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Access to UK Payment Schemes
for Non-Bank Payment Service
Providers
December 2019
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Contents
What is the purpose of this document? ....................................................................................................... 3
The UK payment schemes ............................................................................................................................. 4
How have non-bank payment service providers accessed the payment schemes previously? ................... 4
Why does the Bank allow non-bank payment service providers to access payment schemes directly? ..... 5
Which non-bank payment service providers are eligible for direct access? ................................................ 6
How can a non-bank payment service provider become a direct settling participant in a payment
scheme? ........................................................................................................................................................ 6
Scheme Criteria ......................................................................................................................................... 6
Eligibility for Bank of England Settlement Accounts ................................................................................. 6
Non-Bank Payment Service Providers Safeguarding Requirements and Prefunding Accounts ............... 7
FCA’s Supervisory Assessment .................................................................................................................. 9
What is the process to become a directly settling participant? ................................................................. 10
Discovery ................................................................................................................................................. 10
Definition and Planning........................................................................................................................... 11
Design, Test & Settlement and Regulatory work .................................................................................... 11
Assurance and Go-live ............................................................................................................................ 11
Timelines ..................................................................................................................................................... 11
Glossary ....................................................................................................................................................... 12
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What is the purpose of this document?
This information pack is a guide for authorised payment and e-money institution payment service
providers (“non-bank PSPs”) that would like to access the UK’s interbank payment schemes directly, as
opposed to via a sponsor bank. It outlines the framework by which non-bank PSPs can apply to open a
settlement account at the Bank of England (the “Bank”), in order to become a direct participant of a
payment scheme.
The ability to gain direct access to a scheme means that non-bank PSPs no longer have to rely on a third
party bank either to submit payments or settle payment obligations on their behalf.
This guide provides specific information for non-bank PSPs about direct access to the UK’s main
payment schemes. It does not provide advice as to which payment scheme they may wish to join. The
payment schemes have published An Introduction to the UK Interbank Payment Schemes which contains
an overview of options for access to payment schemes.
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The UK payment schemes
Information on the UK’s payment schemes can be found in An Introduction to the UK Interbank Payment
Schemes.
In summary, non-bank PSPs may want to use one or more of the following schemes:
CHAPS – the UK’s same day payment system used for wholesale and time-sensitive retail payments.
Faster Payments (FPS) – provides real time payments 24/7 and is used for standing orders, single
immediate payments, forward dated payments, return payments, such as for internet and
telephone banking payments as well as mobile payments (e.g. through Paym).
Bacs – the ‘automated clearing house’, which processes Direct Debits and Bacs Direct Credits across
a three working day cycle.
Image Clearing System – Cheque imaging is the process that enables images of cheques to be
exchanged between banks and building societies, through the Image Clearing System, for clearing
and payment.
CHAPS is operated by the Bank, while FPS, Bacs and the Image Clearing System are operated by Pay.UK.
Payment schemes require a settlement service provider (SSP) to provide final settlement of the various
payment flows between the direct participants of a payment scheme. For these payment schemes, the
Bank is the SSP, providing settlement via a transfer of funds between settlement accounts held by
participants in the Bank’s Real Time Gross Settlement (RTGS) system. The Bank offers settlement
services in order to promote both monetary and financial stability, as settlement at a central bank
mitigates credit and disruption risk for the participants as well as end-users of the payment schemes.
CHAPS settles each transaction individually, in gross and in real-time across settlement accounts. In the
Deferred Net Settlement (DNS) payment schemes (Bacs, FPS, and the Image Clearing System), end-users
make payments during a ‘clearing cycle’ and payment settlement occurs at the end of this cycle. The
payment scheme calculates the amount each participant owes/is owed as a result of transactions made
during each cycle. This is sent to the Bank, which then simultaneously debits or credits each settlement
account this amount.
Note: The Bank also provides net settlement services to the LINK ATM Scheme and Visa Europe. While
LINK is covered in An Introduction to the UK Interbank Payment Schemes, neither it nor Visa are further
covered in this guide for non-bank PSPs. The required supporting regulatory and legal arrangements are
not currently in place to support settlement in these systems.
