The Bank of England opened a consultation on its real time gross settlement service (RTGS) on 16 September 2016. RTGS is a payment system providing a platform for sterling central bank reserves (the electronic counterpart to banknotes). As such, the RTGS provides a safe and final settlement for thousands of transactions a day in the UK economy between banks taking part in the seven systemically important sterling payment systems.

An outreach programme launched in January 2016 by the Deputy Governor for Markets and Banking has helped feed into the content of the consultation paper. Current and potential future users, as well as relevant authorities, payment system operators, experts and broader public interest groups have highlighted five key developments for the new RTGS system. Those being that the system must: 

  • Be capable of responding to the changing structure of the financial system;
  • Recognise that payment system users want simpler and more resilient pathways for their payments;
  • Be capable of interfacing with a range of new technologies being used in the private sector, including distributed ledgers, if/when they achieve critical mass;
  • Remain highly resilient to the increasingly diverse range of threats to continuity of service; and
  • Have the capacity to support the future evolution of regulatory and monetary policy tools.

The Bank of England is working with the Financial Conduct Authority to enable direct access to the RTGS. To enable this and tighten the supervisory regime, there will be a need for legislative changes.  These planned developments include: 

  • Payment institutions, as regulated by the FCA, will be added to the list of entities covered by the Settlement Finality Regulations;
  • Payment Services and E-Money Regulations will be amended to allow safeguarded funds held by payment and e-money institutions to be posted with the Bank of England; and
  • The Banking Act being amended so the Bank of England will be authorised to supervise any payment system that grows large enough to pose a systemic threat.

What this means for you

To help assist the implementation of the above changes and enhance the stability and safety of the service, the current RTGS will have an extensive rebuild to its technology platform. Future users can therefore expect to see a temporary increase in the RTGS tariff over time to help fund the development.

There is no immediate change to the way the current RTGS works. It is hoped that the developments, when implemented, will provide greater stability and a better platform to enable financial innovation. The update should provide for broader access, increased resilience and promote an easier interface with a wider range of user functions.

The Bank of England aims to have the “next generation” system in place in 2020 with further details on the development timetable to be announced in 2017.

The consultation can be found on the Bank of England’s website and feedback is requested by 7 November 2016.