Payment Matters: No. 26 - UK

• United Kingdom

• Financial services - Payment services

29-11-2016

• PSR publishes application of the Interchange Fee Regulation phase 2 policy statement
• Payment Services and E-money Stakeholder Liaison Group’s website update
• Payment Systems Operator Delivery Group established
• PSR issues financial penalty scheme consultation
• FCA feedback statement on call for input on approach to current payment services regime

PSR publishes application of the Interchange Fee Regulation phase 2 policy statement

On 6 October 2016, the Payment Systems Regulator (PSR) published a policy statement on the phase 2 application of the Interchange Fee Regulation (IFR) in the UK. The policy statement outlines the responses received to the PSR’s consultation, published in May 2016, that set out the draft guidance and proposed approach to the ‘business rule provisions’ in the IFR, including on: 

• Article 7: Separation of payment card scheme and processing entities;  
• Article 8: Co-badging and choice of payment brand or payment application; 
• Article 9: Unblending;  
• Article 10: ‘Honour All Cards’ rule  
• Monitoring compliance with Articles 7, 8, 9 and 10.

The PSR received responses from 23 interested parties and has updated the draft guidance as a result of the consultation feedback, and final consolidated guidance for both phases was published on the same date. 

What this means for you

There are a number of matters on which the PSR has provided clarification in its policy statement and, in some cases, the PSR has updated its guidance on its approach as a competent authority for the IFR. 

Some points which may be of particular interest to firms bound by the IFR include the following:

• Article 7(1)(b) does not require payment service providers (PSPs) to identify the processing and scheme elements of the scheme fee separately in their invoicing;  
• the PSR was not willing to provide guidance on the types of practices that could constitute ‘territorial discrimination’ in payment card schemes’ processing rules under Article 7(4); the PSR will assess whether there has been territorial discrimination on a case-by-case basis;   
• in the PSR’s view there is no requirement in the IFR on acquirers or other parties to inform merchants of the possibility that the service provider may be able to install an automatic mechanism at the point of sale to make a priority selection of a particular payment brand or payment application; it is for the merchant to request this service;  
• the requirements of Article 9(1) relating to the unblending of merchant service charges (MSCs) apply whenever a new contract is negotiated or agreed, even if the price for existing customers does not change. The PSR confirmed that the requirements also apply whenever an acquirer proposes new pricing to an existing customer including within a rolling contract;  
• to offer a blended MSC, the acquirer must be able to demonstrate that the merchant provided a written request for a blended MSC. If not, acquirers must offer and charge unblended MSC to their merchant customers; and  
• the PSR will work with the FCA to monitor compliance with the provisions for which they have joint responsibility, including through sharing compliance reports with the FCA. A decision on whether the PSR, FCA or both would work on a potential issue of non-compliance will be taken on a case-by-case basis.  

Payment Services and E-money Stakeholder Liaison Group’s website update

The Financial Conduct Authority (FCA) has updated the Payment Services and E-money Stakeholder Liaison Group’s website to include agenda and latest minutes of meetings. The Payment Services Stakeholder Liaison Group (the Group) was reconvened earlier this year, with the first meeting taking place on 12 July 2016, and is charged with helping the development of the FCA’s implementation of PSD2. The Group last met on 14 October 2016 and pulls together individuals from trade associations, consumer groups and others representing those affected by PSD2. 

The attendees discussed a number of specific matters relating to the revised Directive at the meeting on 14 October 2016, including amongst other things, the requirement on credit institutions to provide payment institutions with access to credit institutions’ payment account services on an ‘objective, non-discriminatory and proportionate’ basis and the EBA Guidelines on the criteria that competent authorities should consider when stipulating the minimum monetary amount of the professional indemnity insurance (PII) or comparable guarantee for payment initiation and account information service providers under PSD2.

What this means for you

The minutes published by the Group provide a helpful indicator of the potential issues posed by PSD2 to those in the payments sector. HM Treasury (HMT) and the FCA provided some clarity on their interpretation of certain matters under the revised Directive at the meeting on 14 October 2016. 

In relation to Article 36:

• HMT clarified that the Article 36 provision will not mandate that credit institutions must provide payment service providers (PSPs) with access to payment account services;  
• HMT expect the FCA and the Payment Systems Regulator (PSR) to be “co-competent” in respect of Article 36, with the FCA being the lead authority on notifications under this provision;  
• credit institutions will need to make available the criteria for assessing applications for payment account services to PSPs requesting such access;  
• notifications will need to be provided to the FCA when a payment institution has refused or withdrawn access to payment account services, with reasons provided; and 
• specific guidance on Article 36 will be included in the updated FCA approach document.

