Real-Time Gross Settlement (RTGS) system and CHAPS Annual Report 2022/23

We publish our Annual Report for RTGS and CHAPS as an important part of our commitment to transparency and accountability.
Published on 19 October 2023

Foreword

RTGS lies at the heart of every payment in the UK and settles over £775 billion on an average day. There were a number of days in 2022 when RTGS processed more than £1 trillion. A new value record of £642.7 billion was set for CHAPS, the UK’s high-value payment system, on 3 October 2022. Delivery of the RTGS and CHAPS services supports the Bank’s mission to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.

To the credit of Bank staff, and those in the wider payments industry, these outcomes have been achieved in a fast-changing payments context. We continue to serve the UK economy by operating RTGS and CHAPS services to a high standard of delivery.

Although beyond the period covered by this report, on 14 August 2023 there was a six-hour disruption to RTGS and CHAPS settlement due to a technical issue. RTGS and CHAPS settlement resumed at lunchtime, following technical recovery, with the backlog of payments cleared by mid-afternoon. All payments were settled by the end of the day which was within the impact tolerance set by the Financial Policy Committee for critical payments. Throughout the day the Bank stayed in close contact with CHAPS Direct Participants and the operators of the payment systems that settle in RTGS.

A review has been undertaken by staff independent of those that run the RTGS and CHAPS services into how the incident was managed, including root cause investigations, engagement with key suppliers, and controls in place to detect and respond effectively to an RTGS incident. Further information on the incident as well as the identified improvements can be found in Box C, in the main body of this report.

Over 2022/23, our RTGS and CHAPS services continued to play a central role within the domestic and international landscape. Our mission is supported by four strategic themes for delivery:

  • Safe and resilient: we have further enhanced our risk management framework – creating and implementing additional supporting policies on key areas such as change management. We continue to evolve our approach to CHAPS participant assurance – aiming to adopt a proportionate approach which is particularly important given the greater number of participants the renewed RTGS service will be able to support, contributing to increased competition and innovation.
  • Well run: we continue to support onboarding activity, where this is compatible with the change freezes required to safely deliver the RTGS Renewal Programme. We adopted a new operational resilience framework and supported industry work on what payments should be prioritised in the event of major operational disruption.
  • Responsive: following a significant amount of work, including with industry, we issued two consultations and responses to each: one on a revised tariff framework for the renewed RTGS service; and a second on the future roadmap for RTGS following the delivery of a new core settlement engine in 2024.
  • Renewed: we adopted the ISO 20022 messaging standard for CHAPS payments in June 2023. This followed a comprehensive programme to ensure that both wider industry and the Bank were ready for this critical change. ISO 20022 adoption will provide greater flexibility in payments, making payments more responsive to changes in the economy, emerging technologies and opening a wide range of possibilities for future innovation.

As well as chairing the RTGS/CHAPS Board, which provides strategic leadership for the live operation of the Bank’s RTGS and CHAPS services, I chair a Renewal Executive Board, a senior-level group responsible for overseeing the RTGS Renewal Programme.

Looking ahead, the RTGS Renewal Programme continues to progress at pace, building on the adoption of ISO 20022 for CHAPS payments in June 2023. Under the next phase, we will move to a new ledger and core settlement engine for RTGS in Summer 2024; this will deliver a more resilient, flexible and innovative sterling settlement system to support monetary and financial stability.

The longer-term context for RTGS is a world where payments work faster, are more responsive, resilient and seamless. We will continue to enhance the service beyond 2024 to make sure it continues to meet the changing needs of the payments industry. We are in a crucial phase of engagement with industry – ‘co-creation’ – seeking input on future development of RTGS spanning alternative and resilient messaging channels, considerations around extending operating hours for RTGS/CHAPS, as well as synchronisation. Many of these changes can support the benefits normally associated with wholesale central bank digital currency (CBDC) and support enhanced cross-border payments.

This Annual Report is an important part of our wider commitment to transparency and accountability spanning our strategic approach; provision of live services; and how we are evolving the services and products that we provide to benefit users. Through this report, we are sharing our strategic themes, and how we work with industry to deliver effective RTGS and CHAPS services while providing value for money.

Dave Ramsden
Deputy Governor for Markets and Banking
Executive Chair of RTGS/CHAPS Board

1: Introduction to the RTGS and CHAPS services

Why are RTGS and CHAPS important?

The Bank of England’s mission is to promote the good of the people of the United Kingdom by maintaining monetary and financial stability. The provision of RTGS and CHAPS services directly supports our mission in three ways:

  • By offering settlement accounts to eligible institutions, RTGS plays a vital role in the functioning of the UK economy through supporting safe and efficient settlement of obligations in central bank money across a wide range of payment systems.
  • CHAPS provides a safe and efficient system for individual high value, and often time-critical, payments to settle. The Bank also reviews the end-to-end risk management for CHAPS with the objective of reducing risks to financial stability.
  • Reserves held in reserves accounts in RTGS – under the Bank’s Sterling Monetary Framework – are remunerated at Bank Rate. RTGS therefore acts as the platform through which monetary policy decisions are implemented.

Further information on RTGS and CHAPS can be found on the Bank’s website, including: A brief introduction to RTGS and CHAPS.

