Mark Carney’s extension as the governor of the Bank of England to January 2020 was put in place to ensure a smooth Brexit.

Mr Carney has become increasingly vocal in his attempts to maintain financial stability during that period. This has resulted in ‘Brexiteers’ hurling accusations of fuelling “Project Hysteria” after the bank published its economic analysis of Brexit at the end of November. To help mitigate such gloomy predictions, what else could Mr Carney do to support an orderly exit (and possibly create a lasting legacy for himself)?

Back in June, Mr Carney spoke about modernising the UK bank payment system by rebuilding the Bank of England’s real time gross settlement (RTGS) service “so that new private payment systems, including those using distributed ledgers, can simply plug into our system”, which includes those running off blockchain technology.[1]

Technology will save us!

Fintech, which includes blockchain technology providers and payment service providers (PSPs), has been seen as an enabler to incumbents in financial services and a way to accelerate entry into the sector for newcomers.

Mr Carney has backed fintech in order to modernise the Bank of England’s payment systems, but has he done enough to benefit UK fintech itself after Brexit?

Backdoor into the EU financial system post Brexit

Electronic payment systems are integral to the functioning of both the UK and European economies.

The Bank of England is at the centre of these transactions with its operation of CHAPS, CREST and its shared supervision of UK payment systems.

With the application of RTGS over its settlement accounts together with its secure status as the lender of last resort, the Bank of England’s payment systems provide the best assurance against counterparty credit risk to the interbank payment transfer market.

PSPs have posed a threat to the bank’s dominance in payments because they leverage technology to lower costs and improve user access, especially across borders. However, without passporting rights post Brexit, some UK PSPs will be forced to return home. And with no functional equivalence status, the United Kingdom will fall outside the Single Euro Payments Area (SEPA), forcing the PSP community to make direct applications to join. [2]

Access to the Bank of England’s payment infrastructure therefore provides a safe haven for those PSPs, as well as being the centre for all UK domestic payments. The one thing that the Bank of England’s payment systems lack is ‘last mile’ connectivity internationally.

According to Mr Carney, the Bank of England is already working to connect its RTGS service with systems run by other central banks, such as the Bank of Canada and the Monetary Authority of Singapore.

But what about Europe more importantly, where RTGS is applied within the Eurozone’s TARGET2 payment system? The Bank of England did originally offer access to the Eurozone via CHAPS Euro but it decommissioned the system in 2008, only after deciding not to join TARGET2.

This lack of access will cause real concern for UK PSPs wanting to expand into continental Europe. It is something that the French especially could capitalise in their attempts to lure UK fintechs generally.

Mr Carney’s move of brilliance could come therefore by persuading the Europeans to continue UK PSPs’ access to SEPA and for large-value payments to be made via an invitation to join TARGET2, effectively creating a technological backdoor for UK payments into the European financial system.

The future of UK fintech

For investors and their advisers, this would ordinarily send an uncertain message about whether the United Kingdom being the place to start a fintech business but in fact it is an ideal location, as UK fintech investment continues to be bullish with over £12.2 billion being invested in the first half of 2018 according to KPMG.[3]

The key to maintaining that dominance has to be connectivity with continental European payment systems.

[1] ‘New Economy, New Finance, New Bank’, speech by Mark Carney, Mansion House, London (21 June 2018).

[2]What happens to UK SEPA payment after Brexit?’, Bija Knowles, CTMfile (19 June 2018).

[3] ‘The Pulse of FinTech 2018’, Biannual global analysis of fintech, KPMG (31 July 2018).


Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.