The Oversight Report sets out how the Bank has implemented the statutory regime for oversight under Part 5 of the Banking Act of 2009 and how the Bank carries out its oversight of recognized UK payment systems. In its oversight work the Bank oversees interbank payment systems that are ‘recognized’ by the Treasury. Such “recognition” orders exist for Bacs, CHAPS, CLS, Faster Payments Service, and the embedded payment arrangements within CREST, ICE Clear Europe Ltd and LCH.Clearnet.
To summarise the main UK payment systems have continued to demonstrate high levels of operational availability and developments since the previous Oversight Report have contributed to further reductions in risk. The Oversight Report notes some areas where, in the Bank’s view, further measures to reduce potential systemic risks should be undertaken. These include:
- Tiering - the accession of two new members of CHAPS in 2010 and one new settlement member of CREST in 2009 has helped reduce tiering in these payment systems, but tiering remains a risk in UK payment arrangements and should be reduced.
- Payment arrangements for central counterparties (CCPs) - the two recognized CCPs should consider ways to reduce commercial bank risk in their payment arrangements.
- Default arrangements - Bacs should develop proposals to ensure that settlement can complete in all circumstances in the event of a member default.
- Contingency arrangements - payment systems should ensure they conduct a challenging program of business continuity tests to prove their contingency arrangements.
- Governance - payment systems should ensure that their governance arrangements reflect corporate governance good practice, and provide appropriate strategic guidance and challenge to management.