Governance

RTGS/CHAPS Board

The RTGS/CHAPS Board is chaired by the Bank’s Deputy Governor for Markets and Banking and is comprised of Bank executives and four independent members. It is responsible for setting the strategy for our management and operation of the RTGS and CHAPS services, consistent with the Bank's mission. It is also accountable for the end-to-end risk management of the CHAPS system.

To ensure the effective governance of the RTGS and CHAPS services, reviews of the Board’s effectiveness are undertaken and identified improvements are implemented.

The RTGS/CHAPS Board operates within the Bank’s wider governance structure, reporting to the Governor and the Bank’s Court of Directors. The RTGS/CHAPS Board’s full responsibilities, including those of the Board Risk Committee, are published on the Bank’s website.

RTGS Renewal governance

We are part way through the multi-year RTGS Renewal Programme. In June 2023, we completed a major change with the adoption of ISO 20022 for CHAPS payments. The next major change will be the delivery of a new core ledger and settlement engine for RTGS in Summer 2024. Through the RTGS Renewal Programme, our objectives are to increase resilience, competition and innovation within the payments landscape.

  • We are delivering a resilient, flexible and innovative system for the UK to meet the challenges posed by a rapidly changing landscape, including issues flagged in our strategic planning and horizon scanning rounds.
  • Our renewed RTGS and CHAPS services will support competition and innovation in the wider banking and payments markets while ensuring – and enhancing – monetary and financial stability.

The Renewal Executive Board is a committee of the Bank responsible for overseeing the overall scope, delivery and financial management (within an overall budget determined by Court) of the RTGS Renewal Programme. The Renewal Executive Board is responsible for taking the final go-live decisions for the various implementation stages of the renewed RTGS system, including the TS2.1 go-live decision in June 2023. The Terms of Reference for the Renewal Executive Board are published on the Bank’s website.

Strategy setting

We aim to provide services that, in addition to being value for money, are based around four key strategic themes:

  • Safe and resilient, delivering world leading standards in the face of evolving threats through the use of the full set of tools and resources available to the Bank.
  • Well run, providing efficient and cost-effective services to users.
  • Responsive to user voice and changes in the wider environment.
  • Renewed to ensure that safe and resilient settlement in central bank money remains at the core of a rapidly changing payments landscape.

We prioritise safe and resilient and well run as these are preconditions for the remaining themes of responsive and renewed. Our strategy is informed by consideration of relevant external developments through a structured horizon scanning and emerging risk process.

Transparency

The Bank is committed to providing users and the wider public with an appropriate level of information of how the Bank operates, and develops, the RTGS and CHAPS services. We provide this through a number of routes including: this Annual Report; publication of our self-assessment of RTGS and CHAPS against the Principles for Financial Market Infrastructures; making our annual ISAE 3402 audit available securely to our users; and publication of the tariffs for RTGS/CHAPS as well as the provision of more detailed costing information to fee-payers.

We publish data on operational availability as well as the volumes and values processed through RTGS and CHAPS.

Risk management

A Bank-wide risk management framework is complemented by a local framework specific to RTGS and CHAPS. The RTGS/CHAPS Board Risk Committee, chaired by an independent member, has delegated authority for a range of matters relating to risk management including: the RTGS/CHAPS risk management framework; and RTGS/CHAPS risk tolerances – consistent with the overall Bank risk tolerance.

We have identified three risk domains: internal; third-party service providers; and service users – which together define the scope of risk that we manage for the RTGS and CHAPS services. The Bank seeks to mitigate risks to a low level and maintains a robust control environment and risk culture that supports this. There is a low tolerance for operational risks.

Further information covering our approach for managing risks associated with the RTGS and CHAPS services is set out in our regular self-assessment against the Principles for Financial Market Infrastructures. We have expanded below our role as the end-to-end risk manager for CHAPS.

End-to-end risk management for the CHAPS payment system

As the end-to-end risk manager for the CHAPS system, we seek to ensure that the end-to-end flow of payments is safe, secure and stable.

The Bank does not directly manage all risks across the end-to-end CHAPS system. Our approach is for certain risks to be managed where this can be done most effectively. We therefore co-ordinate with others (such as CHAPS Direct Participants and critical service providers such as SWIFT) to seek assurance that the CHAPS payment system, taken as a whole, is operating within our risk tolerance, as set by the RTGS/CHAPS Board.

The CHAPS Reference Manual sets out the rules that CHAPS Direct Participants must meet. The Bank undertakes assurance of CHAPS Direct Participants against these rules before permitting access to CHAPS and on an ongoing basis.

2: Safe and resilient

Weaknesses in security or operations at any point in the payment chain could threaten stability and trust in the whole system. It is therefore vital to have a holistic view of CHAPS as a network – spanning the Bank’s own RTGS infrastructure in addition to that operated by CHAPS Direct Participants – through which financial or operational risk can be transmitted. We can take this holistic view over the end-to-end risk management of CHAPS, drawing on the tools and resources available to the Bank to assess and manage risks.

Enhancing risk management

Given the criticality of RTGS and CHAPS to financial stability having an effective approach to risk management is vital. Our approach is set out in the RTGS/CHAPS risk management framework.

