Remarks
Real-Time Gross Settlement (RTGS) Renewal: Enabling the
Next Generation of Payments
Remarks by
Victoria Cleland, Executive Director, Banking, Payments and Financial Resilience
Technology and Innovation Risk Conference 2018
25 September 2018
I would like to thank Richard Lewis and Cameron Penny for their contributions.
Opening
Good morning, it is a pleasure to join you today at the Technology and Innovation Risk Conference. I would
like to update you on an exciting programme to renew our Real Time Gross Settlement (RTGS) service,
where we are seeking to use the latest technology to help to reduce risks and increase innovation and
competition in payments, and in the financial sector more broadly.
RTGS is a key piece of national infrastructure but one which many people have not heard of. This morning I
would like to demystify the acronym and take you through the work the Bank is undertaking to enhance this
vital service and to innovate for the future.
The RTGS service supports accounts for banks, building societies, financial market infrastructures, and most
recently, non-bank payment service providers, and provides sterling settlement services for Bacs, CHAPS,
Cheque & Credit, CREST, Faster Payments (FPS), LINK, Visa and cheque clearing. Most payments in the
UK eventually pass through the RTGS service, and on average over £600billion of payments are settled
roughly equivalent to the UK's GDP every
through the system each day - three days. Under the real-time
gross settlement model payment instructions are exchanged and settled individually on a gross basis
throughout the business day (unlike under a 'deferred net settlement' model where payments are exchanged
a 'clearing cycle'). Under the RTGS model 'settlement risk' does not occur and our
by participants during
financial stability objective is promoted as claims and liabilities between banks and other participants are
settled in central bank money which is the ultimate secure and liquid asset. It is also the platform through
which monetary policy decisions are implemented and provides liquidity to the financial system.
Why are we renewing?
Just metres from this conference venue is Pudding Lane where in 1666, after a long, hot summer it was an
ember from a baker's oven that set off the Great Fire of London. This triggered the rebuilding of St Paul's
Cathedral, the city's gates and bridges and much more. I'm pleased to say that the Bank of England today
finds itself in the far more fortunate position of renewing its critical infrastructure through choice rather than
necessity.
RTGS was launched in 1996, and the world, let alone the financial system, has changed dramatically in the
intervening 22 years. RTGS has undergone various upgrades but now is time for a more fundamental
renewal. Technology is changing, the payments landscape is changing and the demands of users and
potential users are changing. There are also a wide range of domestic and international policy changes
ranging from the creation of the New Payments Architecture to the implementation of PSD2 so now seems
an opportune time to promote the transformation of the payments landscape. The Bank is committed to
introducing the new service in a safe and sustainable way which ensures the integrity of the high-value
payments system and provides for close levels of co-ordination with participants.
A core objective in the renewal programme is to ensure the resilience and safety of the UK's payment
infrastructure whilst also supporting competition and innovation in the financial services industry. We want to
support new ways of doing business and serving society's payment needs.
Our vision of the future RTGS
was set out in a Blueprint published in 2017.1 In developing this vision we undertook considerable dialogue
with industry: it is essential that the new system meets its needs.
Our vision
Five guiding principles sit behind our vision for the renewed Real-Time Gross Settlement service.
Higher resilience: Resilience to operational and security issues will be at the heart of the new service, as it
is today. The renewed RTGS will continue to offer best-in-class resilience which means it will be designed
to deliver an improved objective of zero or near-zero downtime for currently known resilience problems.
Broader access: The Bank wishes to promote membership of RTGS and has made steps towards this by
extending direct access to RTGS accounts for non-bank Payment Service Providers (PSPs). We will also
continue to focus on streamlining the onboarding and testing regimes for direct members.
Wider interoperability: We will promote ways in which users can reroute payments especially if outages
occur. This will reduce the risk of downtime and help to keep the economy moving. Implementation of the
ISO 20022 Common Credit Message (CCM) across CHAPS, Bacs and FPS will aide in this.
