Version: 31 March 2021 CHAPS Reference Manual Users should note that the provisions within this CHAPS Reference Manual are subject to change from time to time. Whilst we endeavour to publish the most up to date documents on our website, we would encourage all those wishing to review any published documents to contact the Bank of England in order to ensure they receive the most up to date versions The Governor and Company of the Bank of England 2018. All rights reserved. This document has been provided for use in connection with the CHAPS System. Neither the whole nor any part of this document may be copied without the Bank of England’s prior written consent. 1 Document Change Control and History Version Number Change Summary Version number 1.1d Initial consultation version published June 2016 Version number 2 Updated version, please see change control register 31 July 2017 Updated version, please see change control register. New version-naming convention adopted. 25 September 2017 Updated version reflecting Bank of England becoming operator of CHAPS System. 2 January 2018 Updated version, please see change control register 22 May 2018 Updated version, please see change control register 02 July 2018 Updated version, please see change control register 28 September 2018 Updated version, please see change control register 02 January 2019 Updated version, please see change control register which is now a separate document located on the Bank of England website. 29 March 2019 Updated version, please see change control register which is a separate document located on the Bank of England website. 30 September 2019 Updated version, please see change control register which is a separate document located on the Bank of England website. 31 December 2019 Updated version, please see change control register which is a separate document located on the Bank of England website. 31 March 2020 Updated version, please see change control register which is a separate document located on the Bank of England website. 30 June 2020 Updated version, please see change control register which is a separate document located on the Bank of England website. 29 January 2021 Updated version, please see change control register which is a separate document located on the Bank of England website. 2 Table of Contents Page Chapter I OVERVIEW 4 Chapter II CHAPS RULES 25 Chapter III CHAPS PARTICIPATION REQUIREMENTS 39 Chapter IV CHAPS PROCEDURES 89 3 CHAPTER I Overview 4 INTRODUCTION About the Bank This CHAPS Reference Manual is issued by the Governor and Company of the Bank of England (the Bank). The Bank is a body corporate incorporated by Royal Charter and whose principal place of business is at Bank of England, Threadneedle Street, London EC2R 8AH, United Kingdom. The Bank issues this CHAPS Reference Manual in its capacity as operator of the CHAPS System. About the CHAPS System CHAPS is the UK electronic payment system for high value and systemically important transactions which settle across the Bank’s Real Time Gross Settlement (RTGS) System, thereby achieving irrevocable finality at the point of settlement. The CHAPS System plays a critical role in the financial system and the broader economy of the United Kingdom. The CHAPS System is a designated system for the purposes of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999. The CHAPS System is also a regulated payment system under the Financial Services (Banking Reform) Act 2013. More information about the CHAPS System is contained in the responses to the CPMI-IOSCO Disclosure framework for FMIs. A copy of the most recent responses for CHAPS can be found in the relevant section of the Bank’s website. NAVIGATING THIS CHAPS REFERENCE MANUAL This CHAPS Reference Manual comprises four Chapters. All capitalized terms have the meaning given to them in the CHAPS Glossary set out in Chapter II. Overview (Chapter I) The Overview deals with certain fundamental matters relevant to this CHAPS Reference Manual. Specifically, the Overview: provides basic information about the Bank (as operator of the CHAPS System) and the CHAPS System; helps guide the reader to relevant parts of this CHAPS Reference Manual which are likely to be of interest to the reader; explains how to navigate this CHAPS Reference Manual; explains the key purposes of this CHAPS Reference Manual; sets out the responsibility which the Bank accepts for the provisions of this CHAPS Reference Manual and other documents referred to in it; and establishes certain core provisions which are applicable to all parts of this CHAPS Reference Manual, including the law that governs its provisions; and the CHAPS Glossary below and related terms (which help the reader to interpret the provisions of this CHAPS Reference Manual). 