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The Financial Conduct Authority (“FCA”) consults on the proposed new Payment Services and Electronic Money (Principles for Business and Conduct of Business) Instrument 2018

  • United Kingdom
  • Commercial and IT
  • Payment systems and digital commerce


On 1 August 2018, the FCA published a consultation paper on general standards and communication rules for the payments services and e-money sectors (CP18/21).

The proposed changes will be made through the Payment Services and Electronic Money (Principles for Business and Conduct of Business) Instrument 2018. The draft instrument is included in the consultation paper at Appendix 1. If approved, it is anticipated that the instrument would come into force on 1 April 2019.

The key proposals outlined by the FCA in the consultation include:

• extending the application of the Principles for Businesses so that they apply to payment institutions, electronic money institutions, registered account information service providers and credit institutions;

• extending the scope of the promotion and communications rules in Chapter 2 of the Banking Conduct of Business sourcebook (“BCOBS”) to cover wider categories of FCA-regulated business (including businesses authorised or registered under the Payment Services Regulations 2017 (“PSRs”) or Electronic Money Regulations (“EMRs”)); and

• new rules and guidance in BCOBS to ensure that firms do not mislead consumers when they are advertising payment services that involve a currency conversion.

The Principles for Businesses

The Principles for Businesses set out how firms should treat their customers, how they should run their business and how they should interact with the regulator. The 11 principles relate to the following:

1. Integrity

2. Skill, care and diligence

3. Management and control

4. Financial prudence

5. Market conduct

6. Customer’s interests

7. Communications with clients

8. Conflicts of interest

9. Customers: relationships of trust

10. Client’s assets

11. Relations with regulators

They provide a basis for supervisory or enforcement actions, for example when a firm’s behaviour has been unfair to customers.

The PSRs and EMRs govern firms’ dealings with all ‘users’ of payment services and ‘holders’ of e-money. The FCA is proposing to apply the principles to consumers, micro enterprises and charities with an annual income of less than £1million (as is the case with BCOBS).

Communications (including market communications) for payment services and e-money

The cornerstone of BCOBS is the notion that all communications with customers should be ‘fair, clear and not misleading’. As it stands there is no requirement in the PSRs and EMRs relating to marketing practices. The FCA has received a number of complaints about the marketing practices of PSPs and e-money issuers. In particular, complaints stating that PSRs/EMRs communicated their services as though no fees applied, but customers were charged due to the presence of intermediary firms in the provision of the service.

BCOBS chapter 2 already applies to payment services or the issuance of e-money where these are carried out as part of a retail banking service. These rules will now apply to payment institutions, electronic money institutions, registered account information service providers and credit institutions. The key requirement being that all communications must now be ‘fair, clear and not misleading’. The associated guidance will also apply.

BCOBS and currency conversion services

The FCA has previously conducted investigations into misleading advertising in currency exchange transfer services, in particular the presentation and promotion of unachievable rates such as an ‘interbank’ rate either through currency converter tools on firms’ websites or mobile applications or in other promotional or communications material issued by firms.

The new rules essentially make it clear that it is misleading to present a rate of exchange in a way that gives the impression that the rate is available to consumers if that rate is not likely to be available. The rules will apply equally to firms regulated by the Financial Services and Markets Act 2000 and those who are not) and will be relevant when dealing with consumers who are individuals acting outside their trade, business or profession, micro-businesses and charities with an annual income of less than £1million.

The rationale behind the changes

The aim of the changes is to help customers better understand the standards expected of businesses in the payment services and e-money sectors, improving trust and confidence in these markets.

The challenge for the FCA has arisen as payment services can be provided by both regulated firms under FSMA and businesses authorised or registered under the PSRs/EMRs. Although the PSRs and EMRs were deliberately designed to ensure a ‘lighter’ set of conditions than FSMA, this has led to inconsistencies in the rules that govern how FSMA and non-FSMA businesses operate in the PSP and e-money sectors and is especially relevant in relation to the behaviour and the treatment of customers across the market. The FCA hopes that their proposed changes will remedy this, creating a consistent approach as far as possible between the regulatory regimes under FSMA, the PSRs and the EMRs and in turn creating a level playing field as institutions providing the same or similar services will be held to the same standards.

In addition, due to the different regulatory regimes which currently apply and the existing scope of the FCA Handbook, the FCA’s disciplinary and enforcement powers are limited in certain circumstances. A key reason for extending the scope of the Principles for Business and BCOBS is to capture those institutions which were not previously within the scope of those rules, therefore enabling the FCA to take action against those institutions to address breaches of the rules that are seen as a threat to market confidence.

Comments on the consultation paper can be submitted up to 1 November 2018.