Improved user functionality: The new system will be designed to better support the needs of users, for
example enhanced liquidity management. And we will also look to extend opening hours.
Strengthened end-to-end risk management: A more robust system with greater oversight and governance
from the Bank of England has been introduced since the operation of CHAPS was brought in-house in
November 2017. The Bank now has responsibility for system-wide risk management, including relationships
with participants, and clearer lines of responsibility and integrated governance will help to reduce further the
risks in the High-Value Payment System (HVPS).
Today I will cover three key areas:
• Firstly, how we want to expand access to RTGS to enhance financial stability and promote
competition;
1
Bank of England, A blueprint for a new RTGS service for the United Kingdom,
https://www.bankofengland.co.uk/paper/2017/ablueprint-for-a-new-rtgs-service-for-the-uk
•
Secondly, how we are examining ways of supporting settlement across innovative payment
technologies; and
•
Finally how ISO 20022 implementation will support innovation, harmonisation and resilience.
Improving access
The Bank wants to see the next generation of RTGS support greater competition and innovation within the
payments industry. Expanding access to the service also has the benefit of providing greater financial
stability by reducing operational reliance on a small number of banks and lowering the credit exposures
between direct and indirect participants. We have therefore changed the access criteria to enable non-bank
Payment Service Providers (PSPs) to join. Earlier this year Transferwise was the first non-bank to gain direct
access to RTGS, followed soon after by Ipagoo.
Going forward we also want to make the onboarding process smoother and more efficient. For instance, we
intend to introduce automated testing, which will reduce the burden and manual effort required by both new
and existing participants when someone joins RTGS. And we will introduce simulators to help onboarders
better familiarise themselves with RTGS and the full functionality it offers before going live.
Innovative payment technologies
The UK is a world-leader in financial services technology and innovation. We have a fintech industry which
employs over 60,000 people.2 This success is not limited to London; centres of excellence exist across the
country including Manchester, Leeds, Edinburgh and Cambridge (where Sir Dave Ramsden is today chairing
a fintech roundtable). Innovation is not the preserve of those in the fintech sector; the banking industry as a
whole is making system-wide changes to improve how it serves the people of the UK. The Bank is also no
stranger to innovation and in my previous role as Chief Cashier I oversaw the introduction of the new
cleaner, safer and stronger five pound and ten pound notes.
We decided not to build the renewed RTGS on Distributed Ledger Technology (DLT), wanting to first see
greater proof of resilience and scalability. However, we are keen to facilitate the use of new technologies
and we are working to deliver a service that has the capability to interact with DLT systems should demand
emerge.
The Bank has recently concluded a Proof of Concept (PoC) with a number of fintech firms on this topic. The
purpose of this PoC was to (a) understand how RTGS could be capable of supporting settlement in systems
operating on innovative payment technologies. (b) To understand the limitations that such systems might
need to navigate. Amongst those considerations was what additional functionality the renewed RTGS service
2
https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/10/value-of-fintech.pdf
KPMG, Value of Fintech,
would need to provide in order to enable platforms using innovative technology to optimise their access to
central bank money settlement.
website in June this
The results of the POC were published on the Bank of England's year.3 The results were
encouraging and demonstrated that participants using alternative technology, such as DLT, could connect
and settle. If used in this way, it could enable a wider range of institutions and infrastructures to access
prefunded settlement, supporting competition and innovation, offering efficiency gains for users preparing
RTGS for future demand.
Another area of research is synchronisation - sometimes known as 'atomic settlement'. This would provide
the ability to link payments (or other asset movements) so that each individual movement would happen if
and, only if, they all do. Initial industry feedback suggested that for certain transaction types (such as housing
transactions, corporate transactions, securities settlement and cross-border payments), synchronisation
might reduce cost and risk, improve efficiency, and support innovative new methods of settlement. We
recently published a Call for Interest on synchronisation; the deadline for which is 28 September.4
ISO 20022
None of our ambitions; be they higher resilience, broader access, wider interoperability, improved user
functionality, or stronger end-to-end risk management, would be possible without a messaging standard in
place. A messaging standard is a common set of rules for exchanging relevant payment information in order
to enable efficient communication with participants and related infrastructures. Messaging standards cover
such things as:
•
How senders and receivers identify each other;
• How key properties of a payment message, such as currency, amount and value date, are
represented; and
•
What additional information can be included.
