What is CHAPS (Clearing House Automated Payment System)?

Established in Feb-1984 by the Bankers Clearing House in London, CHAPS or Clearing House Automated Payment System offers customers the provision to transfer funds on the same day. It was established to enable organisations and businesses in the UK to receive and make payments successfully and quickly. CHAPS, is the UK’s real-time payment clearance system which is operated by CHAPS Co. (CHAPS Clearing Company) and the infrastructure is delivered by the Bank of England. Settlement of debts between CHAPS members is usually done in real-time and on a gross basis through disbursement accounts.

In other words, CHAPS is a Real Time Gross Settlement (RTGS) system (developed in Apr-1996) intended predominantly for high-value payments, even though there is no upper or lower limit of the value of transaction. Prior to 2008, CHAPS Euro used to provide clearance for euro-denominated disbursements and since the Bank’s decided not to be a part of Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET2), CHAPS Euro was discontinued on 16-May-08. Previous CHAPS Euro customers and members now perform their TARGET payments in euro through another country’s system.

The CHAPS Company is owned by members and for each member there is some holding in the company’s share. . A document of understanding (memorandum) between the CHAPS Company and Bank of England defines the services which RTGS will offer along with the level of service which is expected. In 2000, CHAPS was elected under the Financial Markets and Insolvency Regulations 1999 (FMIRs) and is an acknowledged interbank payment system under Part 5 of the Banking Act 2009. The payment directives are routed via Society for Worldwide Interbank Financial Telecommunication (SWIFT) to the RTGS system and settled separately through settlement accounts at the Bank of England.

It is imperative to note that payment can be made in sterling on the same day. This electronic bank-to-bank transfer facility has additional benefits apart from the same-day transfer provision:

• Quick, consistent and protected method of assuring same day payment of cleared funds to businesses in the UK.
• Money is cleared on the similar day of receiving it.
• Money got on the similar business day, can as a result be drawn against instantaneously.
• Payment is processed from one bank account to a different bank account on the very same day.
• The amount can be paid from any amount, hence there is no requirement to bother about cheque assurance limits.

Clearing House Automated Payment System is one of the biggest high-value system of payment across the world, offering well-organised, risk-free and irreversible payments. There are in excess of 25 direct participants and more than 5,000 financial organisations that use Clearing House Automated Payment System through one of the direct members. Below mentioned is the list of CHAPS (Clearing House Automated Payment System) direct participants comprising of old-style high-street banks and numerous custody and international banks:

• UBS AG (Branch: London)
• The Co-operative Bank plc
• Svenska Handelsbanken AB (Branch: London)
• State Street Bank and Trust Company (Branch: London)
• Standard Chartered Bank plc
• Societe Generale (Head Office: Paris)
• Santander UK plc (from the Banco Santander Group)
• Royal Bank of Scotland plc (this is a part of Royal Bank of Scotland Group)
• Northern Trust Company (Branch: London)
• National Westminster Bank plc (this is a part of Royal Bank of Scotland Group)
• Lloyds Bank plc (this is a part of the Lloyds Banking Group)
• LCH Limited
• J.P. Morgan Chase Bank N.A. (Branch: London)
• HSBC Bank plc
• Elavon Financial Services DAC (UK branch)
• Deutsche Bank AG (London branch)
• Danske Bank ( this is the trading name of Northern Bank Ltd., which is a part of the Danske Bank Group)
• Clydesdale Bank plc
• CLS Bank International (an Edge Act Bank centred in New York)
• ClearBank Limited
• Citibank N.A. (Branch: London)
• BNP Paribas SA (Branch: London)
• Barclays UK (a trading-name of Barclays Bank UK plc, part of the Barclays Group)
• Barclays International (a trading-name of Barclays Bank plc, part of the Barclays Group)
• Bank of Scotland plc (part of the Lloyds Banking Group)
• Bank of New York Mellon (Branch: London)
• Bank of England
• Bank of China Limited (Branch: London)
• Bank of America N.A. (Branch: London)

Who uses CHAPS (Clearing House Automated Payment System)?

Direct participants in Clearing House Automated Payment Systems comprises of high-street banks, and numerous custody and international banks. Additionally, multiple financial organisations use the payment system indirectly by using direct participants to make the payments. This method is referred to as correspondent banking or agency banking. CHAPS or Clearing House Automated Payment Systems have the following use:

• Businesses and corporates use this system for time-sensitive and high-value payments such as payment of taxes or making payment to suppliers.
• This system is normally used by conveyancers and legal representative to perform property and housing related transactions.
• CHAPS is used by large businesses and financial institutions to make payments corresponding to foreign exchange transitions and settle money markets.
• CHAPS is used by individuals to purchase items of high-value such as make payment for a house or car.

Risk Management

CHAPS is designed in such a way that credit risk does not arise during the course of usual operations. Payments made through the system are in real-time and are irreversible and the relevant member’s settlement account is debited immediately. A member cannot perform a CHAPS payment transaction until there are adequate funds available on its RTGS settlement account with the Bank of England.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.