UK’s new settlement system to support DLT

By Emma Olsson | 3 August 2020

The Bank of England’s (BoE’s) new Real Time Gross Settlement (RTGS) system will be compatible with distributed ledger technologies (DLT), says BoE’s executive director for banking, payments and innovation Victoria Cleland.

“It was decided a while ago in the program that we didn’t want to use DLT to build the new RTGS system on, but we are very conscious of developments in technology,” she says.

“A couple of years ago we ran a proof of concept to see whether or not DLT-based companies could connect to what we would be planning for the new system and that was successful. It showed that there are a few things that we’ll probably tweak to enhance DLT’s ability to connect with the system. We’ve thought about it, we’re not building it on DLT, but we’ll make sure DLT can be used to connect to it.”

The UK central bank first announced plans to develop a DLT-based service in 2017. The proof of concept featured connections with blockchain-based providers such as R3 and Baton, but was deemed immature.

According to Cleland, a modernised RTGS is integral to maintaining financial stability. While the system will intersect with other payment infrastructures such as Pay.UK’s New Payment Architecture (NPA), it will remain the UK’s key settlements system allowing institutions to hold reserves at the bank.

Sulabh Agarwal, managing director at Accenture – which has been selected to renew the RTGS alongside the BoE - says the settlements modernisation will be a “living system” that can be updated easily.

“It will be a modern infrastructure stack, aligned to the wider global payments industry. Adopting the principles of a living system, cloud native architecture is the foundation of how we see this system being built,” he says.

“The architecture of the platform is modular and if there is a change in one part of it e.g. SWIFT messages, it does not need a change to the whole RTGS system.  There’s a lot of automation in the delivery lifecycle so that future changes are quicker and easier to do,” says Agarwal.

Nathan Monk, BoE’s technical director, agrees.

“It’s about more modern, modular architecture so we can have the flexibility to change in the future and move away from monolithic legacy architectures,” he says.

“It’s about leveraging those modular principles we have already talked about… this approach combined with continuous integration and continuous development techniques, stand us in good stead for the future. Smaller modularised elements connected through strong and flexible integration – I think that’s the key for how we make sure it’s future proofed.”

The renewed RTGS will also see a change in the types of firms allowed to connect to the system.

“We’re looking at how many direct participants we’ve got at the moment – we could see a fast changing world of payments and more people wanting to join, so we’re building in a significant increase in capacity for new direct participants,” says Cleland.

Previously, only banks and building societies were allowed to partake in the payments architecture. These institutions would have a direct relationship with the central bank, while other firms would be indirect participants through an intermediary. In 2018, TransferWise became the first non-bank payments service provider (PSP) to join RTGS; the renewed system is set to expand on this precedent. 

 

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