised under the Banking Act 2009 to be eligible to hold an omnibus account. Organisations interested in applying for an omnibus account should contact us at rtgschapsaccess@bankofengland.co.uk. Payment system operators that are not recognised need to discuss recognition with HM Treasury. The Treasury has published a guidance note on the recognition process.
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 organisations that hold a reserves account, these balances form part of their overall reserves balance and are remunerated at the same rate. Prefunding accounts are also available to settlement account holders including 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 Faster Payments and the Image Clearing System for cheques. It is not possible to apply directly to the Bank for a prefunding account. Applications must be via Pay.UK as the operator of Bacs, Faster Payments and the Image Clearing System.
Banks and other financial institutions can experience periods of financial distress. The UK, like many other countries, has a resolution regime for banks and certain other types of financial institution. Resolution is a way to manage the failure of an institution in an orderly way to maintain critical functions – like the provision of payment, clearing and settlement services, protect public money and protect financial stability.
As the operator of RTGS and CHAPS we play a key supporting role in the continuity of access to Financial Market Infrastructures (FMI) by firms in resolution. As well as CHAPS, this applies to other FMI that undertake their final settlement in our RTGS system. To aid resolution planning, we have published our response to the Financial Stability Board’s questionnaire on Continuity of Access to FMIs for Firms in Resolution.
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.
We charge fees to organisations that hold an account in RTGS used for settlement. These fees are reviewed annually and set in advance for the coming year. We operate on a full cost recovery basis over a defined time frame.
The retail payment system operators and the operator of CREST set their own, separate, tariffs and fees.
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.
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.
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.
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.
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.