How have non-bank payment service providers accessed the payment
schemes previously?
In the past, non-bank PSPs were only able to participate in these payment schemes as a directly
connected non-settling participant or as an indirect participant. This type of indirect participation is still
available to non-bank PSPs as a participation option.
Directly connected non-settling participants have a direct connection to the payment scheme’s central
infrastructure where they can submit and receive payment messages, scheme messages and transaction
reports. However, they use a sponsor bank (an existing direct settling participant) to settle on their
behalf, using the sponsor’s settlement account at the Bank. Directly connected non-settling participation
is not available in CHAPS.
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Indirect participants send their payment instructions via a direct participant. The direct participant’s
settlement account at the Bank is used for settlement on behalf of the indirect participant.
Information on these two access options can be found in An Introduction to the UK Interbank Payment
Schemes, or by contacting the relevant payment scheme.
a) Indirect participation
b) Directly connected non-settling participation
c) Direct participation
Why does the Bank allow non-bank payment service providers to access
payment schemes directly?
The UK is a world leader in payments innovation, which is reflected in the dramatic growth in the
number of UK-authorised non-bank PSPs. These institutions are competing with banks to provide
payment services. However, until access to settlement accounts was extended, they were only able to
access the UK payment schemes indirectly – through the very banks they are competing with.
The Bank allows non-bank PSPs to open settlement accounts, subject to appropriate safeguards. This
means they can meet one of the key entry criteria to become a direct settling participant in UK payment
schemes that settle at the Bank.
Access to the UK’s main payment schemes allows non-bank PSPs to compete on a more level playing
field. They will be less dependent on competitors and will be able to offer a wider range of payment
services. These factors all help to increase competition and innovation in the market for payments.
Longer term, the innovation stemming from expanded access should promote financial stability by:
creating more diverse payment arrangements with fewer single points of failure;
identifying and developing new risk-reducing technologies;
expanding the range of transactions that can take place electronically and be settled in central
bank money.
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Which non-bank payment service providers are eligible for direct
access?
There are two types of non-bank PSPs eligible for direct access – e-money institutions and payment
institutions. E-money institutions are regulated by the Financial Conduct Authority (FCA); payment
institutions are regulated by the FCA and also in some cases by HM Revenue and Customs (HMRC), for
anti-money laundering purposes (depending on business model).
Only authorised e-money and payment institutions are eligible to hold settlement accounts at the Bank
(see page 7). This means that small e-money institutions and small payment institutions, that are
registered only (as opposed to being authorised), cannot hold a settlement account at the Bank and
consequently are not eligible for direct settlement access to the payment schemes.
How can a non-bank payment service provider become a direct settling
participant in a payment scheme?
In order to become a direct settling participant of a payment scheme, a non-bank PSP must be
authorised by the FCA to provide payment services, and meet the following core requirements:
the eligibility criteria as set by the relevant payment scheme;
the eligibility criteria for holding a settlement account at the Bank;
completion of a supervisory assessment by the FCA (and HMRC, where appropriate).
Scheme Criteria
Each of the payment schemes has its own eligibility criteria for direct settling participants which can be
found on the relevant websites. The common criteria for each payment scheme are summarised below:
Must be authorised by the FCA to provide payment services (and in
relevant cases also registered with HMRC). Individual payment schemes
will also have specific criteria relating to their particular system.
Must hold a settlement account at the Bank.
Bacs, FPS and the Image Clearing System also require an additional
prefunding account to be held (one per scheme).
May be required to provide an independent legal opinion to confirm that
the contract between the non-bank PSP and the payment scheme will be
legally binding and enforceable.
Required to sign all legal agreements as required by the payment scheme.
Must agree to pay all relevant payment scheme costs, as requested.
Must agree to comply with the payment scheme rules and technical
requirements and be prepared to undertake assurance activity as
required by the payment scheme or regulators, before and after go live.