We have continued to enhance our approach. Recent developments have included:

  • Greater alignment with the Bank-wide risk framework and building out a set of underlying policies including a risk and control policy, which sets out risk management activity to identify, analyse, treat, monitor and report risks that are relevant to the RTGS and CHAPS services.
  • A RTGS/CHAPS specific risk tolerance statement and continued refinements of the RTGS/CHAPS risk tolerances to ensure they remain appropriate for the criticality of the RTGS and CHAPS services we provide.
  • Supporting improvements to our risk and control register – to facilitate better recording and assessment of risks – as well as to risk processes.

We have also recently refreshed our change management policy – reflecting the demands of an increasingly intense landscape of internal and external change. We are working through the creation of further underlying policies including on incident management and model risk.

Cyber

It is important that the Bank continues to develop the resilience of RTGS and CHAPS to cyber threats. Cyber resilience has been a continual focus in the development, and now live operation, of the renewed RTGS service.

Our cyber security strategy for RTGS takes account of the growing threat to critical infrastructure in the UK, and ensures we maintain a multi-layered and test approach for our cyber defences. We have well-established collaborative engagement with the UK’s National Cyber Security Centre.

We aim for continual improvement, and regularly review the latest intelligence on the evolving cyber threat landscape to validate that we are maintaining pace. The new RTGS infrastructure represents a step change in our security controls and has significantly improved its resilience to cyber incidents. Specialised teams across the Bank work together to identify, assess, log and mitigate cyber risks. This capability has been further matured during the course of the RTGS Renewal Programme, including expanded teams. The RTGS service is covered by well-established cyber incident detection and response processes, which have been exercised as part of the RTGS Renewal Programme.

As a result, once the RTGS Renewal Programme concludes, the renewed RTGS service will be protected by an enhanced security infrastructure, supported by teams that have the necessary skills to assess and implement effective security controls. These arrangements will be governed by robust cyber risk management processes commensurate with the criticality of the RTGS and CHAPS services. Substantial benefits have already been delivered, and we continue to track delivery of the remaining activities under the umbrella of the RTGS Renewal Programme.

Assurance over CHAPS Direct Participants

As the operator of CHAPS, a systemically important payment system, we are responsible for setting rules and standards for CHAPS Direct Participants – as well as seeking assurance over their compliance with those rules and standards. This serves to mitigate against the financial and operational risks that might impact the smooth flow of CHAPS payments.

We are progressing work to consider how our assurance model for CHAPS Direct Participants can be more focused on the key risks that CHAPS Direct Participants pose to the CHAPS system. One of the objectives of the RTGS Renewal Programme is to increase the number of CHAPS Direct Participants in the future – onboarding will be technically simpler. Assurance must be proportionate, accommodate a greater diversity of scale and business model, and be responsive to key risks.

In the run-up to the technical adoption of ISO 20022 for CHAPS payment messaging, all CHAPS Direct Participants were separately subject to additional reporting and monitoring in relation to their readiness for the changes required to support this phase of the RTGS Renewal Programme; the largest were subject to review by an independent consultancy.

In parallel, we no longer require completion of an annual CHAPS compliance questionnaire for existing CHAPS Direct Participants under our business-as-usual assurance model; this is on a temporary basis initially. This reflects – after a number of years of completion – that we now hold much of the information being sought; and at the moment, CHAPS Direct Participants are, rightly, focusing on the Renewal Programme changes; and the greater emphasis we place on the compliance certificate element of our participant assurance approach for CHAPS. We reserve the right to require certain CHAPS Direct Participants to complete the questionnaire, for example, if there have been performance issues, or deemed relevant to changes to the wider risk profile.

We also continue to work with CHAPS Direct Participants who have an interest in adopting cloud for their CHAPS processing. This complements our introduction of rules supporting this covering how CHAPS Direct Participants should safely manage their outsourcing arrangements to limit risk to the end-to-end CHAPS system.

Box A: Assurance

There are three key forms of assurance we undertake in relation to the RTGS and CHAPS service.

First, we regularly undertake a self‐assessment against the Principles for Financial Market Infrastructures (PFMIs) relevant to us as the operator of the RTGS and CHAPS services. The PFMIs are internationally agreed standards considered essential to strengthening and preserving financial stability.

The most recent PFMI self‐assessment for the RTGS and CHAPS services was for a point of assessment of 31 October 2022 and published in early 2023. Overall, we self‐assessed that the Bank had achieved ‘observed’ status for all but two of the Principles relevant to the Bank’s RTGS and CHAPS services. The two exceptions – both broadly observed – related to risk management and operational risk.

Our self-assessment to remain ‘broadly observed’ on risk management was based on a continuing conservative view that we would like to see residual areas mature further. We also moved to ‘broadly observed’ for operational risk, reflecting two risks – resourcing risk and change management risk – which led us to reassess our processes for managing change and change-related risks against the backdrop of a period of intense internal and external change.

We complete the self-assessment as operator of the RTGS and CHAPS services and not in our capacity as supervisor of financial market infrastructures or banks. Our annual self-assessment is currently under way and we will publish in early 2024.

The International Standard on Assurance Engagements (ISAE) 3402 is an internationally recognised auditing standard developed by the Internal Auditing and Assurance Standards Board. It provides assurance on the design and operation of the control framework, processes and technology.

