Which Banks Use CHAPS?
As one of the most popular, effective and efficient payment systems in the world, it is hardly surprising that CHAPS involves more than 30 banks who are considered direct participants. In addition, there are many more financial institutions who access the system indirectly. Here, we break down the participants and provide some other useful information about CHAPS.
For those of you among us who live in North America and tend cattle on ranches, the word ‘chaps’ could very easily denote a protective garment that tends to be made from leather, is worn over trousers and is to be used when riding horses through rough terrain. However, for those of us who work within the financial services industry – be it directly or indirectly – the word CHAPS is more likely to be recognised as an acronym for the Clearing House Automated Payment System.
This article is concerned with the second definition and if you have landed on this page in the hope of better understanding the first definition, then we suggest that you perhaps visit this website which will hopefully answer all of your chaparajos-related questions. Sorry for any confusion.
In short, we hope that by reading through this article, you will gain a better understanding of exactly what CHAPS is, the ways in which CHAPS works, what it is about CHAPS that makes it the preferred choice for some specific financial institutions, which banks use CHAPS and which organisations are direct participants and indirect participants.
A BRIEF HISTORY OF CHAPS (CLEARING HOUSE AUTOMATED PAYMENT SYSTEM)
CHAPS was originally established in February 1984 by the Bankers Clearing House, but by December of the following year it had transferred to the CHAPS and Town Clearing Company Limited. It was the UK’s first real-time payments system and can therefore be seen as the inspiration for every UK-based payments system that has since been established.
The ‘Town Clearing’ part of CHAPS referred to the process by which cheques were cleared the same day between specific banks in central London, but this came to an end in 1995. At that point, the company operating CHAPS was renamed to the CHAPS Clearing Company Limited before responsibility for the CHAPS system was transferred to the Bank of England in November 2017. There responsibility has remained up to and including the present day.
WHAT IS CHAPS?
CHAPS is still one of the largest Real Time Gross Settlement (RTGS) systems in the world and is designed to provide an effective means of enabling participating financial institutions to send efficient, risk-free and irrevocable same day payments. The CHAPS system is available Monday to Friday, from 6am to 6pm – an extension of one hour and 40 minutes from its availability up until 20 June 2016 (when the Bank of England increased the operating hours of CHAPS from 4:20pm).*
Typical users of CHAPS are those that wish to make high-value payments in a simple and secure manner. While BACS and Faster Payments are used by more institutions than CHAPS, it is often the preferred choice of financial institutions wishing to make payments of £10,000 or more – and the payments sent via CHAPS are often much greater than this figure.
To provide some greater context, it is worth considering that although CHAPS represents just 0.5% of the total payment volumes in the UK in a given year, when the payments are totalled up, they account for a whopping 93% of the total sterling payment values. Indeed, barely a day goes by when hundreds of billions of pounds are settled across CHAPS. One reason for these remarkable figures is that there is no limit to the amount of money that can be transferred via CHAPS; when this point is added to the fact that all payments are settled the same day, it is little wonder such enormous values flow through the system.
*These operating hours come with a caveat: CHAPS closes at 6pm for bank-to-bank payments, but customer payments must be submitted by 5:40pm.
WHO PARTICIPATES IN CHAPS?
The majority of direct participants in CHAPS are traditional high-street banks which you will no doubt be familiar with, as well as a number of international and custody banks. However, alongside this, there is an abundance of other financial institutions that access CHAPS indirectly; they do this by making their payments via direct participants (a process often referred to as correspondent banking).
So for what reasons might CHAPS payments be the preferred method, as opposed to the wide range of alternative methods? The Bank of England lists several main uses for CHAPS payments, including:
- Financial institutions use CHAPS to settle foreign exchange transactions
- Corporates use CHAPS for high-value, time-sensitive payments, such as those made to suppliers or for the payment of taxes
- Solicitors and conveyancers use CHAPS to complete property transactions
- Individuals use CHAPS to buy items of an especially large value, such as a car or the deposit on a house
CHAPS DIRECT PARTICIPANTS
According to the Bank of England, the following table includes a list of all of the traditional high-street banks and international and custody banks who are CHAPS direct participants. There are currently a total of 37 direct participants.
