March 25, 2015 - The Bank of England has been told it needs to improve contingency arrangements and strengthen its crisis management framework following an independent review of the ten-hour breakdown in the operation of the UK's high value payments system, Chaps, last year.
The review of the incident, conducted by Deloitte, found the root cause was the "introduction of defects as part of functionality changes made to the RTGS system in April 2013 and May 2014".
In its analysis, Deloitte says that the while the complexity of Chaps has increased over time, the extent and nature of testing has not evolved to match this.
Further, the Bank's decision not to switch over to the back up Market Infrastructure Resiliency Service (Mirs), which was implemented by financial messaging network Swift at the end of 2013, highlighted a lack of confidence and uncertainty about the potential impact of such an action on the housing market and 'real economy' transactions.
"Among the lessons learned, the incident has highlighted the need for the Bank to further consider the contingency solutions for RTGS, as well as the future development of the system," states Deloitte. "In addition it highlights the need to strengthen the Bank's crisis management framework."
The Bank has already acted to improve resiliency, reconstituting the RTGS Board under the chairmanship of Minouche Shafik, the deputy governor for markets and banking, and putting in place an enhanced crisis management framework.
In addition, the Bank has deferred some planned changes to the platform and delayed two banks from joining Chaps in February and March, while business assurance activities are undertaken. The measures are unlikely to go down well in political circles due to repercussions on important policy initiatives to expand access to the payments system and improve competitiveness within the banking industry.
Says Shafik: "The RTGS system is vital to the effective functioning of the UK economy and the financial system. Participants in the RTGS system - and most importantly, their customers - rightly expect it to meet extremely high standards of service, availability and resilience. The Bank is committed to meeting those high expectations, including through the full and timely implementation of the recommendations contained in this independent review."
