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Payment Matters No 12: UK

  • United Kingdom
  • Financial services - Payment services


In this month's edition:

FCA legislative update: cheque imaging and payment systems access

On 8 September 2014, the Payment Systems Regulator (PSR) of the Financial Conduct Authority (FCA) announced details of the Small Business, Enterprise and Employment Bill, which was introduced to Parliament on 25 June 2014. The Bill takes forward a number of Government commitments on small businesses, and contains two provisions that relate to payment systems. Clause 11 makes provision for “cheque imaging”, which allows for cheques to be paid electronically, through presenting an electronic image in place of the cheque itself. Clause 12 gives the PSR the ability to use its powers to enable firms to gain access to payment systems that are designated under the EU Settlement Finality Directive.

What this means for you

The Bill is in the early stages of parliamentary scrutiny and is expected to receive Royal Assent early in 2015. Many other countries including the United States, China, India, France and a number of other European countries already operate a cheque imaging process. The use of cheque imaging in the UK should enable more open access to the arrangements for processing cheques and a faster and better service for users.

Payments Council report on impact of current account switch service

The Payments Council published a report on 11 September 2014 on the current account switch service, setting out the service's progress and impact over its first 12 months. The service was designed to allow customers to switch a current account from one bank to another in a simple way and within seven working days.

What this means for you

The key findings in different aspects such as awareness, public confidence, efficiency and popularity indicate a successful launch of the service. The Payments Council is expected to further raise awareness of the service, focusing specifically on small businesses and identifying the specific barriers they face when switching their current accounts.

FCA thematic review report on mobile banking and payments

The FCA has published its final report on mobile banking and payments. The purpose of its thematic review was to determine how firms are achieving good outcomes for consumers when delivering mobile banking products.

What this means for you

Our payments processing experts have set out the key findings in FCA’s report here.

The report will be of interest to firms operating, or considering operating, in the mobile banking and payments market and consumer groups and consumers that use mobile banking. The FCA says that it will be working with the industry to ensure firms have a clear understanding of the key areas identified in its report and with the PSR and at an EU level on developments that have an impact on mobile banking and payments.

Bitcoin could pose threat to financial stability of UK, warns Bank of England

According to a series of reports by the Bank of England, Bitcoin could pose a threat to financial stability in the UK should the digital currency's popularity take off (see the relevant reports here, here, here and here). However, the Bank says that most of the potential risks that could emerge should any digital currency attain systemic status as a payment system could be addressed through regulatory supervision of relevant parties.

What this means for you

The growth of Bitcoin may indicate that consumers are willing to use alternative, cheaper means of transferring money, even if it is less secure than traditional bank services. The real issue therefore, is to address how this new form of currency can be properly regulated and monitored to help it move away from the adverse publicity before Bitcoin can properly be embraced as an acceptable payment mechanism.

PRA annual assessment of category 5 credit unions

On 27 August 2014, the Prudential Regulation Authority (PRA) announced that its 2014 annual assessment of category 5 credit unions had taken place and it had written to the directors of each credit union with its findings. Credit unions in Great Britain that are members of a peer group that is meeting applicable capital requirements will have received a letter which sets out the key risks and themes that such credit unions should be considering. These include the risks relating to credit unions' provision of new payment services.

What this means for you

Credit unions should pay attention to the key risks and themes set out in the letter, particularly in relation to payment services, governance and strategic planning so as to monitor their financial situation and further improve their businesses. Directors of creditors should also ensure compliance with the single customer view (SCV) requirements in relation to keeping records that are of sufficiently good quality to facilitate a fast pay out and business planning requirements in the Credit Unions sourcebook (CREDS).

FCA PSR presentation slides update

The FCA has uploaded a number of presentation slides in relation to the PSR on its website:

What this means for you

The slides above help with understanding the access to, and the functional and technical outlook for, the UK’s payment systems, as well as the PSR’s regulatory functions and governance arrangements.

CPSS - new charter and renamed as CPMI

In June 2014, the central bank Governors of the Global Economy Meeting (GEM) endorsed a new mandate and charter for the Committee on Payment and Settlement Systems (CPSS). The GEM also decided to rename the CPSS as the Committee on Payments and Market Infrastructures (CPMI). The CPMI's primary task is to promote the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy. Comprising senior officials from 25 central banks, it monitors and analyses developments in these arrangements, both within and across jurisdictions.

What this means for you

These changes became effective on 1 September. Although the “CPSS” has been renamed as the “CPMI”, reflecting its actual activities more accurately, its central role in shaping the payments, clearing and settlement infrastructure at a global level will not change. It will continue to set standards for payment systems and instructions and monitor their implementation globally.

Payments Council report on electronic payment needs of low-income people

An independent study commissioned by the Payments Council was undertaken by Policis and Toynbee Hall, which aimed to understand the needs of low-income consumers and whether they face specific barriers to the use of electronic payment services. The report rested on an evidence review and secondary analysis of both the continuous tracking survey of the use of a wide range of payment services and data on the use of payment and banking services.

What this means for you

The Payments Council is now using the results of the research to assess whether any improvements can be made to address the barriers identified in this research for low-income consumers. The next stage will see the Payments Council engage with a range of billers and service providers on their requirements for regular payments and potential solution. Electronic payment service providers may also identify the significant barriers and potential improvements set out so as to expand their business to low-income consumers.

Non-banks in retail payments

In a report published on 9 September 2014 by the CPMI, central bankers have examined the role of non-banks in retail payment services and have analysed the implications of the growing importance of these entities in retail payments.

The report reveals a significant presence of non-banks in all stages of the payment process and across different payment instruments, and analyses the factors influencing the growing importance of non-banks, the main implications for both the efficiency of and risks in retail payment systems (including their possible influence on financial inclusion) and the diverse regulatory approaches for the different types of non-bank in various jurisdictions.

What this means for you

The main issues identified in the report relate to the potential impact of non-banks on operational risks, level playing field issues, consumer protection aspects and the risks that might emerge if outsourcing of payment services is concentrated in a single or a few non-banks. Central banks are invited to consider the challenges identified and take action as appropriate in their jurisdictions.