5 CHAPS Rules (Chapter II) The CHAPS Rules set out those obligations or other matters applicable to Participants which either: enable or facilitate the Bank to identify, monitor, measure and/or manage (i) material risks to the CHAPS System or the wider financial system, and (ii) matters that have a significant effect on the efficiency or effectiveness of the CHAPS System; or by statute are specifically directed to be covered by the rules of the CHAPS System. CHAPS Participation Requirements (Chapter III) The CHAPS Participation Requirements set out obligations applicable to Participants which are not contained in the CHAPS Rules. This may be because they do not by themselves enable or facilitate the Bank to identify, monitor, measure and/or manage (i) material risks to the CHAPS System or the wider financial system, or (ii) matters that have a significant effect on the efficiency or effectiveness of the CHAPS System. They remain, however, individually and together important obligations with which Participants must comply to support the security, integrity and reputation of the CHAPS System. Other CHAPS Participation Requirements may be concerned with material risks or matters that have a significant effect on the efficiency or effectiveness of the CHAPS System. However, their principal function is to provide practical and detailed support for a "founding" CHAPS Rule (and which cross- refers to the relevant CHAPS Participation Requirement(s)). For example, CHAPS Rule 3.2.1 establishes the founding principle under which the Bank is entitled to measure, monitor and manage liquidity, credit, systemic and other material risks affecting the CHAPS System. The practical day- to-day application of that CHAPS Rule is achieved through the CHAPS Participation Requirements set out in Part A, section 8 and Part B, sections 1 and 2 of Chapter III (which set out detailed requirements in relation to Throughput Criteria and indirect participation arrangements designed to enable the Bank to measure, monitor and manage the relevant risks). CHAPS Procedures (Chapter IV) The CHAPS Procedures: describe certain key elements of the CHAPS System's design and operations; and set out or refer to certain other important matters and material that enable Participants, and other interested parties, to have a clear understanding of the risks and controls on risks relevant to the Bank’s operation of the CHAPS System, as well as a description of the principal direct and indirect costs of participation in the CHAPS System. PURPOSE OF THIS CHAPS REFERENCE MANUAL This CHAPS Reference Manual performs two principal functions. first, it forms a core part of the legal basis for the Bank’s operation of the CHAPS System; and second, it aims to provide a clear and comprehensive description of the rules, requirements and key procedures relevant to the Bank’s operation of the CHAPS System in a document which is publicly disclosed. Legal basis of the CHAPS System Participants in the CHAPS System will enter into a contract with the Bank (the Participation Agreement). Under this contract, Participants agree to comply with all specifications of the Bank for the time being applicable to a participant in the CHAPS System, including: 6 the obligations for the time being applicable to a Participant under or by virtue of the CHAPS Rules set out in Chapter II of this CHAPS Reference Manual; and the obligations for the time being applicable to a Participant under or by virtue of the CHAPS Participation Requirements set out in Chapter III of this CHAPS Reference Manual. The CHAPS Rules and the CHAPS Participation Requirements cross-refer to certain key operational procedures applicable to a Participant which form part of the CHAPS Procedures set out in Chapter IV of this CHAPS Reference Manual. The CHAPS Procedures include, for example, a description of the principal direct and indirect costs of participation in the CHAPS System. Under the Participation Agreement, the Bank agrees to provide certain services and to perform certain functions in relation to the CHAPS System. In connection with these services and functions, the CHAPS Procedures also: describe certain key procedures relevant to the performance of these services and functions; and explain how the Bank intends to exercise discretion reserved to it in relation to the performance of these services and functions. The CHAPS Procedures include, for example: the CHAPS Timetable; the Tiering Criteria, which explain how the Bank intends to exercise its Tiering Powers - under which the Bank may give, withdraw or suspend its consent to a Participant (as a Direct Participant) to provide indirect access to the functions and facilities of the CHAPS System to a Relevant Entity (as an Indirect Participant); a description of the review process which the Bank makes available to Participants and prospective Participants who wish to appeal against certain decisions made by the Bank in the performance of its functions as operator of the CHAPS System; and a description of the procedures adopted by the Bank to make changes to this CHAPS Reference Manual (or any component part of this CHAPS Reference Manual) and/or the CHAPS User Documents.