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Payuk External Document Principles for Financial Markets Infrastructure Pay.UK Self-Assessment Bacs and Faster Payments Although all reasonable efforts have been made to ensure that information contained in this Disclosure Document is accurate and complete as of the date of this document, Pay.UK does not make any representation or warranty as to the accuracy and completeness of this information. This document and all the information contained herein are provided for information purposes only. Nothing in this document is intended to constitute legal, business, financial or operational advice or advice of any other nature and therefore Pay.UK does not accept liability for any errors or omissions or for the use of information that may be contained herein. Contents Executive summary .................................................................................................................................. 3 Summary of major changes since the previous disclosures ................................................................... 4 1. The Self-Assessment Methodology ...................................................................................................... 4 1.2 Summary of ‘broadly observed’ ratings ............................................................................................. 6 2.0 Pay.UK Governance ............................................................................................................................ 7 2.1 Pay.UK’s Legal and Regulatory Framework ....................................................................................... 7 2.2 Pay.UK’s Vision and Purpose .............................................................................................................. 8 3.0 An Overview of Bacs and FPS ....................................................................................................... 9 3.1 The Current Direct Participants in Bacs and FPS ............................................................................... 9 3.2 Bacs System Design and Operations ................................................................................................ 11 3.3 FPS System Design and Operations ................................................................................................. 12 4. Principle by Principle Narrative Disclosure ................................................................................... 15 4.1 Principle 1- Legal Basis ..................................................................................................................... 15 4.2 Principle 2 - Governance ................................................................................................................... 18 4.3 Principle 3 - Framework for the Comprehensive Management of Risks ......................................... 24 4.4 Principle 4 - Credit Risk ..................................................................................................................... 28 4.5 Principle 5 - Collateral....................................................................................................................... 31 4.6 Principle 7 - Liquidity Risks ............................................................................................................... 33 4.7 Principle 8 - Settlement Finality ....................................................................................................... 41 4.8 Principle 9 - Money Settlements ....................................................................................................... 45 4.9 Principle 13 - Participant default rules and procedures .................................................................. 47 4.10 Principle 15 - General Business Risk ............................................................................................... 49 4.11 Principle 16 - Custody and Investment Risks ................................................................................. 52 4.12 Principle 17 - Operational Risks ..................................................................................................... 55 4.13 Principle 18 - Access and Participation Requirements .................................................................. 59 4.14 Principle 19 - Tiered Participation Arrangements ......................................................................... 65 4.15 Principle 21 - Efficiency and Effectiveness ..................................................................................... 67 4.16 Principle 22 - Communication Procedures and Standards ........................................................... 69 4.17 Principle 23 - Disclosure of Rules, Key Procedures, and Market Data ........................................... 70 Page 2 Pay.UK Limited is a company limited by guarantee, incorporated in England. Company Registration Number: 10872449 Registered Office: 2 Thomas More Square, London, E1W 1YN Email: [email protected] Executive summary This is Pay.UK’s first self-assessment against the Principles for Financial Market Infrastructures (PFMIs) since taking on responsibility as the operator of the Bacs and Faster Payment Service (FPS) payment systems. As such, the reporting period (1 May 2018 to 30 April 2019) covered a period of significant transition. Pay.UK Limited (‘Pay.UK’), previously known as the New Payment Systems Operator Limited (NPSO), was incorporated on 18 July 2017 as a not-for-profit company limited by guarantee. In May 2018 Pay.UK acquired Bacs Payments Service Limited (BPSL) (operator of the Bacs Payment System) and Faster Payments Service Limited (FPSL) (operator of the FPS Payment System). This was followed by Cheque and Credit Clearing Company Limited (C&CCC) (operator of the Paper Cheque and Image Clearing System) and UK Payments Administration in July 2018. This assessment is in relation to Pay.UK as the operator of Bacs and FPS payment systems as recognised under the Banking Act 2009. Pay.UK has agreed with the Financial Markets Infrastructure Directorate (FMID) of the Bank of England that Paper Cheque and Image Clearing System is out of scope for this assessment as it is not recognised as a systemically important payment system. BPSL and FPSL (collectively referred to as the previous operators throughout this document are in scope of this assessment). The activities and responsibilities of the previous operators have now been absorbed into Pay.UK. During the past year Pay.UK has focussed on establishing Pay.UK as the operator for non-card, non- cash retail interbank payments in the UK and has included: The design and implementation of a new Target Operating Model (TOM), which Pay.UK continues to embed. The transfer of staff under TUPE1 into the new operating model. A new “Foundation Strategy” establishing objectives and plans for Pay.UK together with Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs). An integrated Business Continuity and Incident Management Framework, which includes Disaster Recovery Plans. The creation of the Pay.UK Enterprise Risk Management Framework. Execution of two section 195 (Banking Act 2009) reviews (which were Financial and FPS incident management elaborate), with implementation of recommendations in progress. Implementation of a new funding model. Development of the Pay.UK Financial Recovery Plan. The development of projects such as New Payments Architecture (NPA), Confirmation of Payee (CoP) and Request to Pay (RtP). The novation of system-critical agreements from the previous operators to Pay.UK. Pay.UK has consolidated the activities of the previous operators into one organisation. A significant amount of time has been allocated to scoping, creating and starting the process on embedding new ways of work. The Central Infrastructure (CI) for Bacs and FPS remains outsourced to a key supplier (formally 2003 for Bacs, and 2008 for FPS). The supplier has provided the CI for Bacs since 1968 when Bacs was initially set up. As stated above the underlying agreements have been novated from the previous 1 Transfer of Undertakings (Protection of Employment) Regulations 2006 Page 3 Pay.UK Limited is a company limited by guarantee, incorporated in England. Company Registration Number: 10872449 Registered Office: 2 Thomas More Square, London, E1W 1YN Email: [email protected] operators to Pay.UK. Pay.UK has established a close relationship with the supplier, enabling the monitoring of their operations. Pay.UK has inherited comprehensive contracts in place which includes control requirements and specific Service Level Agreements (SLAs) commensurate with the activities undertaken. During this reporting period Pay.UK has continued to work closely with the supplier, developing a more co-ordinated approach to resilience and robustness elaborate. Ongoing implementation of changes / updates to the Pay.UK’s suppliers CI are undertaken with appropriate testing and communications with Participants and Service Users. Alongside operating the existing payment systems, Pay.UK is undertaking a programme to deliver the NPA. The NPA is a new conceptual model for the future development of the UK’s shared retail payment infrastructure. Pay.UK’s NPA Programme will include delivery of a core clearing and settlement infrastructure that supports the wider evolution of the existing ecosystem. As part of the programme, Pay.UK is testing and validating the conceptual design of the CI implied, to confirm that robustness and resilience are maintained, whilst addressing user detriments by supporting an ecosystem that fosters competition
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