The Bank of England has stressed the importance of the Real Time Gross Settlement (RTGS) service as the beating heart of the UK’s financial system.
In a speech outlining a more proactive approach to addressing the shifts in the wider payment landscape driven by tech innovation, the central bank’s executive director for Banking, Payments and Innovation, Victoria Cleland, announced major enhancements to the RTGS service, including the introduction of the ISO 20022 global messaging standard – a common language for exchanging payments information between different financial IT systems. Cleland stressed the benefits of ISO 20022 in “harmonizing global payment systems” and rallied for “industry-wide adoption to maximize its advantages.”
Ravindra Madduri, global head of Product Management at Baton Systems, said in emailed commentary: “Currently there is a mishmash of different payment standards across a complex web of banks, payment companies, debtors, creditors, agent banks and more. This makes real-time reconciliation for banks challenging. On top of this, many banks are still clinging onto outdated, often risk intensive and fragile legacy payments technology, some of it with origins in the 1980s. Up to now the tech has just about managed, but as the chain of payments becomes more complex, the legacy tech is highly likely not to be able to keep up.”
The possibility of extending RTGS operating hours to near 24×7 was discussed by Clealand to improve domestic and cross-border payments, as well as initiatives to foster wholesale settlement innovation, including improved channels to connect to RTGS and synchronization.
The introduction of omnibus accounts for recognized payment system operators and the inclusion of Non-Bank Payment Service Providers (NBPSPs), Financial Market Infrastructures (FMIs), and foreign banks in the access policy were also identified – with the central bank seeking industry input to further enhance access policies, operating hours, and settlement services.
“An RTGS service open longer, with more and different types of participants, and which offers synchronization to a wide range of ledgers, could achieve many of the benefits often associated with wholesale central bank digital currencies (CBDCs),” according to Clealand. “It would deliver our vision of a wholesale platform with more efficient and resilient wholesale payments provided by a competitive and mixed ecosystem of firms. And importantly would not require the creation of a completely new payment infrastructure.”