There’s work to be done on RTGS contingencies

Central bankers from Canada, Thailand, Singapore and Brazil discuss RTGS backup planning, including how redundancy, cost and complexity prevent central banks from operating more contingency sites
Contingency plans

A critical line of defence for a real-time gross-settlement system (RTGS) that handles settlement of high-value payments and is critical to the underpinning of a country’s economy is its contingency site, where its operations can be carried out, should the main site fail.

Perhaps surprisingly, there is no clear rule for how many backup systems should exist for primary RTGS infrastructure. While nearly two-thirds of respondents (19 of the 30 central banks) to this section of the Payments Benchmarks 2022 survey said they have only one contingency site, just over one-quarter had two sites and one-tenth had three sites.

Besides the number of contingency sites, there are several other factors that are linked to the frailty of a payment system. Contingency sites on different power grids are generally considered more secure. The further apart contingency sites are from one another, the safer and more secure they may be from attacks by, for example, a dirty bomb.

 

Simple logic might dictate that the more contingency sites a bank operates, the more risk is reduced. But some experts speaking to Central Banking challenge this notion.

“It is important to ensure a continuous operation of the RTGS, even in the event of various disasters. Although establishing contingency sites could be an important part of this, it may not ... handle all kinds of risks or scenarios,” Wipat Wattanasiriwiroj, an interface cable assemblies and services subject expert at the Bank of Thailand, tells Central Banking.

“For instance, in the event of a cyber attack, fraud and scam transactions could be replicated to other sites, too, so switching to contingency sites would not be the right solution.”

In such a scenario, Wipat says, “establishing multiple contingency sites to address the same risks or scenarios would be redundant”.

Rogerio Marcos Caichiolo, a member of the team responsible for managing and operating RTGS systems at the Central Bank of Brazil, says one contingency site is essential. But the burden of an additional site was determined too high in Brazil in terms of costs and complexity: “So, we decided to keep only one.”

The Bank of Canada, meanwhile, has asked Payments Canada, which operates Canada’s RTGS under a legislative mandate, to enhance its contingency work.

“Currently, Payments Canada has in place a contingency arrangement where, if a disruption were to occur, participants would pre-settle payments using their Bank of Canada settlement accounts before exchanging payments bilaterally using the Swift messaging system,” says a Bank of Canada spokesperson.

“It is now expected to conduct a feasibility assessment on credible options for contingency solutions if there were a prolonged disruption in [Canada’s RTGS] Lynx and establish a plan for implementation.”

Lynx was developed in collaboration with Italian technology company Nexi-SIA, and went live in September 2021.

Bank of Canada itself has “two primary sites 40km apart” and “a third contingency site 4,000km away”. “Our preference is that our contingency site should be at least 800km away and on a different power grid,” says the spokesperson. But since Canada’s RTGS is run by Payments Canada, “it is not operated in the sites previously mentioned”.

“Other than diversity in physical location, many aspects can be considered [regarding backup approaches]: diversity of power grid; diversity of technical solution; diversity of supporting technologies, etc.”

A spokesperson for the Monetary Authority of Singapore tells Central Banking: “As an RTGS operator, MAS generally focuses on ensuring contingency arrangements are comprehensive in covering various scenarios. Having at least an RTGS contingency site is important to cover disruption at the main site, such as those [scenarios] arising from hardware and utilities failure.”

“MAS also ensures sufficient diversity between the infrastructure supporting the main and alternative sites, and has alternative contingency arrangements that could kick in, should both the main and alternate sites be disrupted concurrently.”

Much of the information surrounding contingency sites remains classified by central banks for security purposes. But contingency sites are of critical importance for the security and defence of both domestic and international payment systems, meaning central banks need to continuously work to upgrade and diversify their security.

This analysis article contains references to data provided by the Central Banking Institute’s Benchmarking Service. The Central Banking Institute is a members’ club open only to central banks and is part of Central Banking, the publisher of this article. If you have a query about the data or would like to take part in a future Benchmark, please email benchmarks@centralbanking.com.

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