The behaviour of individual participants in these payment schemes can
impact the stability of the whole financial system. It is vital that all rules
and requirements are adhered to.
This is a guide to access criteria: specific criteria can be found on the payment schemes’ websites.
Bacs
Direct Participation Criteria
CHAPS
Access Requirements
FPS
Eligibility Criteria
Image Clearing System
Access Criteria
Eligibility for Bank of England Settlement Accounts
In order to become a direct settling participant in a payment scheme which settles at the Bank, non-
bank PSPs must hold a settlement account in the Bank’s RTGS system.
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A settlement account is not a traditional commercial account. A settlement account is only used to
settle the payment obligations arising from payment schemes which settle at the Bank. A non-bank PSP
will still require commercial bank relationships in order to undertake its commercial banking needs
including making other types of payments, financing and investments. In particular, participants in DNS
schemes will need a relationship with a CHAPS direct participant to fund and de-fund their settlement
account from their commercial bank account – although that is not to say direct participation in CHAPS
would remove the need for a commercial bank relationship.
Non-bank PSPs are not eligible to participate in the Bank of England’s Sterling Monetary Framework (i.e.
the operationalisation of the Bank’s monetary policy and liquidity insurance facilities) or for intraday
liquidity, as they do not undertake maturity transformation activities.
For non-bank PSPs, there are three key criteria for opening a settlement account.
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These criteria help
the Bank mitigate the risks that participants bring to payment schemes and RTGS, and financial crime
risks. They provide an equivalent level of assurance as banks are required to meet.
The non-bank PSP must be either an e-money or a payment institution authorised in the UK by
the FCA. Any non-bank PSP applying for a settlement account at the Bank will undergo a
supervisory assessment by the FCA (see section on page 9 on the FCA’s process).
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,
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The non-bank PSP has the operational capacity to participate in and efficiently settle
transactions in RTGS. This involves having a connection to SWIFT, the messaging network for the
Bank, which enables access to the RTGS Enquiry Link service. This allows a non-bank PSP to
fund, defund (to/from a nominated commercial bank account) and monitor their settlement
account and, if applicable, prefunding account(s).
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They must also undertake testing before the
account can go-live and participate in other routine testing exercises.
There are legal documents with the Bank which an account holder must sign up to. These are:
o The RTGS Account Mandate Terms & Conditions; and
o An annex to this Mandate, for each relevant payment scheme.
In addition, if a non-bank PSP wishes to join a prefunded scheme (Bacs, FPS and the Image Clearing
Scheme) it will also require a prefunding account at the Bank. This prefunding account is used to hold a
balance to cover the participant’s largest net debit position, in order to ensure their obligations could be
settled in the event of default. The prefunding requirement can be difficult for some firms that hold
client funds for a short time only, or firms with large one way flows that do not benefit from netting.
Prospective participants should carefully consider how they will meet prefunding requirements.
Participants must place funds in this prefunding account which would only be accessed by the payment
scheme in a contingency scenario, to ensure that settlement of its position in a payment scheme can still
take place.
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Further information can be found here. There is no separate application process or
additional eligibility requirements for a prefunding account, but there are additional legal agreements.
Non-Bank Payment Service Providers Safeguarding Requirements and
Accounts
Non-Bank PSPs are required to safeguard any ‘relevant funds’ in accordance with the Payment Services
Regulations 2017. Legislation allows for this to be done in a number of ways, including by placing the
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Access to a settlement account remains at the sole discretion of the Bank.
2
Information on becoming an authorised payment institution or electronic money institution can be found here.
3
If the demand emerges, the Bank would be willing to work with regulators in other countries on an equivalent to the FCA assessment.
4
Further information can be found on the Bank’s website.
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Note that the funds in the prefunding account are not the funds used in the normal course of settlement, which must be provided separately
in the settlement account ahead of payment scheme settlement.
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funds in an account with an authorised credit institution or the Bank of England.
