The Bank of England is exploring extending the operating hours of its real-time gross settlement (RTGS) system as a future payments system innovation. Following the publication of a discussion paper in February 2024, the Bank of England has published a response paper which will provide guidance on the direction of RTGS and its associated services such as the automated payments clearing system CHAPS.
UK supports round-the-clock payment settlement system
Feedback highlights the potential benefits and challenges of extending RTGS and CHAPS settlement times, supporting the Bank of England’s desire to modernize the payments system in line with increasingly 24/7 markets around the world. Industry players acknowledged its benefits, such as enhanced cross-border payments and improved liquidity management, but also stressed that any extension would need to be rolled out in phases, with a clear business case required to ensure cost-efficiency and operational readiness.
Why do banks need to extend settlement time?
Benefits to global payments and liquidity management
The industry generally believes that extending the settlement time of RTGS and CHAPS will benefit the payments sector, especially improving the efficiency of cross-border transactions in Asia Pacific (APAC), the European Union (EU) and the Americas. The extended period also simplifies liquidity management and promotes payments innovation. For example, early settlement times can be more effectively synchronized with transactions in different time zones, thereby improving operational efficiency and reliability for international transactions.
Operational challenges and costs
Key cost factors identified in the feedback as extending settlement times include staffing and operational system upgrades. Respondents said that while extended time may increase the cost of monitoring and processing transactions, cost savings are also possible through automation and long-term efficiency gains.
Traditional banks move towards near 24×7 settlement
Industry supports phased implementation
Most industry participants support a gradual extension of RTGS and CHAPS settlement over the next few years, which would allow time to establish the systems and processes needed to support new operating models. A minimum two-year lead time is required before any extension can be implemented, with some companies even requiring three years to ensure adequate preparation.
It will take until 2027
The Bank of England envisages an initial extension of settlement hours to earlier opening times, possibly from 1:30am UK time, but no changes will be made until 2027. This is consistent with the Bank of England’s vision for close to 24×7 settlement operations by the end of the decade. Further analysis and consultation with stakeholders will determine the final timetable, with a consultation document due to be published in 2025.
Towards an innovative vision in money and payments
Strengthening the RTGS system to support longer-term operations is seen as a fundamental step towards supporting new technologies and payment methods, including wholesale central bank digital currencies (wCBDCs), systemic stablecoins and potential digital currencies such as digital pounds.
The Bank of England is working with industry stakeholders to analyze and develop operating models, transition pathways and service support structures for extended settlement times. The goal is to balance providing an open innovation platform, maintaining the stability of central bank currencies, and ensuring that these changes are feasible for banks and industry participants.
This article 24/7 banking! The Bank of England considers extending the RTGS settlement time, and the payment system evolution will not take until 2027. First appeared in Chain News ABMedia.