enhancing resilience in payments speech given by victoria cleland, executive director ; banking, payments & innovation payexpo, london 8 october 2019 with thanks to samantha leighton and james sanders for their assistance in preparing this speech. all speeches are available online at www. bankofengland. co. uk / news / speeches it is a pleasure to be speaking at payexpo at the business design centre in islington today, in an agenda packed with innovation and technological advance. i lived in islington when i first moved to london, which had the great benefit of enabling me to walk to work. i now live further afield, but i am able to make the journey in similar time benefitting from advancements in new ( er ) technology – a bicycle! it is also a pleasure to be speaking at a second major payments event in london in a month, following hot on the heels of sibos in late september. this demonstrates the importance of london, and the uk, as a hub for payment innovation and fintech more widely. in the second quarter of 2019 funding for fintech companies topped $ 8. 3bn, growing 24 % quarter - on - quarter1 – just one sign of a thriving industry. the number of payments made in the uk continues to increase too and reached a record 39 billion in 2018, with a value of more than £90 trillion. 2 we are also experiencing a period of rapid change in the way payments are being made ( one can even hire an electric bike using an app ) by consumers and businesses, and in the companies and technologies behind them. at sibos i spoke3 about the bank of england ’ s engagement with innovation and future trends in payments, both through our response to the future of finance report4 and our work to renew the uk ’ s real - time gross settlement ( rtgs ) service. this is an ambitious programme which will be delivered over the next few years. our vision for rtgs is defined by : increased resilience ; greater access ; wider interoperability ; improved user functionality ; and strengthened end to end risk management. today i will focus on the steps we are taking right now on the fifth of these to enhance the resilience in payments. operational risk and resilience are in the spotlight like never before, with the fca reporting a 187 % increase in technology outages from 2017 to 2018. 5 the joint discussion paper the bank, pra and fca published last year6 started a dialogue on

payments industry that is experiencing a period of rapid change in technology, cloud technologies are growing in importance. the bank is taking steps to facilitate its adoption, including issuing a supervisory statement later this year. the use of a cloud model is an evolution of, and a key element in, the supply chain for many financial institutions – including those who access chaps. we believe the use of cloud technologies has the potential, if used appropriately, to minimise end - to - end risk and improve operational resiliency of the chaps system, taken as a whole. as the operator of chaps we want to enable our current and potential direct participant to realise these benefits in a safe and controlled way, without compromising the resilience of the chaps ecosystem. we are assessing the risks that the use of cloud technology https : / / www. nist. gov / cyberframework https : / / www. fca. org. uk / publication / research / technology - cyber - resilience - questionnaire - cross - sector - report. pdf all speeches are available online at www. bankofengland. co. uk / news / speeches presents to the chaps system, and the nature of mitigating controls that we require. in due course, we expect to propose new controls for cloud usage as it relates to chaps. policy development development and implementation of requirements must be supported by strong and innovative policy thinking. the bank works collaboratively on policy with other fmis and central banks internationally. some work - streams focus on resilience, others support greater innovation : and increasingly we look to combine the two. chaps has historically had a small number of direct participants and a much larger number of indirect participants which access the system through a sponsor bank. this arrangement ( known as ‘ tiering ’ ) introduces credit, liquidity and operational risks, which were brought into sharp focus by developments including the financial crisis. with heavy tiering, if a large direct participant was to encounter financial or operational issues, this would also impact the ability of the indirect participants that rely on it to make payments – causing issues to spread further across the financial system. these risks are best addressed by increasing direct access to the chaps system to reduce concentration in a small number of large sponsor banks. as a result, the bank has worked for several years, initially with chaps co and more recently as the operator of chaps, to implement a strategy to mitigate the risks arising from tiering