|Banco Santander, S.A. (London branch)|
|Bank of America N.A. (London branch)|
|Bank of China Limited (London branch)|
|Bank of England|
|Bank of New York Mellon (London branch)|
|Bank of Scotland plc (part of the Lloyds Banking Group)|
|Barclays International (a trading name of Barclays Bank plc, part of the Barclays Group)|
|Barclays UK (a trading name of Barclays Bank UK plc, part of the Barclays Group)|
|BNP Paribas SA (London branch)|
|Citibank N.A. (London branch)|
|CLS Bank International (an Edge Act Bank based in New York)|
|Clydesdale (a trading name of Clydesdale Bank plc, part of the Virgin Money UK PLC Group)|
|Danske Bank (a trading name of Northern Bank Limited, part of the Danske Bank Group)|
|Deutsche Bank AG (London branch)|
|Elavon Financial Services DAC (UK branch)|
|Euroclear Bank SA/NV (Brussels Head Office)|
|Goldman Sachs Bank USA (London branch)|
|Handelsbanken plc (a UK subsidiary of Svenska Handelsbanken AB)|
|HSBC Bank plc (part of the HSBC Group)|
|HSBC UK Bank plc (part of the HSBC Group)|
|iFAST Global Bank Limited|
|ING Bank N.V. (Amsterdam Head Office)|
|J.P. Morgan Chase Bank N.A. (London branch)|
|Lloyds Bank plc (part of the Lloyds Banking Group)|
|National Westminster Bank plc (part of the NatWest Group)|
|Northern Trust Company (London branch)|
|Royal Bank of Scotland plc (part of the NatWest Group)|
|Santander UK plc (part of the Banco Santander Group)|
|Societe Generale (Paris Head Office)|
|Standard Chartered Bank plc|
|State Street Bank and Trust Company (London branch)|
|The Co-operative Bank plc|
|TSB Bank plc|
|UBS AG (London branch)|
|Virgin Money (a trading name of Clydesdale Bank plc, part of the Virgin Money UK PLC Group)|
HOW TO BECOME A CHAPS DIRECT PARTICIPANT
There is a very specific set of requirements that must be fulfilled in order to become a direct participant. Again, according to the Bank of England, organisations wishing to become and remain a CHAPS direct participant must:
- Hold an account at the Bank of England which may be used to settle payment obligations
- Be a participant within the definition set out in the Financial Markets and Insolvency Regulations 1999
- Provide information about the status of the company and settlement finality through a legal opinion (if domiciled outside England and Wales)
- Be compliant with technical and operational requirements, including those in the CHAPS Reference Manual, on an ongoing basis
While the requirements to become a direct participant outlined above are quite stringent, the number of CHAPS direct participants increased by more than 50% between 2015 and 2020. Clearly, financial institutions and other organisations remain keen to be able to access CHAPS, while the Bank of England says it is keen to find improved means of supporting wider access to the system.
Once an applicant has submitted a bid to become a CHAPS direct participant, the process typically takes between 12 and 18 months; during this time, the Bank of England will analyse the application and posit a series of questions, including asking for rationale for seeking direct access. However, if you are thinking of submitting an application, be aware that the final slots for direct access in spring 2024 have already been allocated and that the next available joining date for CHAPS is unlikely to be until the latter part of 2024. This should not prevent organisations from expressing interest in becoming a direct participant, but be mindful that the process is a laborious one.
LIST OF INDIRECT ACCESS PROVIDERS
It is said that there are more than 4500 CHAPS indirect participants and there is no way I am going to sit here and type all of them out. However, according to pay.uk, there are a total of ten organisations that are considered indirect access providers who offer sponsored access to the main UK payment systems (which presumably includes CHAPS):
- Lloyds Bank
- Royal Bank of Scotland
- Starling Bank
- The Bank of London
- Ulster Bank
For those of you interested in such things, there is a voluntary code of conduct that has been introduced which sets out standards of best practice regarding commercial arrangements between indirect access providers and indirect PSPs.
RECENT CHAPS STATISTICS
The Bank of England is continuously updating its list of statistics relating to CHAPS (as is told with the header ‘Last Month’ which obviously changes on a monthly basis). For more up to date information, please refer to the Bank of England’s dedicated webpage.
- April 2023 saw CHAPS process 3.9 million payments worth a total of £7.1 trillion (it is worth noting here that there were only 18 settlement processing days in April – meaning there was a truly staggering amount of funds processed on a daily basis)
- On average, there were 218,828 payments processed on a daily basis, an increase of 2.3% from the same month the previous year
- On average, the daily value was £395 billion processed on a daily basis, an increase of 4.4% from the same month the previous year
These figures essentially indicate that not only are more payments being made via CHAPS year-on-year, the amount transferred in each payment is also increasing year-on-year.
- In 2022, payment volumes sent via CHAPS grew by 6.1% to 50.9 million – an average of 203,538 per day
- In the 12 months to December 2022, the total value of settled payments in CHAPS grew by 14.3% to a record £98.6 trillion – an average of £394.6 billion on a daily basis
The Bank of England says that CHAPS turns over the annual UK GDP every five working days – a truly staggering fact.
The intention with this blog post was to show which banks use CHAPS, but also the reasons why it is sometimes considered the most suitable option when making payments. Clearly, the main appeal is the fact that there is no limit to the amount that can be sent (something that cannot be said about Faster Payments for instance). However, there is also the fact that the funds are transferred immediately and are done so in a safe and secure manner.
As outlined above, more and more financial institutions are becoming CHAPS direct participants with each passing year, thereby opening up the ways in which other organisations can access the oldest payment scheme in the UK. For me, the most impressive titbit of information contained within this blog is that while CHAPS payments represent just 0.5% of the total volume sent, the amount sent accounts for 93% of the total amount sent. A trillion has 12 zeros and in April 2023 alone £7.1 trillion was sent via CHAPS. Such facts and figures are unimaginable and impossible to comprehend – like the vastness of the universe, the enduring appeal of Mrs Brown’s Boys, or why anyone would read 2000 words of a blog entitled ‘Which Banks Use CHAPS?’
But hey – thanks for reading this far. I hope you have learned as much reading this as I did writing it. If you would like to find out more about Faster Payments or BACS or CHAPS or Virtual IBANS, then click the hyperlinks I have used within this sentence.