Payment Systems Oversight

Introduction

Payment and settlement systems are vitally important to the smooth functioning of the economy.  For example, they allow financial institutions to settle financial market transactions, businesses to receive payments for goods and services, and the general public to make purchases and receive their salaries. In 2008, the value passing through UK payment systems was around £200 trillion, about 140 times UK annual gross domestic product.

Statutory framework for Payment Systems Oversight

Part 5 of the Banking Act 2009 establishes a statutory regulatory regime for interbank payment systems.  This regime, operated by the Bank, replaces the previous non‑statutory arrangements.  Under the statutory regime, payment systems which meet the criteria set out in the Act (section 185(1)) may be recognised by HM Treasury and brought within the Bank’s oversight regime. Part 5 of the Act also gives the Bank a set of statutory tools to assist its oversight function.

Objectives of oversight

In overseeing payment systems, the Bank aims to ensure that the design and operation of the systems give sufficient weight to the management and reduction of risks that could be posed to the UK financial system, or to business or other interests. The Bank prioritises its oversight activity according to the risks to financial stability posed by each system. The Bank also works with the FSA and international counterparts in cooperative oversight arrangements where appropriate.

In carrying out its oversight of payment systems, the Bank may also have regard to the financial stability objective set out in section 238 of the Act.

Oversight approach

The Bank's approach to statutory oversight is set out in The Oversight of Interbank Payment Systems under the Banking Act 2009. As part of its oversight approach, the Bank will assess systems against its Principles, which are high-level descriptions of important issues that prudent payment system operators should consider, in ensuring that their system is appropriately robust. Further information can be found on the Principles for oversight page.

Non-recognised systems

The Act does not prevent the Bank from having dealings with operators of payment systems that are not recognised by HM Treasury. The Bank may engage with non-recognised systems to help HM Treasury identify systems that have become or are likely to become sufficiently important to merit recognition; and to monitor the wider payment systems landscape to understand potential risks to financial stability.