What is this article about?
The Bank of England’s review and modernisation of the RTGS system.
Why is it important?
It aims to enhance resilience, foster innovation, and improve cross-border payment efficiency.
What’s next?
The BoE plans to extend operating hours and streamline access for non-bank entities and foreign banks.
The Bank of England (BoE) is currently undertaking a comprehensive review of the real-time gross settlement (RTGS) system, with a view to modernising it in line with the G20 roadmap for improving cross-border payments.
This review seeks to ensure the system remains resilient and adaptable and fosters innovation to address evolving payment needs. A key step has been implementing a new RTGS core engine, removing technical limitations, and extending operating hours.
In 2022, the BoE released discussion papers to gather feedback on expanded operating hours and access policies. The access policy review specifically focuses on improving access for non-bank payment service providers (PSPs), foreign banks, and financial market infrastructures (FMIs).
This aims to reduce friction in cross-border payments. On the other hand, the operating hours review validates the growing industry demand for longer service based on real-world use cases while carefully considering public policy implications.
Last month, The Payments Association (TPA) hosted a consultation session alongside the BoE to provide an opportunity for direct engagement between the Bank’s representatives and TPA members on the important topics of RTGS access policies and operating hours.
The discussion revealed that the G20 roadmap for enhancing cross-border payments has pinpointed several long-standing frictions in the process. To mitigate these issues effectively, it has been deemed essential by both the Bank and industry stakeholders to enhance access to RTGS.
Currently, the RTGS onboarding process relies heavily on coordination between several different organisations, causing delays. The BoE works with firms to establish technical connectivity to RTGS and ensure systems are compliant and tested. Meanwhile, for payment systems operators, for access beyond the settlement, firms need approval from operators of the specific payment systems, including CHAPS and BACS, they wish to connect to.
The Financial Conduct Authority (FCA) conducts its own assessment of firms seeking direct access, this includes a review period after admission is granted. Adding to this, firms must schedule onboarding activities such as technical testing around available slots from these various parties, with a misalignment sometimes occurring.
Members feel better coordination of information must be smoothly handed off between the involved organisations as firms progress through the process. By relying on multiple independent parties, the process lacks sufficient end-to-end coordination, contributing to lengthy timelines.
Members spoke about the pain points their firms are facing with the length of onboarding timelines of over 12 months. From a non-bank perspective financial institutions (NBFIs), the overall process must be streamlined and faster to allow them to compete effectively and on a level playing field with banks that may have simpler direct access through their existing relationships.
This would also, in turn, fuel innovation in payments from non-banks by removing barriers that can stall new market entrants for over a year. A streamlining of the process would enable a better experience for customers, giving PSPs the opportunity to quickly launch new services and solutions leveraging central bank money and infrastructure.
Firms agree with reducing the financial burdens and resource expenses for non-banking entities associated with protracted and intricate onboarding processes, which currently tie up both human resources and capital for prolonged periods.
Members emphasised simplifying and expediting the end-to-end onboarding process rather than just focusing on individual components handled by separate organisations like the BoE.
Even if the BoE or other individual parties make improvements to their own roles, members feel this may not fully address the core problem if handoffs between organisations still introduce delays or complexities. There is a concern that simply optimising parts of the process in isolation will not achieve the end goal of granting faster, simpler access. Simplifying and expediting the process, potentially reducing it to three months, should be a priority area for reform.
The BoE recognises that while it is taking actions internally to improve the aspects within its control, such as onboarding slots and testing processes, there is a recognition that it is not solely down to the Bank.
It is clear that the BoE understands the industry’s perspective—that a holistic, coordinated approach across all stakeholders would be necessary to deliver meaningful change, not just isolated improvements by any single party.
Natalie Lewis, a partner at Travers Smith, details how important settlement of central bank money is to financial market infrastructures (FMIs). She says, “To RTGS, it is, therefore, a major factor in their ability to scale or demonstrate a viable business case at the outset.”
Lewis praised the ‘discretionary mobilisation stage’ for FMIs that the BoE discusses, saying it has the potential to be a very “positive development” to give “more structure to the engagement new FMI entrants to the market have with the Bank.”
Russ Albert, payment product lead at PEXA, says that expanding RTGS operating hours can significantly benefit modern life, particularly in stressful situations like buying property. “Extending these hours would facilitate quicker and more reliable fund transfers, providing greater convenience for consumers,” he says.
“For instance, in property transactions, extended RTGS hours would allow buyers to finalise their purchases and move into their new homes more flexibly, even on weekends,” he states.
“A phased approach to implementing this extension, starting with a suitable payment scheme, would enable smoother integration and better measurement of success. This extension would also offer liquidity benefits to lenders, minimizing the financial shocks from lending activities.”
Moving forward, industry stakeholders are seeking clearer plans around how responsibilities will be allocated, dependencies addressed, and handoffs between organisations optimised to expedite the end-to-end onboarding journey for non-banks.
The timeline for developing and implementing the proposed changes arising from the BoE’s review remains unclear. An analysis of the discussion paper’s feedback will continue over the next few months.
A consultation paper on extended operating hours has been earmarked for next year to facilitate further industry engagement. However, coordinating tangible changes across the multiple organisations involved in onboarding non-banks is expected to be a lengthy process.
Lewis praised the Bank for its commitment to the industry. “It is extremely welcome to see the Bank of England seeking input from the industry in such an open and accessible way, and in our view, the Bank are likely to have considerable support for the direction of travel. It is good to see the Bank actively exploring the role it can play in enabling innovation in payments,” she says.
So, while all parties are committed to ongoing engagement, the timeline for finalising and rolling out coordinated policy changes remains uncertain and likely spans several years.
To prioritise streamlining access, it is vital to have clear commitments and accountability from all relevant stakeholders. The BoE should work with payment systems operators and the FCA to develop a coordinated, formal plan to simplify the onboarding process across organisations.
In addition, target timelines and performance metrics should be established to monitor progress on expediting access. Non-banks must continue actively engaging in consultations to emphasise streamlining as the top priority for future policy changes.
Future bank proposals and initiatives should demonstrate how they will comprehensively address non-bank concerns about the end-to-end onboarding journey, not just isolated parts. Regulators also may need to incentivise coordination between payment infrastructure operators if voluntary cooperation fails to deliver necessary the changes required.
Making streamlined access a measurable, accountable goal that all stakeholders are jointly responsible for achieving would help ensure it remains front and centre.
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