Originally called Clearing House Automated Payment System, CHAPS today is referred to only by its acronym. The system is an automated payment system that fulfils the payment on the same day within the UK and other parts of the world.
Primarily, CHAPS is used for payments of very high value. Corporations making a large number of payments often use CHAPS. However, individuals can also make Chaps payments, but the fee can cost between £20 and £30.
The key to CHAPS is it solves the problem of payments that are very important and time dependent. In late December, CHAPS announced it was in receipt of five letters of intent from major international banks that want to become Direct Participants in the system.
A Direct Participant in the CHAPS system can send as well as receive irrevocable guaranteed payments with settlement on the same day. The letter of intent expresses a full commitment to become a part of the CHAPS family within a period that is agreed upon by both parties.
Those five banks include BNY Mellon, Northern Trust, ING Bank N.V., Societe Generale and BNP Paribas.
Currently those five banks are Indirect Participants in CHAPS. Before the end of 2015, CHAPS will have 25 banks that will be Direct Participants in the system, which will be 11 more than when the financial crisis hit in 2007.
The banks that expressed an intent to join the CHAPS system were identified due to changes brought about that are setup to reduce the risk across the entire CHAPS system.
In November, Handelsbanken a Swedish bank joined the CHAPS system as Direct Participant independent of the de-tiering initiative of the Bank of England.
The Tiering Criteria in CHAPS states that certain measures to mitigate risk must be taken into consideration when the average value of daily payments received and made by a CHAPS Indirect Participant is more than 2% of the total value processed by the system each day. Alternatively, if 40% of the average value each day of CHAPS own account payments, that are processed by a Settlement Member.