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The Bank of England’s response to its February policy paper on extending direct access to its real-time gross settlement (RTGS) system suggests that expansion may be on the horizon for non-bank payment service providers and foreign banks alike.
The Bank of England is considering a significant expansion of access to its RTGS system, in bid to boost competition, innovation and resilience for the UK’s payments ecosystem.
Publishing its response to a February 2024 discussion paper, the central bank said there was strong industry support for its review of RTGS access.
Respondents broadly agreed with four key priority areas: enhancing the application process for non-bank payment service providers (NBPSPs); encouraging foreign bank access; clarifying entry requirements for financial market infrastructures (FMIs); and reviewing the CHAPS value threshold for direct participation.
Such an expansion would be very welcome news for the payments industry, in particular e-money institutions. For example, until now, many have relied on sponsor banks for indirect access to payment systems such as CHAPS, leaving them exposed to high fees, operational dependencies and shifting risk appetites.
In contrast, this policy change from the Bank of England would reduce reliance on traditional banks, give them greater control over settlement and open the door for more competitive offerings, especially for high-volume firms.
Wider RTGS access for NBPSPs and FMIs
The central bank has already introduced changes to its application and oversight process for NBPSPs seeking to open RTGS settlement accounts, including a minimum nine-month track record of regulated activity (subject to FCA discretion), independent assessments of compliance and enhanced supervision for fast-growing firms.
These steps are designed to make onboarding smoother and safer, reducing the risk of delays or compliance failures. Updated guidance for NBPSPs seeking access has also been published.
For FMIs, the central bank has set out new "live proving" and "mobilisation" stages, designed to help firms test systems and scale up safely before launching services externally, while also publishing a new RTGS access policy and set of RTGS rules, which provide clearer expectations around eligibility, operational obligations, and supervisory actions.
Consultation respondents endorsed the idea of a discretionary mobilisation period for FMIs, suggesting it could help new market entrants gain credibility and develop internal capabilities without the risks of premature full-scale operation.
Safeguarding reform on the horizon
NBPSPs highlighted concerns around the limited options for safeguarding client funds. Current rules prevent these firms from holding funds overnight in RTGS, forcing them to rely on a small pool of commercial banks, a situation that some see as both anti-competitive and risky.
The central bank has said its exploring whether NBPSPs could be granted access to settlement accounts with safeguarding functionality, which would remove the need to transfer funds in and out of commercial banks each day.
“Allowing NBPSPs to safeguard client funds in RTGS could help to enhance growth opportunities and innovation by levelling the playing field in the payments ecosystem,” the Bank of England said. “It would also decrease operational risk as back-and-forth movements between an NBPSP’s RTGS client funds settlement account and a commercial bank account would no longer be required.”
Such a change, it said, could level the playing field and support innovation, but must be weighed against potential financial stability implications.
This move from the Bank of England would echo that of other regulators, such as the Bank of Lithuania, which developed the CENTROlink service for e-money and payment institutions to use for the safeguarding of funds.
However, the European Central Bank has jettisoned this, clarifying in a policy statement last year that it did not condone the process of having safeguarding accounts with central banks in the eurozone because of the risks involved. This went in direct opposition to the EU’s Payment Services Regulation (PSR), which proposed doing just that.
Clarifying the case for foreign banks and CHAPS reform
The central bank acknowledged that many foreign banks prefer to rely on sponsor banks for indirect access to UK payment systems, citing the high cost and complexity of direct participation.
To support better decision-making, it has said that it is revamping its website to make information on RTGS and CHAPS access more transparent and user-friendly, and will collaborate with the Association of Foreign Banks to raise awareness.
The discussion paper also proposed a review of the 2 percent CHAPS value threshold, above which firms are expected to seek direct access. Respondents expressed concern that lowering the threshold could threaten the viability of some business models and introduce operational risks if too many firms were onboarded too quickly.
The central bank said it will continue to engage with the industry before making any decision, seeking to better understand the implications for financial stability and indirect access provision.
Going forward, the central bank reaffirmed its commitment to evolving RTGS access policies to reflect changes in the payments ecosystem. It pointed to the enhanced capacity of its renewed RTGS service, which will support a greater number of participants and more streamlined onboarding.
It also pledged to work closely with the Financial Conduct Authority (FCA) and HM Treasury on the wider regulatory framework for NBPSPs, including the FCA’s recent consultation on strengthening safeguarding rules for e-money and payments firms.
