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The working day may be about to get longer but don’t worry, it’s good news – the Bank of England (BoE) has announced that from 20 June 2016 the CHAPS and CREST settlement day will be extended by one hour and forty minutes to 18:00. The announcement follows BoE’s good practice review which concluded in November 2014.

CHAPS and CREST

CHAPS (the computerised payment system used by UK banks) and CREST (the UK’s electronic registration and settlement system for equity share trading) provide settlement on a ‘real-time’ basis. Although direct participants, such as major banks and financial institutions, will be able to set or retain earlier cut-off times, BoE expects them all to pass on the benefit of the extension to customers.

The basis for high-value or wholesale payments in most countries is known as Real Time Gross Settlement (RTGS). When payment instructions are submitted, the paying bank is debited and the receiving bank is credited before the instruction goes to the receiving bank. It can then credit its customer’s account or pay the funds away because it is certain that the original instruction cannot be revoked. ‘Receiver risk’ is eliminated.

In the UK, CHAPS transfers and interbank payments in respect of CREST transactions are settled on an RTGS basis. BoE is facilitating the change by extending the operating hours of its own RTGS infrastructure.

What’s the benefit?

The CHAPS and CREST settlement day will be more closely aligned with the typical business day. It is hoped that passing the later cut-off time onto customers will result in transactions being able to be processed later in the day (although customer cut-off times may be slightly earlier than 18:00, with the CHAPS deadline for customer payments at 17:40). A link to BoE’s proposed settlement timetable is below.

Whilst individual consumers rarely use CHAPS other than for house purchases, the systems have seemed to lag behind the trend for longer business hours. It is far from unusual for transactions to be unable to complete on a chosen day because of missing early cut-off times for payments.

Potential benefits identified by BoE include:

  • businesses being able to make high-value transactions to pay suppliers later in the day;
  • house purchases using CHAPS being completed later than is currently possible;
  • participants in the financial markets benefitting from greater flexibility in balance sheet management, being able to make funding and investment decisions later in the day; and
  • enhanced risk management in the financial markets as participants will be able to make CHAPS payments later in the day to fulfil sterling cash obligations.

CHAPS and CREST systems operators, CHAPS Co and Euroclear UK & Ireland, will be working to raise awareness and to ensure the benefit is passed on to the end users.  BoE will also be working with financial authorities to continue to monitor the benefit to customers.

What next?

Banks will have to make internal changes (such as changes to IT systems, procedures and staffing) and changes to standard documents and terms to reflect the later cut-off times.

BoE is to host a market wide forum on the changes, bringing together representatives from the financial industry and end-users. It’s website will be regularly updated to support the implementation.

Link: http://www.bankofengland.co.uk/markets/Pages/paymentsystem/extending.aspx

Link: http://www.bankofengland.co.uk/markets/Documents/paymentsystem/timetable.pdf

For more information, email blogs@gateleyplc.com.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.