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Relevant funds
safeguarded in this way must be segregated from any ‘own funds’ the firm possesses.
The Bank and payment schemes have designed account arrangements which allow non-bank PSPs to
meet these safeguarding requirements, though responsibility for ensuring that ‘client funds’ (i.e.
‘relevant funds’) are adequately safeguarded, and all relevant regulations are complied with, remains
with the non-bank PSP. Non-bank PSPs can choose to operate using ‘client funds’ or ‘own funds’. Some
non-bank PSPs may choose to offer both, but importantly the funds cannot be comingled, as per the
legislative framework.
Account name
Comments
Own funds settlement
account
All non-bank PSPs will be given an own funds settlement account, as
the Bank pays interest and charges fees to this account only.
Client funds settlement
account
A designated safeguarding account for client funds.
Provided when a non-bank PSP joins a payment scheme to settle in
client funds.
Common to settlement
accounts
The only account(s) required for CHAPS participation.
Interest is not paid on balances held in settlement accounts.
Settlement collateralisation
account (SCA)
Prefunding account for own funds.
Completion funds account
(CFA)
Prefunding account for client funds.
Common to prefunding
accounts
One is provided per DNS payment scheme joined – netting cannot be
spread across multiple schemes.
Funds are used only in a contingency situation.
Interest is paid on balances held in prefunding accounts.
The prefunding requirement can be difficult for some firms with large
one way flows, or firms that hold client funds for a short time only.
Common to all accounts
Accounts should only hold the type of funds they are designated for.
Accounts should only hold enough funds as are required for settlement
and prefunding – excess funds should be held in a commercial bank
account.
Both of these requirements are the responsibility of the non-bank PSP.
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See regulation 23 of the Payment Services Regulations 2017 and chapter 10 of Payment Services and Electronic Money – Our Approach.
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FCA’s Supervisory Assessment
The FCA’s supervisory assessment will assess compliance with existing regulatory requirements for PSPs
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(as laid out in the Payment Services Regulations 2017
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, the E-Money Regulations 2011, the Money
Laundering Regulations 2007 and other relevant legislation).
This assessment will include the following areas:
governance and risk management arrangements;
safeguarding of customer funds;
financial crime (this will usually be a separate assessment).
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The FCA will engage with the non-bank PSP before starting the supervisory assessment, to explain the
process in more detail and what will be covered under the separate general and AML assessments. Each
supervisory assessment will normally include an information request and a subsequent visit to the non-
bank PSP. The visits will include interviews with relevant staff and file reviews for the AML assessment.
The assessment process should take around nine months in total. Following the completion of its initial
assessment (i.e. after the firm visit), the FCA will give the non-bank PSP feedback. This feedback may
include specific areas the non-bank PSP will need to address. The FCA will need to confirm to the Bank
that it is satisfied that these areas have been addressed, before the Bank and payment scheme can
agree access to a settlement account and the relevant payment scheme respectively.
Non-bank PSPs holding a settlement account at the Bank will be subject to on-going, strengthened
supervisory oversight to assess their continuing compliance with the regulatory requirements. This will
typically include monitoring the completion of any outstanding areas of feedback, which were not
required to be completed prior to the non-bank PSP gaining direct access. And taking steps to
understand how the non-bank PSP’s business model and strategy is evolving, including identifying where
new risks of harm may be forming. This is likely to include requiring the non-bank PSP periodically to
commission independent audits covering key risk areas.
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Or, in the case of non-bank PSPs applying for authorisation in tandem with applying to gain access to RTGS, they will assess whether you meet
these requirements.
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Further information on the FCA’s approach to supervision can be found on their website.
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The assessment will be led by the appropriate supervisor for that non-bank PSP under the Money Laundering Regulations. For non-bank PSPs
who are EMIs this will be the FCA, for PIs it will be either HMRC or the FCA depending on business model. The FCA and HMRC will work together
on these assessments as appropriate.
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What is the process to become a directly settling participant?