The 2022/23 ISAE 3402 audit, completed by an external firm, concluded that the control environment had been designed and was operating so as to provide assurance that the Bank’s control objectives for RTGS were achieved. There were a small number of minor exceptions. We share the ISAE 3402 report with users of RTGS. The scope for the 2023/24 audit will factor in the TS2.1 operating environment, following the implementation of TS2.1 in June 2023 as part of the RTGS Renewal Programme. Changes made as a result of TS3 of the RTGS Renewal programme in Summer 2024 will be factored into the 2024/25 audit.

ISO 27001 is an internationally recognised standard for information system security management. A full certification lasts for three years and includes two annual surveillance audits and a three-year recertification audit. Information security is audited on a Bank-wide basis, as well as at a business area level specific to RTGS. The Bank’s full three-year recertification of ISO 27001 was completed successfully in June 2022. The next three-year certification will be in 2025, with two surveillance audits each year in the interim.

3: Well run

We will continue to deliver safe and reliable day-to-day operations and to provide efficient and cost-effective services to users, including considering any changes that are required to support the transition to the renewed RTGS service as well as to safely retire the current RTGS infrastructure.

Access

Onboarding

There are now more than 70 organisations using RTGS to settle directly in one or more payment systems. Between March 2022 and February 2023, we onboarded nine new settlement participants across Bacs, Faster Payments and Mastercard. We also added PEXA Pay as a net settlement system in March 2022 ahead of their new platform going live later in the year.

Each major milestone introduced as part of the RTGS Renewal Programme requires technical preparation, including change freezes to the current RTGS infrastructure to safely deliver the necessary changes.

  • For CHAPS, the next available joining date will be in the second half of 2024. The Autumn 2023 CHAPS slot is no longer available. We continue to welcome expressions of interest for direct access to CHAPS from eligible organisations who want to understand the relevant rules and future technical requirements with a view to being ready to join from 2024 onwards, for which there is a lead time. A number of firms have already signalled their interest.
  • For the retail payment systems, the slots for onboarding in 2023 are already allocated and the next slots will be in the second half of 2024.

Omnibus accounts

In April 2021, we announced a policy to enable new type of account – an omnibus account – for regulated payment system operators. The omnibus account would hold a pool of participant funds that can be used to fund settlement on the payment system operators’ ledger. The funds would constitute reserves with the central bank based on defined legal arrangements put in place by the payment system operator to hold the funds on trust. Funding movements to and from the omnibus account would be via CHAPS. We are currently progressing our first application.

This opens up options for reserves-backed arrangements to support new and innovative financial market infrastructures.

RTGS/CHAPS tariff

The cost of running RTGS and CHAPS is recovered by the Bank from industry, via the RTGS and CHAPS tariffs. Given the renewal of RTGS and wider changes to the payments landscape, we have designed a new framework for the RTGS and CHAPS tariffs. This is based on a set of principles (proportionate; simple and efficient; stable and predictable; supportive of competition and access; and supportive of the Bank’s monetary and financial stability mission) and was informed through external consultation during 2022 and early 2023.

The revised tariff framework aims to introduce better alignment of tariffs with benefits of settlement in central bank money, using a combination of volume and value-based fees. The new framework will be introduced once the new core ledger and settlement engine for RTGS is introduced in 2024.

Operational resilience

Strong operational resilience of RTGS and CHAPS is important to help avoid or manage major operational disruption, which could impact financial stability. As such, further enhancing the operational resilience of the RTGS and CHAPS services is one of our key priorities.

MIRS, the Market Infrastructure Resiliency Service provided by SWIFT, is a contingency solution for RTGS (including CHAPS settlement) that is intended to address a range of scenarios including a dual site failure of RTGS. The service is geographically remote from the Bank’s main RTGS infrastructure and is technologically independent.

Technical enhancements

In March 2022, we successfully completed an annual upgrade to the operating software used on the hardware that supports RTGS; a further upgrade took place in January 2023, with a further upgrade planned for 2024. Some new RTGS components introduced as part of TS2.1 are located in data centres with enhanced resilience; other TS3 components will also be located in these data centres as part of the build.

Enhancing frameworks for operational resilience and exercising

In April 2022, we adopted a new operational resilience framework in line with the regulatory policy on operational resilience from the UK financial authorities. This covers our important business services and associated impact tolerances (see Box B: Important business services) as well as our approach for asset mapping and scenario testing in line with the expectation of the UK financial authorities. We are continuing to embed our operational resilience framework, including through maintaining and updating the asset mapping for the RTGS and CHAPS services.

Scenario testing is designed to understand the various extreme but plausible scenarios where our impact tolerances might not be met, and to drive future investment.

  • We are continuing to refine our scenario testing programme, integrating it with other testing activity (including the regular scripted testing) as part of the delivery for the RTGS Renewal Programme.
  • We regularly test MIRS to ensure we continue to improve familiarity with, and confidence in, MIRS.
  • In November 2022, we participated in SIMEX22 – an industry-wide resilience exercise which tests the UK financial sector’s resilience to major operational disruption. SIMEX22 involved 50 regulated firms and the financial authorities. We played an active role in our capacity as the operator of RTGS and CHAPS; our lead CHAPS forum with CHAPS Direct Participants met multiple times during the exercise.
  • We undertook a range of scenario tests, drills and walkthroughs, including with external participants, ahead of the go-live for TS2.1 of the RTGS Renewal Programme. This contributed to readiness in the event that disrupted was encountered.

