Bank of England Turns to Fintech for Atomic Settlement

The Bank of England says it is looking to explore synchronisation of payments in its RTGS (Real Time Gross Settlement) service, including cross border payments relating to international currency transactions.

In a release the Bank says it believes that this functionality could provide an opportunity to reduce cost and risk, improve efficiency, and support innovative new methods of settlement. “We are now seeking to work with a small group of organisations to further explore the potential for this functionality,” it states.

At the heart of synchronisation is Atomic Settlement, wherein the transfer of two assets is linked in such a way as to ensure that the transfer of one asset occurs if and only if the transfer of the other asset also occurs – that is, settlement is conditional. 

“Payments that involve multiple ledgers and payments supporting asset transfers are often costly, complex and slow,” the Bank says. “The longer a transaction takes to complete, the more settlement and price risk can arise. Synchronisation functionality could offer participants, service providers and end users the potential for a significant reduction in such risk as well as greater speed and efficiency.”

The Old Lady says it has engaged with financial institutions, infrastructures, trade bodies, policy makers and fintech firms on synchronisation and the feedback received suggests there could be demand and use cases for the functionality over the lifetime of the renewed RTGS service. 

These use cases include settlement of housing and corporate transactions, as well as cross-border payments. “A domestic payment can be executed in real time, but a cross-border transaction can take two or three days and costs on average 10 times more than a domestic payment,” the Bank of England says. “There could be scope, working with other national RTGS services, to improve inter-bank cross-border payments by using synchronisation to achieve simultaneous settlement across currencies.”

The central bank says it is looking to engage with interested parties to decide how the RTGS should be evolved as well as to look into how a synchronisation operator could be connected to the system.

Colin_lambert@profit-loss.com

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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