Prudential Regulation Authority Rulebook

9.1

This chapter provides more information on the PRA’s expectations concerning the treatment of in-flight transactions covered under Depositor Protection 12.14. The PRA understands that each firm’s approach may differ depending on the timing of end of day processes, speed to produce the SCV file and the type of access to each payment system. The PRA will allow each firm the freedom to satisfy Depositor Protection 12.14 within the scope of their own processes and external relationships. Therefore this SS sets out the PRA’s expectations in general terms. It does not provide detail or prescribe the settlement processes between banks (between settlement banks or between settlement banks and their agency/customer banks). Settlement bank and agency/customer bank in this context can refer to all deposit-takers, including building societies and credit unions.

9.2

Firms should consider the information in this chapter alongside their own processes and relationships with the financial market infrastructures (FMIs) or settlement banks. They should apply this guidance to each payment type accordingly. This will help ensure consistency across the industry in a transfer of deposit book or an FSCS payout.

9.3

The PRA would expect the same process to apply for payments both where the failed firm is a direct member of a payment scheme and where it is an indirect member of a payment system, where possible.

9.4

The PRA considers an in-flight transaction to be a payment where not all the underlying cash movements comprising the complete transaction are complete.

9.5

In-flight transactions may be incoming payments to depositors’ accounts for which the firm has not yet received value but which are reflected on the depositor’s balance, and/or outgoing payments which have been reflected on the depositor’s account but for which the firm may not yet have made a corresponding outgoing payment. There may also be in-flight transactions that have neither settled (or, in the case of an indirect member, been received by the depositors’ firm) nor been reflected on depositors’ accounts.

9.6

In-flight transactions may arise where there is deferred net settlement. There may also be in-flight transactions arising where indirect members of payment schemes do not have a real-time flow of settled funds from their settlement bank.

9.7

At the point of resolution or insolvency there is likely to be a number of payments still moving through payment systems that have either not yet settled at bank level or been credited or debited into depositors’ accounts. Depositor Protection 12.14 sets out how these in-flight payments must be treated in the SCV file. This rule is intended to ensure, in so far as possible, that the balance a depositor can see at the end of the business day matches the balance in the SCV file. In-flight transactions will be dealt with by the insolvency practitioner or administrator after a resolution. However, it is important that firms understand how to treat in-flight transactions in the SCV file to ensure a consistent approach. There will need to be a process of reconciliation between the insolvency practitioner or administrator, the FSCS and any acquiring firm (as relevant).

9.8

Settlement banks should have processes in place to support the transfer (part or whole) of its customer/agency bank’s (indirect member) deposit book in a resolution, as appropriate. This should include the provision of continued access to their services. Settlement banks will also be expected to comply with previously published guidance.^[4]

9.9

All payments for which funds have been received by the depositor’s firm intraday should be reflected on the depositor’s accounts and therefore in the account balance field in the SCV or exclusions view file by close of business.

9.10

Some payments may be reflected on depositors’ accounts before they have been settled between firms due to timings in payment systems or internal processes. Some timing differences will be intraday and some may go across multiple days. Where these payments have already been credited or debited to a depositor’s account, even if interbank settlement has not yet completed, the value should be included as part of a depositor’s compensatable balance. For example, if a depositor has made a debit card payment which has reduced the amount of their available balance, this payment should be excluded from the compensatable amount in the SCV file.

9.11

For payments that have not been reflected on accounts and where the depositor does not continue to have access to their account it is possible that these payments will need to settle and then be returned as unapplied payments. Firms should consider if this impacts on their processes.

9.12

Depositor Protection 12.14 states that payments debited from a depositor’s account should be excluded from the SCV and exclusions view file regardless of whether the firm has sent the value itself. However, where possible, payments debited that have not yet been entered into the payment system should be reapplied to a depositor’s account. For example, amounts debited may have been credited to a suspense account. This will then form part of a depositor’s compensation balance in the SCV or exclusions view file.

9.13

The PRA recognises that there will be a small number of payments that are not known about at the point of resolution but where the depositor has already committed to making that payment by taking goods or services in exchange. Any irrevocable debits (for example, overseas debit card transactions) that have not been reflected on the SCV file may need to go through a process of reconciliation with the insolvency practitioner or administrator, the FSCS and any acquiring firm (as relevant).

9.14

When creating their SCV systems, firms should work on the basis that the point in time on which they should base their account snapshot for the purpose of in-flight transactions will be close of business on the effective date of the relevant insolvency order issued by the court or the relevant transfer instrument issued by the Bank of England, or the date on which a request is made by the FSCS or the PRA.

9.15

The PRA recognises that in-flight transactions may carry implications for firms’ relationships with payment schemes. The Bank is working closely with UK payment systems and their members to identify practical issues that banks’ interaction with payment systems could raise when we are seeking to resolve a member bank. Other than the in-flight transaction treatment rules, there are no direct requirements on firms to develop additional measures in terms of payment systems in relation to the Depositor Protection requirements.