We also contributed to industry work on the development of a criticality and prioritisation framework for sterling payments – starting with wholesale and then expanding to retail payments.

Box B: Important business services

The Bank is subject to regulatory requirements in relation to operational resilience as the operator of CHAPS. We have also adopted the requirements for the RTGS service – where we are a supplier of settlement services to a range of regulated firms and financial market infrastructures (FMIs).

The requirements cover: identification of important business services – a service provided to external users and that, if disrupted, could threaten the transfer of payments or safety and efficient of a payment system; and setting an impact tolerance for each important business service. In addition, we must take all reasonable actions to ensure we remain within the set impact tolerances in the event of extreme but plausible disruption. Identification of supporting assets – such as people, processes, technology, facilities, and information – as well as scenario testing ability to meet impact tolerances are required.

As the operator of CHAPS, we have identified ‘provision of CHAPS settlement’ as the important business service for CHAPS, with an impact tolerance that ‘all critical CHAPS payments should settle by the end of the day’. In setting the impact tolerance, we considered that there are key dates – such as money market deadlines, and financial reporting dates – where disruption could be more problematic if critical payments were not settled. Payments that do not settle before the end of day can impact overnight balance sheet positions. Operational disruption could also occur the following morning if issues are not resolved by the end of the previous day. This end of day impact tolerance for CHAPS payments is aligned with the Financial Policy Committee’s impact tolerance that the financial system should be able to make critical payments on the day they are due.

As the operator of RTGS, we identified four important business services; each having an impact tolerance of the end of day. This reflects our view over consistent treatment across the different settlement services we provided. If critical payments do not settle by the end of day, this can become more problematic for financial positions. The four services are:

  • Access to funds in central bank money ie being able to hold – and use/access – funds in RTGS as part of the Sterling Monetary Framework as well as to undertake risk-free settlement in central bank money.
  • Provision of access to central bank money to support CREST DvP settlement – a distinct settlement model that is based on an ‘irrevocable and unconditional’ commitment, with a series of high-frequency settlement cycles between RTGS and CREST.
  • Multilateral net settlement ie the net settlement service we provide to a range of payment system operators which settle in RTGS.
  • Non-CHAPS inter-account transfers – transfers for a range of purposes including linked to liquidity and payment of fees as well as, importantly, a variety of contingency arrangements when the primary settlement arrangement is disrupted.

The Bank will keep these important business services under review as additional functionality is delivered as part of the RTGS Renewal Programme.

Box C: 14 August RTGS outage

During the start of day processes for RTGS on Monday 14 August 2023 we identified that our payments gateway software for RTGS could not connect to SWIFT to exchange messages. This prevented RTGS and CHAPS opening for settlement.

We identified the technical cause, a corrupted database, before CHAPS opened for settlement at 6am. The corruption was present at both of our sites. We established that the corruption had been triggered by a rare bug within third-party software; it was not related to any security compromise. We understand that the bug had previously only been triggered by one other financial services client of the provider.

A series of recovery steps were identified, implemented and validated to restore the database. The first restore was not successful as the corruption was still present; we undertook a second, successful, restore from an earlier backup point. These steps were ultimately complete by around 11.40am. In parallel, we had undertaken the necessary preparation to invoke MIRS, our tertiary settlement solution, in accordance with our invocation principles.

RTGS and CHAPS were open for settlement by lunchtime. CHAPS settlement resumed at 12.20pm; the backlog of payments was processed by mid-afternoon. We settled the backlog of a small number of retail net settlements shortly after CHAPS settlement resumed.

Working with CLS – a foreign exchange settlement system that eliminates settlement risk in participating currencies – and CLS settlement members, we used established contingency arrangements early in the morning to settle CLS pay-ins. Delays to CLS sterling settlement can have knock-on impacts to other CLS settlement currencies. We also agreed with Euroclear UK & International, who are responsible for CREST – the UK’s securities settlement system, that CREST should settle using liquidity generated within CREST rather than sourced from RTGS. The link between RTGS and CREST was safely re-established in the late afternoon, avoiding key CREST processing events. These contingency arrangements for CLS and CREST are not dependent on RTGS or MIRS.

Throughout the day we stayed in close contact with the CHAPS Direct Participants and the operators of the payment systems that settle in RTGS (including CREST). We held four CHAPS Participant Engagement Forum (PEF) calls; PEF is our main operational forum with CHAPS Direct Participants which doubles up as an incident forum. Its role is recognised under the Sector Response Framework. We also provided updates to other RTGS account holders as well as the Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator.

We agreed a short extension to the CHAPS settlement day, from 6pm to around 7pm. All payments and settlement instructions submitted to RTGS were settled by the end of the day. On 14 August 2023, CHAPS settled 188,895 payments with a total value of around £336 billion. However, the service was not recovered within two hours – which is the expectation set out in the Principles for Financial Market Infrastructures (PFMIs). In circumstances where that is not possible, the PFMIs state that FMIs should complete settlement by the end of day, even in the case of extreme circumstances such as loss of data integrity – which the Bank met. End of day is also the impact tolerance set for settlement of critical payments by the Financial Policy Committee. The Bank considers that data integrity must be restored before operations can resume given the criticality of the services provided and the high values processed.

