Bank of England’s project to replace ‘beating heart’ is foundation for continuous development

The Bank of England has reached a major landmark in its programme to replace its 27-year-old real-time gross settlement (RTGS) system after completing the first of two major components of the project.

Replacing the RTGS system is a “once-in-a-generation” project, according to the Bank of England, with planning beginning in 2016 for a project set for completion in 2025. This could be the last time the system has to be replaced in such a big bang project, with a plan to ensure the new core settlement system can be regularly upgraded a critical component of the overall programme, according to Victoria Cleland, executive director of banking, payments and innovation, at the Bank of England.

RTGS settles payments made between banks, including the clearing house automated payments system (CHAPS) and bankers’ automated clearing services (BACS). It has been in use since 1996 and is essential in ensuring money flows in the economy. On an average day, the system settles transactions worth about £775bn.

In 2017, the Bank came up with a blueprint that set out the main goals of the new RTGS system, and in 2019, it appointed Accenture as its technology delivery partner to coordinate the replacement of RTGS.

Cleland described the RTGS platform as the “beating heart” of the UK financial system. A smooth transition to the new system is therefore vital, with the Bank of England adopting a “build, test and work with industry” approach. The Bank of England has committed to ensuring RTGS uptime of 99.95%.

There are two major projects within the overall programme: the introduction of the latest ISO 20022 international financial messaging standard; and the build and roll-out of the central bank’s upgraded core settlement system, RTGS’s heart, which is due to go live in the summer of 2024.

The first major milestone, completed last month (June 2023), was to introduce ISO 20022. It was a major IT project, which involved changing hardware and software not only at the Bank of England, but also “big technology programmes across the financial services industry” because firms had to change their systems to talk this different language.

“When the big stuff is done in 2025, we are moving to evolution not revolution. We are going to keep building on it and making the best of the strong foundations”

The project included four dress rehearsals, which began with detailed designs in 2020.

The messaging standard differs from that previously used, with messages in a structured format and the possibility to include a richer set of data. “Brought together, these have advantages for individual firms, such as the enablement of straight-through processing with firms using the same formats and providing more information about customers, allowing banks to look into things like anti-money laundering more easily,” said Cleland.

Cleland added there were advantages for global businesses because different systems in different countries will use the same standard. “They are essentially speaking the same language, so it will be quicker and cost less to, for example, send a message from here to another RTGS system,” she said. “If you are trying to move something and the data is in a different format, messages could get rejected.”

Cleland stressed how important it was that the financial sector and its firms were ready for the new ISO standard. “When we went live on the 19 June, it was not just the Bank of England, we needed all the industry to be ready and able to receive the messages,” she said.

It worked closely with the finance industry to establish what information needed to be included in the messages.

The bank has also worked closely with the sector on its next big milestone, the replacement of the RTGS core settlement system. The core settlement system is the key ledger at the heart of the RTGS system, “where the money sits and moves”, according to Cleland.

The new system will make it easier for more different types of firms to use, while offering greater resilience and security. The bank has set itself a deadline of summer 2024 to complete and go live with its replacement.

In 2017, the Bank of England changed the rules to allow organisations other than banks, such as non-bank payment providers, to join RTGS. “The changes being made to RTGS mean it will be easier for more payment providers to join, and the system will have a lot more capacity, which means we can take on a lot more players.”

Making the system easier to use for more and different types of firms will increase competition and innovation, said Cleland.

Currently, 250 firms have accounts with the RTGS, and separately there is the CHAPS wholesale payments system, which uses the RTGS infrastructure and has 37 active participants, which are normally large banks.

Cleland said the capacity of the system would enable membership to increase “many hundredfold”.

But it is not just about the core settlement system’s capacity and resilience. Functionality is also being expanded, with more application programming interfaces (APIs), and it has been built in a modular way to make it easier to switch components in and out, according to Cleland.

This is a major improvement. The legacy core settlement system saw little change in over quarter of a century, but the introduction of a new operating model will enable continuous improvement of the system.

This is key for the central bank to keep pace with the rapid changes being seen in financial services technology use. “When the big stuff is done in 2025, we are moving to evolution not revolution. We are not going to down tools but keep building on it and making the best of the strong foundations,” said Cleland.

She said the bank will continue to consult with the financial services industry to better understand what further changes they want.

As well as increasing the number of companies that connect directly to the system and increasing functionality, the Bank said it will consider extending RTGS’s operating hours in light of user demand and an evolving payments landscape.”

While consumers can make payments 24 hours a day, RTGS is currently open from for 12 hours five days a week, which is the time window in which bank-to-bank payments are settled. The new system can technically be available 24 hours a day for the first time, but a decision on whether to do this has not yet been made as there needs to be agreement from the firms in the finance sector.

Further innovations planned include linking the RTGS to the core systems of international central banks.

Also read: Transforming the financial system’s plumbing, by Victoria Cleland at the Bank of England.