BoE launches PoC to explore how renewed RTGS service may support innovative payment tech

The Bank of England has announced that it is undertaking a Proof of Concept (PoC) to understand how a renewed Real Time Gross Settlement (RTGS) service could support settlement in systems operating on innovative payment technologies, such as those built on DLT.

Although the Bank has previously concluded that Distributed Ledger Technology (DLT) is not yet sufficiently mature to provide the core for the next generation of RTGS, it wants to make sure that the new service is capable of interfacing with DLT as and when it is developed in the wider sterling markets. That is why, the Bank is undertaking a Proof of Concept (PoC) in order to find out how a renewed RTGS service could support settlement in systems operating on innovative payment technologies, such as those built on DLT.

The Bank is partnering with a number of firms developing payment arrangements based on innovative technologies. The list includes Baton Systems, Clearmatics Technologies Ltd, R3 and Token.

Participants in the PoC have access to a cloud-based system developed by the Bank which replicates a version of the prefunded net settlement arrangement a renewed RTGS service will offer to the major UK retail payment systems. The PoC is exploring whether innovative settlement systems are able to interface with that functionality and identifying ways in which the renewed RTGS service functionality could be expanded.

The Bank anticipates to publish a summary of findings from the PoC later in 2018. The summary will outline any enhancements to the settlement functionality offered in the renewed RTGS service to accommodate payment systems using innovative technologies. It will also specify any further work that needs to be undertaken in order to identify ways in which the renewed RTGS service functionality could be expanded.

Earlier this year, the UK Treasury Committee opened a new inquiry into digital currencies and distributed ledger technology (DLT). The inquiry aims to examine the role of digital currencies in the UK, including the opportunities and risks that digital currencies may generate for consumers, businesses, and the Government. It also seeks to look into the potential impact of DLT – such as blockchain – on financial institutions, including the central bank, and financial infrastructure. The inquiry also aims to scrutinise the regulatory response to digital currencies from the Government, the Financial Conduct Authority, and the Bank of England, and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation.

In a recent speech, Mark Carney, Governor of the Bank of England, stated that “distributed ledger technology could transform everything” but warned about the risks associated with crypto-assets.