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Payment Matters 22: UK

Payment Matters 22: UK
  • United Kingdom
  • Financial services - Payment services


In this issue:

FCA publishes summary of consultation responses in relation to the regulatory barriers to innovation

The FCA’s latest feedback statement (FS16/2) summarises the feedback received in relation to its consultation, Call for Input: Regulatory barriers to innovation in digital and mobile solutions, which was launched on 17 June 2015.

This feedback statement forms part of the FCA’s wider piece on innovation – Project Innovate – which is a hub/think tank designed to encourage businesses to bring new ideas and products into their sectors. 

The document provides a high-level view on what is currently stifling innovation, identifying six key areas including customer due diligence and data protection. Feedback received states that the FCA should have a more “digitally conducive” environment. Interestingly, the FCA argues that its current principles and rules are deliberately broad and flexible in nature so that they can adapt to a changing environment. It highlights an argument that ‘over regulation,’ or introducing new regulation that addresses a specific type of technology, would have the potential to stifle rather than encourage innovation.

What this means for you

Building on this feedback statement, the FCA’s next steps include:

  • addressing issues raised through a feedback statement to its smarter communications discussion paper
  • seeking views on PSD2 implementation
  • hosting a payments event in spring 2016. 

Engaging with guidance and feeding into consultations will be key if real change is going to be made in this area.

Update on the regulatory sandbox

The FCA has published two key documents relating to the regulatory sandbox initiative:

  • eligibility criteria setting out how the FCA will make decisions on which applicants will be able to test in the sandbox
  • default standards for sandbox testing parameters setting out details around number of customers and duration.

The FCA has also published a speech by the FCA’s Director of Strategy and Competition, which gives further details about how the sandbox will work. The FCA will initially run two phases of the project a year, allowing it to learn what works before engaging further cohorts.

What this means for you

Firms can apply for the first phase of the sandbox between 9 May 2016 and 8 July 2016. The sandbox will allow unauthorised firms to test their innovation in a live environment without incurring the usual regulatory costs of engaging in an activity which requires authorisation.  Authorised firms will be able to get clarity on relevant rules before testing an idea that does not easily fit into the existing regulatory framework. 

PSR publishes report on the supply of indirect access to payment systems

On 10 March 2016, the Payment Systems Regulator (PSR) published a report setting out its interim findings from its market review into competition in the supply of indirect access to payment systems.  For more information on the subject matter of the review see our in-depth briefing:  PSR confirms terms of reference and timetable for its first market review into indirect access.

The PSR’s interim findings conclude that competition is working sufficiently well to produce good outcomes for indirect PSP’s and their customers. However, the PSR has identified particular areas of concern where competition is more limited and can result in unfavourable outcomes, such as:

  • issues with the quality of service all indirect PSPs receive for indirect access
  • the limited choice of IAPs, which particularly affects small non-agency indirect PSPs
  • barriers preventing all indirect PSPs from switching to alternative providers.

It proposes to keep these issues under review for the next 12 months.

What this means for you

The PSR appears to consider that there is sufficient entry and expansion in the market to address its concerns. The interim report is now open for consultation and will remain open until 5 May 2016. The final report will be published in summer 2016. Should the PSR decide, either at final report stage or beyond, that regulatory intervention is required, it will need to consult on such proposals. 

Draft Handbook changes and draft guidance on the Payment Accounts Regulations

In response to the introduction of the Payments Accounts Regulations (PARs) the FCA is proposing Handbook changes and new guidance designed to help payment service providers with the implementation of the PARs. 

The PARs, made in December 2015, implement the Payment Accounts Directive in the UK.  The provisions on switching, payment accounts with basic features, and packaged accounts come into force on 18 September 2016.

The FCA has invited feedback on changes to be made to the Handbook and on proposed non-Handbook guidance to assist PSPs with the implementation of certain aspects of the PARs.

The FCA proposes to

  • issue guidance on the definition of a “payment account” for the purposes of the PARs
  • issue guidance on the implementation of the provisions on packaged accounts
  • introduce new regulatory reporting requirements in relation to switching and payment accounts with basic features.

What this means for you

After HM Treasury's statement that it would not provide further guidance on the definition of “payment account”, it is helpful that the FCA has now done this.  Responding to the consultation in relation to implementing the further guidance that is given and, in particular, responding to the FCA’s list of questions by the deadline of 3 May 2016 is the next key step.