Bank of England payment system crashes leaving homebuyers in limbo
The Bank of England apologised last night after a crucial
payments system collapsed, forcing Mark Carney to launch an urgent
investigation following the delay of hundreds of thousands of payments,
including for homebuyers waiting for money to be transferred to pay for
their new homes.
The Bank of England governor promised a “thorough,
independent review” after MPs demanded answers into how the system which
processes payments worth an average £277bn a day had failed for nearly
10 hours.
An 88-year-old woman in Sheffield was among those caught up
in the collapse of the behind-the-scenes payment mechanism, which failed
to open at 6am and remained shut until 3.30pm – usually the cut-off
point for money to be transferred for house sales.
The Bank of England did not admit the shutdown had taken
place for more than five hours after the system had been due to open,
and was later forced to extend opening hours by four hours to 8pm to
clear the backlog of 143,000 payments.
More than 10 hours after first admitting to the problem with
the clearing house automated payment system (Chaps) the Bank of England
eventually apologised “for any problems caused by the delays to the
settlement system”.
While Chaps was down, there were fears that homebuyers and
sellers around the country would be left unable to complete purchases on
time and that big businesses, which also use the system, would fail to
make payments. Only weeks ago the Bank said it had a new contingency
plan for the collapse of the payments system. The Bank of England will
subject the system to additional monitoring when it reopens at 6am on
Tuesday.
The systems for processing direct debits and internet
transactions are not affected by the problem, which is thought to have
been due to an attempt to add a new bank to Chaps over the weekend.
Estate agents were among the first to raise concerns, with
the National Association of Estate Agents warning of the “cascading”
effect of the delay on payments scheduled for later in the week, and a
knock-on effect on van hire and transferring gas and electricity
services.
Kaye Orwin of Andersons estate agents in Sheffield had been
dealing with two families aiming to complete their moves. She said her
day had started with a call from solicitors to say that “money had been
put in the system from the purchase at the bottom of the chain but then
it couldn’t come out”.
By 4pm, when the money had still not been transferred, the
solicitors arranged a legal undertaking agreeing that payments would be
made as soon as the system recovered. This allowed the buyers to get
their keys.
The sellers who were next up the chain, the 88-year-old
woman and her son, were already packed when things went wrong. “The
removal van was sat on the driveway,” said Orwin. “We’ve opened the
garage and they are putting things in there for now. The buyers at the
bottom of the chain have to be out of their rental home today.” She said
that in more than 20 years of selling homes she had never experienced
this kind of problem.
“It is stressful enough moving house anyway without this kind of thing happening.”
Other sellers and buyers took matters into their own hands.
In Great Missenden, Buckinghamshire, Amanda Hart let her buyers borrow
the keys even though the money had not arrived. Banks also took steps to
alleviate any problems. Barclays said it usually processed transactions
24 hours early for homebuyers, while Royal Bank of Scotland said that
payments for five customers it knew were facing difficulty were
processed through a different system. Nationwide building society said
it had staff working late.
It was not immediately clear how many homebuyers people were
affected by the glitch but last October nearly 2,500 house purchases a
day were completed on a Monday, according to analysis of Land Registry
data by Neal Hudson at property firm Savills, making Monday the third
most popular day of the week to move house. Transaction levels are up
markedly on 2013, suggesting more deals will have been caught in the
chaos.
Chaps is a key part of the financial system, processing 92%
of transactions between banks in terms of value, and is used in
large-value transactions. The average payment is £2.1m. It is rare for
it to be out of action for almost a whole day. It was shut for six hours
in 2007 and briefly last year
.
Andrew Tyrie, who chairs the Treasury select committee of MPs, wrote to Carney to demand answers.
“A crucial part of the UK’s financial infrastructure failed
for several hours today,” he said. “I will be writing to the Bank of
England to find out why. The whole economy depends on a reliable payment
system. We need to have confidence that the cause has been found and
addressed.”
The Bank said its independent review would “cover the causes
of the incident, the effectiveness of the Bank’s response and the
lessons learned for future contingency plans” and pledged to publish the
findings.
The Law Society was also concerned. Its vice-president,
Jonathan Smithers, said: “We are talking to the relevant bodies to see
if we can obtain some understanding of why the system has failed and
assurances that this will not occur again.”
The Bank of England gave few clues other than to say at
11.15am that it had been hit by a technical issue “related to some
routine maintenance of the RTGS (real-time gross settlement system)”. By
4.05pm it said the system was working and would extend hours to
“maximise the opportunity for settlement”. It has a backup system but
did not use it.
Chaps said all payments submitted had been processed.
Phil Kenworthy, managing director of Chaps, urged customers
to contact their banks with queries and said he “would like to apologise
for any delays any customers may have experienced with their payments”.
How Chaps works
The clearing house automated payment system known in City
circles as Chaps describes itself as the “unsung hero” of the banking
world, as it processes about 140,000 transactions a day, worth on
average £277bn.
It means the system, part of the behind the scenes plumbing
of the financial world, that moves larger size payments around the
financial system, turns over the equivalent of Britain’s annual GDP
every five working days.
Money is moved instantly between banks handling transactions
for big companies, foreign exchange deals for big players in the
financial markets and short-term loans between banks, companies paying
their staff and. But most people will only come across the system when
they need to move the significant sum required to buy a house.
While homebuyers were concerned when the system stopped
working for almost 10 hours on Monday, the money it processes for them
is just a fraction of the transactions it handles daily. The Bank of
England manually processed transactions that were crucial to the smooth
running of the financial system.
It is one of a number of processing systems used by the Bank
to shift money seamlessly. The Link system used to process cash machine
payouts; Bacs, the system to process direct debits; and the fast
payment system used to process internet transactions were not affected.
Neither was Crest, the system used to handle share trading.
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