We are disappointed that the August 2023 incident occurred and apologise to anyone impacted. The last material outage to RTGS was an approximately nine-hour outage in October 2014. As was the case after the 2014 outage, we are focusing on the lessons learned and continuously improving the service provided by this core infrastructure.

Given the seriousness of this incident and the importance that the Bank places on learning lessons for the future, the RTGS/CHAPS Board commissioned a review to complement the standard post incident work by first-line business and technology teams. This review was carried out by staff in the Bank’s second-line risk and Internal Audit functions. We have identified a series of actions and improvements to take forward.

The review found that while the bug in the third-party software triggered the corruption, a combination of factors influenced the nature of the outage. It also highlighted two technical themes that contributed to some delays in detecting (and escalating) and then recovering from the corruption once it had occurred.

The first theme relates to revalidating controls around the monitoring of the availability and integrity of key technical components, including how any alerts are then handled to ensure we can act as promptly as possible. There will be a detailed review of coverage and calibration of system alert monitoring and the thresholds for escalating such alerts to ensure they are appropriate.

The second theme relates to enhanced management of, and engagement with, third-party suppliers including during the course of an incident. This is particularly important given the increase in the number of key suppliers as we build and run the renewed RTGS service. This will specifically include a specialist-led examination of database configurations versus vendor recommended practices to validate our alignment.

The review noted the incident was managed effectively, and the Bank’s business and technology teams worked well together. It also noted a marked improvement in management of the incident compared with the outage to RTGS in October 2014. The Bank’s Critical Incident Management Framework (CIMF), which was enhanced following the 2014 outage, was considered to be effective and ran smoothly, providing clear direction. CIMF enables: communication; information management; decision-making processes; and engagement with senior stakeholders up to Governor-level to help manage disruptive events. CIMF is able to draw on technical, communication and leadership resources Bank-wide in order to resume interrupted services efficiently while managing communications with key stakeholders.

External communications with CHAPS Direct Participants were considered effective, with the degree of candour and transparency from the Bank appreciated both during and after the incident. We are reviewing our approach for communications beyond CHAPS Direct Participants and FMIs settling in RTGS to identify how best to cascade an appropriate level of information in a timely manner. For example, this includes reserves/settlement account holders who do not have direct access to CHAPS and use of our external website.

We are taking forward the actions that have been identified. the Bank is continuing to enhance its RTGS/CHAPS Operational Resilience Framework; many of the improvements identified will be embedded into this framework in the coming months including elements on exercising/testing and communications.

The lessons learned will also be applied to our preparations for the next major phase of the RTGS Renewal Programme; this is known as TS3 when we will replace the core ledger and settlement engine for RTGS. This will be especially important for our contingency arrangements for the go-live in Summer 2024. The effective handling of the August outage benefited from the extensive contingency preparations for TS2.1 – our adoption of ISO 20022 for CHAPS payment messages – in June 2023 which included a range of technical and response exercises as well as testing a wide range of scenarios. We will also identify – as we did for TS2.1 – what contingency preparations we should go through with internal and external stakeholders ahead of the TS3 changes to increase awareness and understanding.

4: Responsive

We aim to be responsive to RTGS and CHAPS user voice in view of the changes in the wider payments environment is crucial in delivering a robust and resilient service. We give appropriate weight to information gathered from a wide range of sources and feed them into our decision-making, including input to Board-level discussion.

Stakeholder engagement

Understanding the needs of RTGS and CHAPS users in light of current and future changes in the wider UK payments landscape is essential to continued provision of a robust and resilient service.

We undertake a broad programme of engagement with external stakeholders. Our two strategic forums are the Strategic Advisory Forum and the Senior Sponsors’ Body, the latter focused on the RTGS Renewal Programme. We also engage bilaterally with senior industry contacts and through trade associations. We will also continue to engage domestically and internationally with our counterparts operating other RTGS and high-value payment systems on topics including ISO 20022, retail fraud and cross-border payments.

We have consulted stakeholders on a variety of issues relating to the RTGS and CHAPS live services as well as the RTGS Renewal Programme and beyond. We have also held a series of industry events to support the RTGS Renewal Programme including briefings and seminars.

In April 2022, we published two industry consultations covering the roadmap for the Real-Time Gross Settlement service beyond 2024 and the future RTGS/CHAPS tariff. On the roadmap, we are in a phase of co-creation with the industry; this is covered further in the Renewed section of this report.

Horizon scanning

We undertake horizon scanning to identify and assess developments in the payments landscape from the perspective of understanding the opportunities and/or risks that these developments may pose to the RTGS and CHAPS services. Horizon scanning informs our strategy setting and development for the RTGS and CHAPS services.

We gather and analyse information on developments drawing on a network of experts across the Bank, as well external stakeholders including private sector organisations such as Pay.UK and UK Finance as well as the financial authorities including the Payment Systems Regulator, and the Financial Conduct Authority.

In 2022/23, we explored a range of developments including Digital IDs, the New Payments Architecture (NPA) for retail payments, retail stablecoins, risks to cryptographic security, central bank digital currencies (CBDCs) and the increased focus on extended settlement hours.

Retail fraud in CHAPS

The Payment Systems Regulator will require Pay.UK, as the operator of Faster Payments, to implement rules to require participants in Faster Payments to reimburse consumers for losses due to authorised push payment fraud.

