The Bank for International Settlements (BIS) is seeking industry feedback on a proposed extension to the operating hours of the world’s real-time gross settlement (RTGS) systems, arguing the move would “increase the speed of cross-border payments” and “reduce settlement risks”.

Operating hours vary markedly across the world’s RTGS systems, with “sizeable gaps in [payments providers’] daily operating hours” the global central bank regulator noted in its consultative report (released alongside the industry feedback request). This, the BIS added, “at least partially [explains] the delays in the processing of cross-border payments”.

“When the operating hours of RTGS systems in different jurisdictions do not overlap, the processing of cross-border payments suffers delays, increasing liquidity costs and settlement risk.”

For instance, Australia’s RTGS system has only a 17 per cent overlap in operating times with Brazil’s system, versus a 43 per cent overlap between Brazil and fellow APAC member China (whose RTGS system shuts for only three hours each day).

Extending Australia’s global settlement window by an hour earlier in the day would increase its settlement window with Brazil by 40 per cent.

The BIS has proposed three “end states” for central banks to consider for extending their RTGS operating hours:

• End state 1 would increase operating hours on existing RTGS operating days. “If undertaken by multiple jurisdictions, this would help to close daily gaps in RTGS operating hours, primarily on standard working days given that most jurisdictions’ RTGS systems are closed on weekends and public holidays.”
• End state 2 would see an extension of operations to additional days on which many RTGS systems do not currently operate. “If undertaken by multiple jurisdictions, this would help to close the gaps created by holidays and weekends”.
• End state 3 would see an extension of operating hours to 24/7, of which few RTGS systems currently offer (Mexico and South Africa among those operating round the clock). “Doing so would likely require substantial operational changes,” the BIS acknowledged, “but, if broadly adopted, this would largely remove frictions for cross-border payments arising from gaps in opening times.”

While Australia’s domestic fast payments system (FPS), served through New Payments Platform’s (NPP’s) rails, enables near-instant payments transfers round the clock, the country’s RTGS system (upon which cross-border payments are mostly handled) is closed for 10 hours each day. This shuttering likely contributes to additional cross-border payments processing times for Australian cross-border payees.

This 10-hour daily close places Australia somewhere in the middle of the 21 surveyed Committee on Payments and Market Infrastructures (CPMI) jurisdictions, with non-operating times ranging from 17 hours for Saudi Arabia to zero hours for South Africa.

Australia’s total non-operating hours for its RTGS equate to around 96 hours per week, compared to 64 hours for China and just four hours for India. This does, however, sit between the European Union’s 113 hours and the US’s 58 hours.

The report also proposed a new “global settlement window” – which reflects the time period during which the largest number of RTGS systems are simultaneously operating – as a key consideration for central banks assessing potential end states for RTGS operating hours.

“At present, the global settlement window is best characterised as the time period from 06:00 to 11:00 Greenwich Mean Time (GMT) on working days. This is broadly the five-hour period when, on average, the highest number of CPMI and non-CPMI systems are concurrently operating across all jurisdictions.”

While noting that the global settlement window “is not intended to be a target in and of itself”, the BIS said it should be a “key consideration in each jurisdiction’s decision-making process”.

The BIS adds that RTGS systems “provide the foundation on which other payment systems and arrangements involved in cross-border payments rely”.

Beyond the benefits of increasing the speed of cross-border payments, the BIS wrote that an extension of RTGS operating hours, allowing for greater overlapping across jurisdictions, would also increase opportunities for payment-versus-payment (PvP) settlement of foreign exchange (FX) transactions, including same-day PvP, the establishment of liquidity bridges, and the ability to perform additional settlement cycles for ancillary payment systems involved in cross-border payments.

“These benefits can support reduced transaction costs for cross-border payments, and tie in with other [building blocks] in the G20 cross-border payments programme (FSB (2020b)).”

Submissions to the consultation can be forwarded to the CPMI Secretariat (cpmi@bis.org) by 14 January 2022.