Unlocking the essentials: RTGS and CHAPS Renewal

Today’s Payments:Unpacked is brought to you by Bottomline.

Last week it was my privilege to attend the six monthly Bank of England RTGS (Real Time Gross Settlement) Renewal Programme industry update – it was great to meet a number of Payments:Unpacked readers at the event!

Although the key focus on the update was on the technical aspects of the RTGS renewal programme there were a number of insights that are of interest to the wider inhabitants of our payments niche.

So without getting technical, here’s six non technical takeaways from the Bank of England RTGS Renewal event.

RTGS Settlement Engine Live Date Revised

The RTGS Core Settlement Engine (TS3) is now scheduled to go live on the 21 October 2024 – this date has been revised from June 2024 due to testing requirements at direct participants, addressing code defects and the stability of the test environment.

Delivery of this significant milestone will enable the BoE to embark on a continuous RTGS evolution beginning with enhanced data followed by the development of future roadmap features (see below).

ISO20022 Enhanced Data

Since June 2023 it has been possible to send ISO20022 messages with enhanced data within CHAPS. The BoE’s approach to this ISO standard is to mandate enhanced data within payment instructions via a proportional rollout.

From 1 May 2025 all CHAPS Direct Participants will be required to:

Use purpose codes for FI to FI transactions and property related transactions.
Include Legal Identity Identifiers for FI to FI transactions.

The BoE are encouraging participants to send ISO enhanced data as soon as institutions can to help support the unlocking the predicted eco-system benefits.

With property related purpose codes being mandated and utilised within CHAPS but still absent from Faster Payments it seems likely that solicitors will continue to send (and charge for) property transactions via CHAPS rather than benefit from the lower processing costs of Faster Payments.

The BoE are keen that indirect CHAPS participants engage with their CHAPS Direct Participant to understand the impact and opportunities resulting from the implementation of ISO 20022 enhanced data in CHAPS messages.

HVPS+

SWIFT are introducing a High Value Payments Systems Plus which is seeking to define and refine global messaging and implementation standards to maximise interoperability

The BoE has indicated that it is a keen supporter of the SWIFT HVPS+ initiative as part of its drive for better cross border inter-operability.

Future RTGS Roadmap

RTGS’ future roadmap will focus on providing an open platform to the UK finance industry to stimulate innovation and support safe and efficient settlement in Central Bank money and may include areas such as:

Resilience: Access API’s to reduce the reliance on third parties, increased participation to provide a more economical platform, and improvements in settlement contingency options like MIRS.
Innovation: Synchronise settlements with other ledgers and technologies, extend operation hours for both domestic and criss border use cases, non-payment APIs and develop areas such as transparency, risk management and analytics.

The first two areas to be explored are the extension of RTGS business hours and synchronising settlements with other ledgers and technologies:

Following the recent discussion paper the Bank will assess and analyse responses during 2024 and consult in 2025.
The Bank will be conducting bilateral with other operators to understand their business models and inform a RTGS development business case.

In addition, the Bank will be exploring additional channels with a priority on enhancing settlement contingency options and the appetite (and use cases) for payment based APIs.

Extended RTGS operating hours

The Bank have identified four potential objectives that would support RTGS operating hours being extended:

Increased availability of interbank settlement in Sterling.
G20 initiative to support cross border payments.
To ensure that RTGS is at the forearm of (payment) technical innovation.
Continued evolution RTGS.

During the morning an extended operating window would:

Provide a wider EU / APAC overlap.
Allow non critical payments to be processed over a longer period.
Enable retail payment settlements to occur more frequently.

During the afternoon an extended operating window would:

Provide a North / South America overlap.
Extend the period that UK property transactions could occur.
Extend securities settlement windows.
Enable retail payment settlements to occur more frequently.

During the weekend an extended operating window would:

Provide a Middle East overlap for different business days.
Extend the period that UK property transactions could occur.
Enable retail payment settlements to occur more frequently.

Over the longer term an extended operating window could:

Support the liquidity impact of stable coins and CBDC’s.

The Bank intend to seek feedback on use cases, gather insights, explore the costs and benefits and define an appropriate future RTGS roadmap.

It is clear, however, that despite the new RTGS platform being technically capable any extension to the current RTGS / CHAPS operating hours will not occur until 2026 at the earliest.

ISO 20022 Synergy

Notwithstanding the work undertaken by the Bank on CHAPS as a retail alternative (CARA) the Bank is not looking to provide a retail alternative to the UK’s Faster Payment Scheme. It is, however, keen to ensure that there is synergy in the application of ISO 20022 across the payments landscape both here in the UK (New Payments Architecture / Faster Payments 2.0) and SWIFT’s HVPS+ initiative.

It is widely acknowledged that the ISO 20022 message standard can drive richer data and the Bank, as first mover, is keen to act as a standard setter and for other systems to align as closely as possible.

BoE RTGS Renewal Programme Resources

Explore these six RTGS Rental Programme takeaways in more detail via: