Access to UK payment systems for non-bank payment service providers

2: NBPSP access to RTGS accounts for settlement

Accounts in RTGS are provided solely for the purpose for the NBPSP to meet its payment obligations and subject to associated maximum holding balances. As NBPSPs are required to manage client funds in a manner consistent with relevant safeguarding regulations they will continue to require a commercial bank relationship to support any of its services subject to client funds safeguarding requirements, as well as its own corporate financial management.

NBPSPs who are not CHAPS direct participants require a CHAPS sponsor to support the funding and defunding of account held in RTGS via CHAPS.

Eligibility for NBPSP to hold accounts to settle payment system obligations in RTGS

Only FCA-authorised electronic money institutions and authorised payment institutions are eligible for access to RTGS. Some payment institutions may also be regulated by HM Revenue & Customs for anti-money laundering purposes (depending on business model).

To hold accounts in RTGS a NBPSP must:

• Meet the eligibility criteria for at least one of the payment systems that settle in RTGS where access for NBPSPs is supporting. This is currently Bacs, Faster Payments and the cheque-based Image Clearing System.
• Meet the eligibility criteria for holding a settlement account in RTGS. These are set out in the RTGS Rules. Access to a settlement account remains at the sole discretion of the Bank.
• Successfully complete an FCA supervisory assessment including a s166 skilled person report and any applicable remediation actions identified. The FCA must provide a non-objection to the Bank that it is satisfied before the Bank decides whether access to RTGS will be granted.
• Have the operational capacity to participate, and efficiently settle transactions, in RTGS.
• Enter into the RTGS Terms & Conditions including relevant annexes.

Organisations that register to be a small (rather an authorised) electronic money or payment institution are not eligible to hold accounts in RTGS.

Operational requirements

A NBPSP should maintain account balances that minimise the risk of disruption of insufficient funds being available. For NBPSPs, this includes taking account of:

• Maximum balance requirements
• Upcoming obligations for payment system settlement

Access is required to Swift to access BERTI, the user interface for RTGS which allows account holders to monitor and manage account balances as well as to defund balances to commercial sponsor banks.

Account types for NBPSPs in RTGS

NBPSPs can only hold settlement (and prefunding) accounts in RTGS. As NBPSPs are ineligible for participation in the Sterling Monetary Framework, they are not eligible to hold a reserves account. This is principally because NBPSPs do not undertake maturity transformation activities.

Settlement accounts

NBPSPs can choose to settle payment system obligations using ‘own funds’ or ‘client funds’. Some NBPSPs may choose to settle using both but, importantly, the funds cannot be comingled, in line with the legislative framework.

• All NBPSPs will be given an own funds settlement account, as we pay interest (on prefunding account balances only) and debit fees from this account.
• A client funds settlement account is a designated safeguarding account for client funds (ie relevant funds).

Interest is not paid on balances held in own funds settlement accounts or client funds settlement accounts.

Prefunding accounts

Settlement of retail payment systems commonly takes place on a deferred basis relative to customer payments which leads to the build-up of financial risks.

Our RTGS service can support prefunding using central bank money. This eliminates settlement risk in the payment system between settlement participants. It does this by capping the maximum net obligations of the settlement participants in the system and prefunding being held in RTGS up to that cap. This ensures fulfilment of the settlement participants’ net obligations in the event of their default.

• Separate accounts, known as prefunding accounts, hold funds up to the value of that participant’s cap. For NBPSPs, these are ‘settlement collateralisation accounts’ if own funds and ‘completion funds accounts’ if client funds.
• A prefunding account is automatically provided for settlement participants in prefunded payment systems settling in RTGS; there is no separate application process for the prefunding account.
• The prefunding account is not used for settlement ordinarily; this takes place across a settlement account. Funds on the prefunding account would only be used to complete settlement where funds were not available on the account ordinarily used for settlement for operational or financial reasons.

An appropriate level of prefunding should be maintained to minimise the risk of out-of-hours requests to adjust prefunding levels. Prefunding can be difficult for NBPSPs that may only hold client funds for a short time. NBPSPs should consider carefully how to hold a sufficient level of prefunding.

Maximum balance requirements

NBPSPs are subject to maximum balance requirements in RTGS on own funds and any client funds settlement accounts.

We can apply maximum balances (determined as appropriate by us for settlement purposes) on settlement-only accounts. NBPSPs must ensure that the overnight balance does not exceed the maximum balance. Any excess funds should be held in a commercial bank account.

In determining the maximum balance, we will consider relevant factors, given the potential impact on our mission of maintaining monetary and financial stability. Some examples of the factors considered may include:

• historic settlement information of the account holder;
• routine and peak liquidity requirements and projections; and
• discussions with the account holder in support of understanding their current and future requirements.

3: Application processes

Each payment system operator has a structured application process for direct access. NBPSPs should contact the relevant payment system operator directly.

• For CHAPS, this is the Bank of England.
• For Bacs, Faster Payments and the cheque-based Image Clearing System this is Pay.UK.

The Bank, as the operator of RTGS, also takes a decision on whether to grant access alongside the decisions made by the relevant payment system operator.

NBPSPs should consider early on whether to settle in own funds and/or client funds. And, where applicable, their ability to provide prefunding.

Timelines

There are several factors which drive how long it might take a NBPSP to gain direct access.

• Availability of onboarding and testing slots for the payment system and to RTGS.
• NBPSP technical readiness.
• If a NBPSP is already authorised or not.
• Time to complete the NBPSP takes to complete actions arising from the s166 supervisory assessment.

NBPSPs should plan on the basis it is likely take at least twelve months to gain direct access once activities with the FCA have been completed. Payment system operators and the Bank, as the operator of RTGS, take into account demand from organisations for direct access and the level of readiness of each applicant when allocating onboarding slots.

Onboarding stages

Ongoing requirements

NBPSPs with settlement accounts in RTGS are typically subject to on-going, enhanced supervision for an appropriate period to assess their continuing compliance with the regulatory requirements. An assessment will typically include monitoring the completion of any outstanding areas of feedback, which were not required to be completed prior to NBPSP gaining direct access to RTGS. And taking steps to understand how the NBPSP’s business model and strategy is evolving, including identifying where new risks of harm may be forming. This is likely to include requiring the NBPSP periodically to commission independent audits covering key risk areas.

NBPSPs must continue to comply with the relevant RTGS and payment system documentation. For RTGS, this includes the RTGS Terms & Conditions as well as the RTGS Rules. For CHAPS, this includes the CHAPS Reference Manual.

Annex: Glossary