BoE renews settlement system with “alternative” technology in mind

Excerpt from speech by Victoria Cleland, executive director, Banking, Payments and Financial Resilience, Real-Time Gross Settlement (RTGS) Renewal: Enabling the Next Generation of Payments, Technology and Innovation Risk Conference 2018

RTGS (Real-time Gross Settlement) is national infrastructure and supports accounts for banks, building societies, financial market infrastructures, and most recently, non-bank payment service providers, as well as 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 £600 billion (USD$781.5bn) of payments are settled through the system each day – roughly equivalent to the UK’s GDP every three days. Under the RTGS model ‘settlement risk’ does not occur and the BoE’s 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 liquidity is provided to the financial system.

We (the Bank of England) 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 BoE has recently concluded a Proof of Concept (PoC) with a number of fintech firms on this topic. The purpose of this PoC was to understand (a) how RTGS could be capable of supporting settlement in systems operating on innovative payment technologies. (b) the limitations that such systems might need to navigate. Amongst those considerations was what additional functionality the renewed RTGS service would need to provide in order to enable platforms using innovative technology to optimize their access to central bank money settlement.

The results of the POC (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 synchronization – 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), synchronization might reduce cost and risk, improve efficiency, and support innovative new methods of settlement.

Read the full speech

Related Posts

Previous Post
World Bank’s IFC invests $25mn in fintech Demica, announces partnership
Next Post
The SEC’s proposed ETF rules help ETF market makers but hurt securities lenders (Premium)

Related Posts

Fill out this field
Fill out this field
Please enter a valid email address.

Menu
X

Reset password

Create an account