What is the eligibility criteria for a Bank of England settlement account?
For non-bank Payment Service Providers (<a href="/glossarycollection/payment-service-provider" style="color:#48277C;" target="_blank" title="Payment Service Provider"><u>PSP</u></a>), there are three key criteria for opening a settlement account. 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.<br/><br/>
∙ The non-bank PSP must be either an e-money or a payment institution authorised in the UK by the Financial Conduct Authority (<a href="/glossarycollection/financial-conduct-authority" style="color:#48277C;" target="_blank" title="Financial Conduct Authority"><u>FCA</u></a>). 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).<br/><br/>
∙ 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, pre-funding account(s). They must also undertake testing before the account can go-live and participate in other routine testing exercises.<br/><br/>
∙ There are legal documents with the Bank which an account holder must sign up to. These are: the RTGS Account Mandate Terms & Conditions; and, an annex to this Mandate, for each relevant payment scheme.<br/><br/>
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 pre-funding requirements.<br/><br/>
Participants must place funds in this pre-funding 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. There is no separate application process or additional eligibility requirements for a prefunding account, but there are additional legal agreements.<br/><br/>