Bank of England Deputy Governor: Expect blockchain to restructure UK payment system

Rage Comment : The Bank of England has made unprecedented efforts in researching blockchain, not only because, as their Chancellor of the Exchequer said, blockchain will help the UK return to the global financial center, but more importantly, they are currently very uneasy about the security of traditional financial facilities. The UK's real-time gross settlement system settles 500 billion pounds a day, nearly one-third of the UK's annual GDP. On October 20, 2014, the real-time gross settlement system collapsed, interrupting service for nine hours, and tens of billions of dollars in payment transactions were delayed. Banks need an extra four hours to deal with all unfinished transactions. Perhaps because of this, the Bank of England has great enthusiasm and an extremely open attitude towards technological innovation.

Translation: breezeqi

The Bank of England (BoE) will develop a blueprint for modernising sterling settlement infrastructure to meet the needs of distributed ledger technology (DLT) and other technological innovations.

Minouche Shafik, Deputy Governor of the Bank of England

Minouche Shafik, deputy governor of the Bank of England in charge of financial markets and banking, said in a recent speech on the payments industry that payments have changed dramatically in recent years.

Shafik noted that these changes are mainly driven by two factors: a surge in the number of new payment providers and changing demands on payment infrastructure.

She pointed to the continued growth in the range of cashless, real-time mobile payment options, as well as the decentralized nature of payment verification enabled by distributed ledger technology.

In her view, the Payment Systems Regulation (PSR), established in 2015, is shifting its regulation of the payment industry from targeted intervention measures to a more dynamic focus on competition and innovation.

Shafik said:

“We expect technological innovations such as distributed ledger technology to once again question the fundamentals of the banking settlement business model.”

The reality of the UK payments system

Shafik said that the future development of pound settlement is closely related to every British person. He also pointed out that the vast majority of payments in the real economy - whether from wages to invoices, from buying cars to selling coffee, from pensions to investments - ultimately rely on the "20-year-old" bank real-time gross settlement system (RTGS) service to solve. According to banking industry data, the daily settlement scale of the bank's real-time gross settlement system (RTGS) is 500 billion pounds, which is nearly one-third of the UK's annual GDP. Shafik added:

"So it is no exaggeration to say that the real-time gross settlement system is the core of the UK payment system."

On March 25, 2015, the Bank of England published the results of an independent review by Deloitte into the nine-hour outage in the real-time gross settlement system on October 20, 2014.

Tens of billions of dollars in payments were delayed as the RTGS system collapsed, with banks taking an extra four hours to process all outstanding transactions, including interbank transfers to pay for property purchases.

Last year, the bank accepted all of the review's recommendations and said it would further consider contingency plans for the system and its future development.

Back in the present, considering the importance of the RTGS system, Shafik noted that the resilience of the system cannot be overstated in the pursuit of financial stability:

A lasting disruption to people's ability to make and receive payments would cause huge damage to the UK economy.

The Bank of England is therefore seeking to support innovation in the payments system.

In his speech, Shafik identified four overarching issues that need to be addressed in relation to a new blueprint for the UK payments system.

First, the policy objectives of the Bank of England in relation to central bank monetary settlement; second, the specific functions of the UK's high-performance payment system; third, the specific participants and methods of participation in the payment system; fourth, the role of the Bank of England in payment system services.

Shafki stressed:

“When we make investment decisions about payment systems over the next 10 years or more, we need to be able to respond to changing user needs. We need to ensure we have ‘options’ that enable us to respond to different states of the world.”

The Bank of England's new blueprint

The Bank of England said it would design a new blueprint for the sterling settlement system to adapt to future needs.

The Bank of England said it would hold a broader discussion involving all parties before conducting a small-scale professional consultation. It will reach an agreement on a new blueprint for a high-performance sterling settlement system by the end of 2016, and will also propose a new blueprint for technological progress in 2017.

Shafik concluded:

“Innovation and stability can go hand in hand. Our challenge will be to find the best path to redesign RTGS that achieves greater resilience while promoting technological innovation that benefits the public interest.”