The Bank of England started a review of the U.K.’s payments system to take into account greater use of electronic banking and better prepare it for digital currencies and cyber attacks.
As advances such as mobile technology grow in use, increasing demand for 24-hour banking, the BOE will look at all options to modernize the 20-year-old Real Time Gross Settlement infrastructure and could even replace it. The critical network handles about 500 billion pounds ($712 billion) of daily interbank payments -- from salaries to mortgages to car purchases.
In addition to technological changes, the review follows criticism of the BOE for its handling of a nine-hour outage of the RTGS system in 2014. Deputy Governor for Markets and Banking Minouche Shafik said the BOE is aware of the importance of the system.
“The importance of resilience can hardly be overstated,” she said in a speech on Wednesday announcing the review. “A persistent disruption to people’s ability to make and receive payments would cause great damage to the economy.”
Shafik also said that the BOE wants to retain operational control of the system, noting that during the financial crisis, this paid “substantial dividends.” But it’s open to more drastic options.
“We may conclude that the right way forward is a like-for-like replace of the current RTGS,” she said. “Or we may decide that more radical change is needed to meet the needs of the U.K.’s future financial system. We genuinely do not have preconceptions.”
While the RTGS is just two decades old, Shafik traces the origin of the payments system to a pub lunch in London around 1770. That’s when two so-called “Walk Clerks,” tiring of visiting each bank to exchange checks and settle balances, invited their colleagues to join them at the pub each day to centralize the work.
Shafik said the speed of innovation means the central bank needs to think about how the payments system should evolve to ensure stability in the financial system over the coming decades. It also plans to review the functionality of the system and access. Currently, the system is heavily “tiered,” with 90 percent of the 400 licensed banks using it doing so through an intermediary bank.
The BOE wants guidance from the financial industry and others and aims to publish a consultation paper later in the year, with a blueprint due by the end of 2016.