The Bank is committed to transitioning to a new standard, specifically ISO 20022, as is the New Payment
System Operator (NPSO). This is an open and global standard which can continually evolve to meet the
needs of users. It is network agnostic to enhance interoperability with various operating systems and it has
substantially increased data carrying capacity. Ultimately, in the very long term, ISO 20022 could also enable
us to include a diverse range of characters from existing languages and other communications systems,
though we will focus on ensuring we get the basics right first. In any case, this transition from the legacy and
3
Bank of England, RTGS Renewal Programme Proof of Concept: Supporting DLT Settlement Models,
https://www.bankofengland.co.uk/news/2018/july/rtgs-renewal-programme-proof-of-concept-supporting-dlt-settlement-models
4
Bank of England, Call for interest: Synchronised settlement in central bank money,
https://www.bankofengland.co.uk//media/BoE/Files/payments/rtgs-call-for-interest-synchronised-settlement-in-central-bank-money
the UK's
restrictive standards currently used will have far-reaching implications and benefits for not only
payments system, but participants and their customers.
One of the key changes will be the creation of the UK Common Credit Message (CCM).The proposed CCM
would provide a set of definitions, structures and rules for inputting data into a payment message for
Payment Service Providers and users. Domestic adoption of the CCM will ensure that the majority of the
content in high-value and retail payments is aligned, streamlining processes for payment services providers
and potentially enabling rerouting of payments between different payments systems in the event of
operational disruption.
Other benefits arising from ISO adoption will be much improved information concerning the identities of those
in payment transactions. This will include the adoption of Legal Entity Identifiers (LEIs), which when rolled
out more widely have the potential to enable banks and non-bank payment service providers to deploy
next-generation fraud prevention measures. The Bank will ensure that this functionality is in place but it will
be up to industry to deliver these enhanced services for customers.
As with the overall RTGS Programme the Bank is committed to proactively engaging with industry to get this
right. A consultation on ISO 20022 closed in July 2018 and the Bank, in collaboration with the NPSO, is
reviewing the responses received. There will be an update on next steps and how the Bank will structure
future ISO engagement towards the end of the year. We are also maintaining an active dialogue with the
NPSO as it takes forward plans for the New Payments Architecture which will also deploy on ISO 20022.
Close
The RTGS Programme is a significant piece of the puzzle for the future of payments in the UK. I would like
encourage the industry to continue to work with us to help shape the future of RTGS a smooth transition to
the new service. We need to have a close and transparent working relationship with key stakeholders
across the whole payments industry over the next few years. As the Bank builds and delivers its renewed
RTGS system, and stakeholders make changes and improvements to their own payment processing
systems, we can ensure that the full benefits of a renewed RTGS are enjoyed and delivered as safely,
securely and efficiently as possible, across the whole of the payments industry.
6
All speeches are available online at www.bankofengland.co.uk/speeches
References
Bank of England, A blueprint for a new RTGS service for the United Kingdom,
https://www.bankofengland.co.uk/paper/2017/a-blueprint-for-a-new-rtgs-service-for-the-uk
https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/10/value-of-fintech.pdf
KPMG, Value of Fintech,
Bank of England, RTGS Renewal Programme Proof of Concept: Supporting DLT Settlement Models,
https://www.bankofengland.co.uk/news/2018/july/rtgs-renewal-programme-proof-of-concept-supporting-dlt-
settlement-models
Bank of England, Call for interest: Synchronised settlement in central bank money,
https://www.bankofengland.co.uk/-/media/BoE/Files/payments/rtgs-call-for-interest-synchronised-settlement-
in-central-bank-money.
7
All speeches are available online at www.bankofengland.co.uk/speeches