Non-bank PSPs interested in accessing the UK payment systems should first contact the relevant
payment scheme to discuss access options and project scope, as well as viability of holding a settlement
account for their business model.
The diagram below summarises the process to become a directly settling participant in a payment
scheme. There may be some changes to this process depending on the scheme being joined. The
payment schemes will be able to give more specific and detailed information.
Non-bank payment service provider application process
Payment System
Operator
Non-Bank PSP
Bank of England
FCA
Go-liveDesign and TestingAssuranceDefinition and PlanningDiscovery
Introductory
meeting between
payment scheme
and non-bank PSP –
discussion of access
options
Preparation of a
business case,
submission of Letter
of Intent
Technical
build
Testing
Introductory
meeting with
Bank of
England
FCA supervisory
assessment
Sign non
disclosure
agreement
Bank of England
sign off on
settlement
account
FCA confirms to
the Bank of
England they have
no objections
Non-bank PSP
addresses any
issues raised
Scheme
assurance,
signing of legal
contracts
Go-live
Onboarding
slot allocated
Discovery
The non-bank PSP should share initial information documents with the payment scheme and discuss the
best option for access. Direct access may not be the best option for all interested non-bank PSPs. If this
is the case, the payment scheme will be able to advise on alternative access models.
If the non-bank PSP decides to pursue direct settling access, it will be asked to sign a non-disclosure
agreement. This agreement provides protection to both the payment scheme and the non-bank PSP and
enables more detailed discussions to take place, with supporting documentation. At this stage, the non-
bank PSP can set up its project plan.
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Definition and Planning
Once a non-bank PSP has agreed its project plan
it will submit a ‘Letter of Intent’ to the payment
scheme. At this point, the payment scheme will review the non-bank PSP’s plans and carry out its own
risk assessments. If the payment scheme is happy to progress the non-bank PSP’s application, it will
allocate a provisional on-boarding slot (working with the Bank).
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A predetermined number of these
slots are made available by the Bank to the payment schemes each year. Payment schemes will work on
a best efforts basis to work to a non-bank PSP’s preferred timeframe, but demand from other
institutions may limit their ability to do so.
A non-bank PSP will also need to have testing slots allocated with both the payment scheme and the
Bank. The relevant payment scheme will coordinate this.
There is not a separate application to the FCA for the supervisory assessment. The Bank will meet with
the non-bank PSP to understand more about their business model and how they intend to use their
settlement account in RTGS. At the appropriate point, the Bank will inform the FCA that the non-bank
PSP is ready to undergo the supervisory assessment.
Design, Test & Settlement and Regulatory work
At this stage, the non-bank PSP will have four concurrent but independent work streams:
Technical preparation for operating the settlement account, with the Bank;
Technical build to ensure that the non-bank PSP has the technical capability for direct access,
with the payment scheme;
The FCA’s supervisory assessment;
Progressing membership/participation requirements, with the payment scheme.
Assurance and Go-live
The Bank will only allow the settlement account to go live:
If the firm is eligible for a settlement account;
If all required testing has been successfully completed;
Once it has received confirmation from the FCA (and, where relevant, HMRC) that it has no
objections to the non-bank PSP opening a settlement account;
Once the payment scheme provides notification that it has conducted all of its own assurance
work and is also content for go-live.
Timelines
There are a number of constraints on the speed with which a non-bank PSP can be on-boarded to a
payment scheme. This includes the availability of on-boarding slots at the Bank, and the FCA resourcing
for taking the non-bank PSPs through the supervisory assessment.
We have found that it takes around 12 months from submission of a ‘Letter of Intent’ from a non-bank
PSP to go-live. Precise timelines have been determined by the non-bank PSP’s technical readiness at the
point of application, the availability of on-boarding slots, and how long the non-bank PSP takes to
complete any actions arising from the FCA’s supervisory assessment.
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The Bank, as the CHAPS System Operator, does not allocate provisional on-boarding slots. Prior to provision of a slot, the
Bank will undertake an ‘On-boarding Readiness and Risk Assessment’ further to a completed Gap Analysis being provided by
the potential on-boarder. For further information, please contact the Bank directly. Contact details can be found on the Bank’s
website.
