By Jonathan Lawrence
The Bank of England has widened access to the United Kingdom’s interbank payments system to increase competition by FinTech providers. The Bank announced on 19 July that a new generation of non-bank payment service providers (PSPs) is now eligible to apply for a settlement account in the Bank’s Real-Time Gross Settlement (RTGS) system. The RTGS system has traditionally held the accounts of financial institutions in order to promote inter-bank settlement. Holding their own settlement account at the Bank will enable these non-bank PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.
These changes will enable non-bank PSPs to compete on a more level playing field with the traditional banks. In turn, it is hoped that reduced dependence on bank competitors for access to payment systems will allow non-bank PSPs to offer a wider range of payment services. These factors are aimed to help to increase competition and innovation in the provision of payments services.
The Bank has been working since mid-2016 with the Financial Conduct Authority (FCA), HM Treasury, HM Revenue & Customs, the Payment Systems Regulator (PSR) and the payment system operators to develop a comprehensive risk management framework to ensure the continued resilience of the Bank’s RTGS service. Before non-bank PSPs can open a settlement account, they will need to demonstrate compliance with the new risk management framework. A number of legislative changes also need to be made. As a consequence, the Bank’s expectation is that the first non-bank PSPs will join RTGS during 2018. To assist firms interested in exploring direct access to UK payment systems and RTGS, the Bank, FCA and the major payment systems operators also published a separate guide on 19 July providing more detail on the requirements and application process.