The Bank, as the operator of the CHAPS payment system, is committed to achieving comparable outcomes of consumer protection for consumers making retail CHAPS payments relative to if the payment had been made using Faster Payments. The arrangements for CHAPS will also reflect the unique characteristics of CHAPS as a wholesale payment system. The approach will only cover participants who process CHAPS payments for UK retail use.

We are working with the Payment Systems Regulator and CHAPS Direct Participants, as well as other key stakeholders, to deliver this. The approach will be through a combination of directions from the Payment Systems Regulator to CHAPS participants as well as changes to the CHAPS rulebook. The model for CHAPS will include an upper limit for the value of reimbursement claims – views on this level were sought through a consultation by the Payment Systems Regulator. Our preferred limit set out in the consultation was £415,000 to align with the preferred limit for Faster Payments, which is in turn aligned with the Financial Ombudsman limit.

Future NPA settlement model

The retail payment systems currently operated by Pay.UK (Bacs, Faster Payments, cheque imaging) settle in central bank money on a net basis across accounts held in RTGS. Prefunding is also used for the three systems – funds are set aside to enable the completion of settlement in the event a participant does not hold sufficient funds on their main settlement account. This eliminates credit and settlement risk between Pay.UK’s settlement participants. This arrangement, however, requires settlement participants to hold funds twice.

Pay.UK’s New Payments Architecture (NPA) programme will build new infrastructure for retail payments – initially Faster Payments, in a major upgrade that will adopt ISO 20022 for payment messages. The NPA will support the creation of new products and capabilities for retail payments, including a much wider range of real-time retail payment products. The NPA is not expected to go-live before 2026 and remains under development. The Bank will act as the settlement service provider for the NPA – providing secure and risk-free settlement in central bank money.

It is expected that the future settlement model will only require funds to be held once, and the management of balances available to underpin settlement will be more dynamic – enabled by RTGS Renewal Programme functionality being delivered in 2024 as well as Pay.UK’s NPA.

Enhancing cross-border payments

In 2020, the Financial Stability Board, in co-ordination with the Committee on Payments and Market Infrastructures and other relevant international organisations and standard-setting bodies, developed a roadmap to deliver a set of 19 building blocks to improve the current global cross-border payment arrangements and address identified frictions. This was with a view to: increasing the speed and reducing the cost of cross-border payments by 2027; improving transparency for users; improving access for financial institutions; as well as narrowing the gap between (generally fast and cheap) domestic payments and (often slow and expensive) cross-border payments. The Bank has been actively involved in the development and delivery of the roadmap, including at Deputy Governor (Sir Jon Cunliffe) and Executive Director (Victoria Cleland) levels. The Bank is also chairing a working group on cross-border Application Programming Interfaces (APIs).

A number of our other workstreams can contribute to enhancing cross-border payments. Our adoption of ISO 20022 improves payment system interoperability, reducing processing costs for payment service providers and aligning payment rails across jurisdictions. Longer and better aligned hours could speed up cross-border payments, reduce settlement risk and simplify liquidity management.

Increased direct access to payment systems can speed up payments and reduce costs through reducing the number of intermediaries a payment goes through. We are undertaking a review of our access approach, benefiting from a CPMI self-assessment framework, to inform our own access policies for RTGS and CHAPS. Other central banks are also undertaking similar reviews based on the CPMI framework.

For our own service, we are considering longer operating hours for RTGS as part of our future roadmap for RTGS. We are, however, working with industry to understand the costs as well as the benefits so the balance can be carefully considered. Sufficient notice of any changes would be given to the market and these could be adopted on a phased basis. For example, extending hours on Monday to Friday, before extending hours to include weekends.

5: Renewed

In June 2023, we successfully migrated CHAPS payments to ISO 20022, the latest global financial messaging standard. This marked a significant milestone in the multi-year programme to renew RTGS. The objectives of the RTGS Renewal Programme are to increase resilience, competition and innovation within the payments landscape.

Figure 1: RTGS renewal vision

RTGS renewal vision are increased resilience, greater access, wider interoperability, improved user functionality and strengthened end-end-risk management.

In December 2022, we announced a revised timetable for the implementation of the RTGS Renewal Programme, following a period of consultation to understand the impact of the European Central Bank’s decision to move the TARGET2 ISO 20022 migration from November 2022 to March 2023.

Transition State 2.1

On 19 June 2023, we – working closely with the payments industry – successfully migrated CHAPS payments to ISO 20022.

We undertook extensive preparations to ensure the changes for TS2.1 were tested and implemented safely, with appropriate contingency arrangements rehearsed in the event of disruption.

  • From June 2022, we provided a near-live-like pilot platform for CHAPS Direct Participants to test enhanced payments ahead of live implementation in June 2023. We undertook several dress rehearsals, including two with CHAPS Direct Participants on production systems.
  • A number of activities were completed with CHAPS Direct Participants to ensure appropriate contingencies were identified, documented and tested to minimise impact in the event of disruption.

We introduced a number of new elements to directly support the new messaging type alongside a range of other enhancements.