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Glossary
Authorised E-Money
Institution (AEMI)
The FCA authorises E-Money institutions in accordance with the Electronic Money
Regulations 2011. If an institution generates average outstanding e-money of more than
€5m, or has a monthly average of over €3m in relevant payment transactions, it must be
an Authorised E-Money Institution (as opposed to a Small E-Money Institution). There is
no minimum turnover threshold to become an AEMI.
Authorised Payment
Institution (API)
The FCA authorises Payment institutions in accordance with the Payment Services
Regulations 2017. If an institution’s average monthly turnover in payment transactions
exceeds €3m, it must be an Authorised Payment Institution (as opposed to a Small
Payment Institution). There is no minimum turnover threshold to become an API.
Clearing
The process of transmitting, reconciling and confirming transfer orders prior to
settlement. For DNS systems, this will include a netting process and the establishment of
final positions for settlement.
Deferred Net Settlement
(DNS)
Payment Schemes operating a DNS model process the clearing and exchange of
payments between participants during a clearing cycle. At the end of this cycle, a single
amount is paid or received by each direct participant, such that their net position is zero
for the next cycle.
Prefunding account
An account used to hold funds which underwrites a participant’s largest intraday net
debit position in a prefunded scheme (such as Bacs and FPS). The money held in this
account guarantees settlement, and is only used in the event of default.
Completion Funds Account
(CFA)
A prefunding account held at the Bank by a non-bank PSP containing own funds
(corporate funds) only.
Settlement Collateralisation
Account (SCA)
A prefunding account held at the Bank by a non-bank PSP containing client funds
(relevant funds as defined in the Payment Services Regulations 2017) only.
PSP
A Payment Services Provider – i.e. an institution which offers payment services to
customers, whether they are businesses or retail consumers. Includes banks, building
societies, e-money institutions and payment institutions. As defined in the Payment
Services Regulations 2017.
Non-Bank PSP
The only non-bank PSPs eligible for Bank of England Settlement accounts are Authorised
Electronic Money Institutions or Authorised Payment Institutions (as defined in the
Electronic Money Regulations 2011 and the Payment Services Regulations 2017
respectively).
Firms registered as small payment institutions are not eligible. For more details about
registration and authorisation please see the FCA website.
Real Time Gross Settlement
(RTGS) System
The RTGS system is an accounting platform which holds accounts for financial
institutions which allows them to settle sterling obligations arising from their
participation in payment systems.
Real-time gross settlement
(RTGS)
A model for settlement whereby each transaction is settled individually and in real time.
CHAPS is the only interbank payment scheme to use this settlement model in the UK.
Settlement
The discharge of obligations in respect of funds owing between participants in a
payment system.
Settlement account
An account held within the Bank of England’s RTGS system which can be used to settle
obligations arising from participation in the payment systems which settle at the Bank.
Settlement Services
The services provided by the Bank of England to allow accounts held in RTGS to be used
to settle obligations arising from participation in the payment schemes which settle at
the Bank.
Small E-Money Institution
(SEMI)
An e-money institution may register to be a small EMI if its business does not exceed
average outstanding e-money of €5m, or a monthly average of over €3m in relevant
payment transactions. These institutions can provide unrelated payment services (i.e.
payment services that are not related to the issuance of e-money) as long as the average
monthly turnover does not exceed €3m. SEMIs are not eligible for Bank of England
Settlement Accounts.
Small Payment Institution
(SPI)
A payment institution may register to be a small PI if its average monthly turnover of
payment transactions does not exceed €3m. SPIs are not eligible for Bank of England
Settlement Accounts.
Sterling Monetary Framework
The framework for the Bank of England’s operations in sterling money markets. This
includes the implementation of the Monetary Policy Committee’s decisions about Bank
Rate and the provision of liquidity to the financial system where necessary.