By Andrew Lloyd, Chief Customer Officer UK, PEXA

Introducing Synchronised Real-Time Settlements

The Real-Time Gross Settlement (RTGS) system is the Bank of England’s mechanism that enables building societies and other financial institutions to settle money at the central bank owed to one another from the various UK payment systems such as Faster Payments, Bacs, Mastercard and Visa.

RTGS is a critical piece of the UK’s financial infrastructure and is currently undergoing a significant upgrade with the introduction of new features and capabilities aimed at enhancing resilience, accessibility, interoperability, and user functionality.

One aspect currently under consultation by the Bank of England is the introduction and development of synchronised settlements whereby the movement of funds through RTGS is ‘synchronised’ to the movement of assets in another ledger. From a property standpoint, this would be the transfer of title at the land registry but could conceptually include any applicable asset ledger.

Synchronised Settlements in Practice

Working closely with the Reserve Bank of Australia (RBA) and the state land registries, PEXA has pioneered the use of synchronised settlements for property in Australia over the last ten years, and by doing so has showcased the tangible benefits of electronic property transaction processes. By enabling the synchronised movement of funds and securities, PEXA and the RBA have managed to streamline the property transaction process and significantly reduce the amount of counterparty and settlement risk. Furthermore, by eliminating the need for physical settlement and streamlining document handling, PEXA has significantly reduced errors, delays, and the associated costs. The Bank of England’s interest in similar functionalities for the UK market, as indicated by industry feedback, highlights the potential for leveraging synchronised settlements to improve transaction efficiency and reduce settlement risks.

Strategic Implications for Building Societies

The development of synchronised settlement has the potential to significantly enhance operational efficiency and risk management within building societies – but only if the payment systems enable direct access like PEXA does. By facilitating direct access to settlement in central bank money,  coupled with synchronised settlements, would result in improved liquidity management, less counterparty risk, greater coupled with synchronised settlements, would result in improved liquidity management, less counterparty risk, greater control over customer journeys and less operational cost. The move towards a more inclusive and efficient settlement system underscores the Bank of England's dedication to supporting the evolving needs of the financial services industry and its stakeholders.

Looking Ahead

As the financial landscape continues to evolve, the RTGS system upgrade is just the beginning of a broader shift towards 24/7 operations and enhanced global interoperability. The Bank of England’s roadmap for 2024 and beyond hints at a future where extended operating hours and synchronised settlement interfaces could vastly improve efficiencies for domestic and cross-border payments. However, the journey towards such a future involves addressing technical, regulatory, and collaborative challenges to ensure that the benefits of such innovations can be fully realised by all stakeholders in the financial ecosystem.

In conclusion, the RTGS upgrade represents a critical step forward in the modernisation of the UK's financial infrastructure. By learning from successful implementations like PEXA's in Australia and actively engaging with industry stakeholders, the Bank of England is poised to deliver a more resilient, accessible, and innovative settlement system. This progress not only benefits building societies and other mortgage lenders but also promises enhanced efficiency and security for the end consumer, marking a significant milestone in the evolution of property transactions and financial settlements.

To find out more visit www.pexa.co.uk and www.thepaymentsassociation.org/article/

This article was first published in Society Matters magazine