Banking of EnglandBritain’s payment settlement system for the pound sterling is to be redesigned and rebuilt, Minouche Shafik, deputy governor for Markets & Banking at the Bank of England (BoE) has said in a speech given at the BoE to senior figure in the UK payments business.

The twenty-year old Real-Time Gross Settlement System (RTGS), which settles around £500 billion between banks – approximately a third of the UK’s annual GDP – every single day, is the “is the beating heart of the UK payment system2”, she said.

Noting the developments in retail payments, such as the UK’s Faster Payments system, and the introduction of the Payments Systems Regulator (PSR) in 2015, which is expected to push for a more competitive payments landscape, Shafik observed a 24/7 model of payments was now required bys consumers and businesses.

“The emergence of various forms of Distributed Ledger Technology (DLT) poses much more profound challenges because it enables verification of payments to be decentralised, removing the need for a trusted third party,” she said. “It may reshape the mechanisms for making secured payments: instead of settlement occurring across the books of a single central authority (such as a central bank, clearing house or custodian), strong cryptographic and verification algorithms allow everyone in a DLT network to have a copy of the ledger, and give distributed authority for managing and updating that ledger to a much wider group of agents. The Bank is undertaking work to understand the implications of new digital or e-monies and new methods of payments and financial intermediation as part of the One Bank Research initiative.”

Citing the potential of other technologies – such as machine learning – which are being embraced by banks and non-banks alike, and the risks created by operating a faster model of payments – such as a reduced window to check against fraud and money laundering, Shafik said that the BoE has will allow the scope of the blueprint to be broad, to weigh up all of the technological options and their implications.

The bank will be consulting with the industry in order define questions and choose options, with a formal consultation expected later in the year.

“Our aim is that by the end of 2016 we will have agreed a blueprint for high-value sterling settlement in the years ahead, with technological development of that blueprint beginning in 2017,” she concluded.

Reported by Dan Barnes.