  • We introduced an initial API offering for receiving information about CHAPS payments. We also implemented – and will parallel run – a new internal and external reporting and analytics solution which allows internal and external users to see information about their payments, and aggregate statistics, through a business intelligence tool that is updated throughout the day.
  • New components for TS2.1 were implemented in a new secure zone in clearly geographically separated data centres delivering enhanced resilience.
  • The design of the renewed RTGS is more modular, with an automated alerts and monitoring, as well as automated failover processes with less reliance on manual intervention.

We also undertook a range of other readiness activities including updating internal and external documentation and training teams on the new systems.

Adoption of ISO 20022

Since the migration to ISO 20022 in June 2023, all CHAPS Direct Participants must be able to receive enhanced ISO 20022 payment messages. The Bank has made the ISO schemas and technical guidance available on MyStandards.

The data sent in CHAPS payments must now contain, at minimum, the requirements and rules for the existing MT message formats; sending enhanced data is optional. However, we have encouraged Direct Participants to send enhanced data (ie above that required or supported in existing MT message formats) where possible, taking into account relevant international guidance.

We have also established a working group focused on enhanced data. From November 2024, as set out in Policy Statement: Implementing ISO 20022 Enhanced Data in CHAPS, we will mandate use of Purpose Codes and Legal Entity Identifiers for CHAPS payments between financial institutions as well as the use of Purpose Codes for property transactions.

We expect to mandate the use of structured addresses and structured remittance data for all CHAPS payments when SWIFT retires MT payment messages – expected in November 2025.

Benefits of ISO 20022 adoption

ISO 20022 is an established international financial services messaging standard that will bring significant benefits to the UK’s payments industry. This includes greater resilience, security, user experience and innovation (eg, analytics, and enhanced data). It will also facilitate greater competition in payments.

The adoption of the ISO 20022 messaging standard for CHAPS and aspects of RTGS will mean the availability of richer, enhanced and more structured data in UK payments. Implementation of the emerging international standard will increase the efficiency of payments by reducing manual interventions, it will improve resilience and security via enhanced means to identify suspicious transactions and will open up new opportunities for analytics, enhancing competition and innovation in the market.

To help realise the benefits of ISO 20022, the Bank will work with a wide range of external stakeholders to provide advice, guidance and information to CHAPS Direct Participants and the wider industry. This includes webinars and other materials that aim to inform, support and encourage native adoption.

The Bank remains committed to collaborating closely with Pay.UK, and other FMIs to help support access and wider interoperability between payment systems to help foster greater resilience, efficiency, innovation and competition. This has included proactive engagement and collaboration with domestic operators and international operators for both technical and policy aspects of the ISO 20022 messages.

Transition State 3

The primary change for TS3 is a new ledger and core settlement engine for RTGS. This is the system that hold accounts and supports the transfer of funds between them. This is on track for delivery in Summer 2024.

We will be introducing a new user interface for RTGS (BERTI). This provides a simpler user access model than today and participants will largely be able to self-manage their users. We are also simplifying the access arrangements for banking groups – removing the need for a separate account for each legal entity that holds an account in RTGS.

We are moving fully to ISO 20022 messages – we introduced ISO for CHAPS payments in June 2023. In Summer 2024, this will fully apply to statements and various notifications delivered by SWIFT. Participants will also be able to request intraday statements. We will also adopt ISO 20022 for the net settlement instructions submitted to RTGS for settlement by several retail payment system operators.

We will be able to accept CHAPS payments up to 10 days in advance, providing resilient benefits; we are enhancing the current Liquidity Saving Mechanism to seek to provide greater liquidity savings.

We will deliver additional APIs for a wider range of users; and the new reporting and analytics service will be opened up to all users, not just CHAPS Direct Participants.

Training has started for RTGS users and we are embarking on external testing with CHAPS Direct Participants and other users ahead of a series of dress rehearsals in the first half of 2024.

Future roadmap beyond 2024

Looking further ahead, the renewed RTGS service will need to be able to respond to the changing structure of the financial system and facilitate simpler and quicker access to services, ensuring that safe and resilient settlement in central bank money remains at the core of a rapidly changing payments landscape. The renewed RTGS will also need to meet user demand for simpler and more highly resilient payment pathways as well as building capacity and flexibility to interface with new payment technologies as adoption increases. Importantly, it will need to achieve this while demonstrating clear value for money.

Following our consultation, we have decided to prioritise work on two categories of features, outlined below.

To support the delivery of these benefits, we are part way through a phase of industry co-creation. This includes a series of focused thematic engagement groups through which we are gathering input into high-level design of the features and to inform our cost benefit analysis. We are also drawing on bilateral engagement and surveys and, in due course, consultations.

One key area we are considering is longer operating hours for RTGS as part of our future roadmap for RTGS. We are working with industry to understand the costs as well as the benefits so the balance can be carefully considered. Sufficient notice of any changes would be given to the market and these could be adopted on a phased basis. For example, extending hours on Monday to Friday, before extending hours to include weekends.

We expect to go out to procurement for a PKI system in the coming months. This sets us on a path of enhanced resilience and is a key enabler for the delivery of other features.

Through the RTGS Renewal programme and the future roadmap for RTGS, we consider that we can realise a number of benefits for wholesale payments and settlement through enhancing our existing systems more quickly than it would be possible to launch an entirely new wholesale platform and achieve scale in its usage. This includes through the potential adoption of synchronisation features – where complex transactions can be made safer and more efficiently by coordinating movements of cash and other assets across different ledgers.

Annex

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