In relation to the EBA Guidelines on PII:

• the FCA confirmed that comments on the EBA Guidelines should be sent directly to the EBA, but that the FCA was interested in stakeholders’ views on the Guidelines; and 
• the PII requirements would only apply to the payment initiation or account information service part of the business, and would not apply to credit institutions.  

The next meeting of the Group is due to take place in December 2016.

Payment Systems Operator Delivery Group established

21 October 2016 saw the announcement of the membership and chair, Robert Stansbury, of the Payment Systems Operator (PSO) Delivery Group.

The Group is charged with considering the main issues affecting the potential consolidation of the governance of three payment system operators: Bacs Payment Schemes Ltd, Cheque and Credit Clearing Company and the Faster Payments Service.  The Group was set up by the Payment Systems Regulator (PSR) and the Bank of England following on from the publication of the Payments Strategy Forum’s Draft Strategy consultation which proposed the consolidation in July 2016.

Hannah Nixon, managing director of the PSR, said:

"In response to the Forum’s proposal, we have worked with the Bank to set up this group to consider the key issues relating to the potential consolidation.  We and the Bank appreciate the commitment from the PSOs and members of the Forum to help form the delivery group.

"If effectively delivered, consolidation of the Payment System Operators could generate a number of benefits and may contribute to advancing our collective objectives.  We want to be sure that, should this proposal go ahead, the industry will already have a process in place to hit the ground running."

David Bailey, Director, Financial Market Infrastructure, at the Bank of England, said:

"We welcome the establishment of the PSO Delivery Group.  If taken forward consolidation will be an important initiative, so it is right that arrangements are in place for the work to be advanced smoothly and efficiently."

The Group is tasked with setting out implementation options and recommendations by the end of March 2017.

What this means for you

The consolidation of the governance of three different payment system operators may bring a number of potential benefits for both providers and users of payment services, including (as appropriate):

• improving transparency and reducing the complexity of dealing with multiple different payment systems could make it easier for payment service providers (PSPs) to enter the retail payments market and encourage a greater number of sponsors offering indirect access to payment systems (and therefore a greater choice for those seeking indirect access);  
• a common set of standards should improve interoperability and increase the ability for PSPs to innovate to provide new solutions for payment service users;  
• improving the service user experience and confidence in the system by reducing the time and compliance challenges posed by the need to understand and comply with multiple sets of complex rules and procedures;  
• increasing the flexibility of the payment systems operators to respond to changes including advances in technology, global digitisation, innovation and regulatory requirements.  At the moment, when the Bank of England requires a change it must deal with each payment systems operator separately and, because of the high interdependency between the payment systems operators, any one of them which wants to implement changes must seek the agreement of others which will be affected.

PSR issues financial penalty scheme consultation

The Payment Systems Regulator (PSR) has issued both a consultation paper and a draft Financial Penalty Scheme outlining its proposed approach for using the money it retains from financial penalty receipts.  Published on 17 November 2016, the consultation seeks feedback on the proposed scheme by 13 January 2017.

The PSR is able to impose financial penalties on firms not meeting expected standards under the auspices of the Financial Services (Banking Reform) Act 2013 and other legislation such as the Interchange Fee Regulation.  The amounts received will then be passed on by the PSR to the HM Treasury minus the amount needed for the PSR to cover its relevant enforcement costs, known as the ‘retained amount’.

The PSR has developed the draft Financial Penalty Scheme to ensure that the retained amount is used to the benefit of those participating in regulated payment systems; in particular by reducing regulatory fees paid by payment systems providers (PSPs).

What this means for you

The consultation affects participants in regulated payment systems under the Financial Services (Banking Reform) Act 2013 and regulated persons under the Interchange Fee Regulation (Participants). This includes, for example:

• PSPs that are direct members of Bacs, CHAPS, Cheque and Credit (C&C), Faster Payments Scheme (FPS), LINK or Northern Ireland Cheque Clearing (NICC);  
• acquiring or card issuing PSPs operating in the UK that are members of MasterCard or Visa;  
• operators of the regulated payment systems (Bacs, CHAPS, C&C, FPS, LINK, NICC, MasterCard or Visa);  
• other participants in regulated payment systems under the Financial Services (Banking Reform) Act 2013, such as payment infrastructure providers; and  
• acquiring or card issuing PSPs operating in the UK that are members of card payment systems subject to the Interchange Fee Regulation, and the operators of such card payment systems.

The key benefit of the proposed Financial Penalty Scheme is that the PSR is intending to return the retained amount back to the industry by reducing the regulatory fees which are payable to the PSR by Participants.  However, the PSR appears committed to ensuring that a Participant that was liable to pay a penalty in one year does not receive the benefit of the regulatory fee reduction in the following year.

The consultation raises four questions on which it has invited feedback from stakeholders, by 13 January 2017:

• Do you have any views on the proposed PSR Financial Penalty Scheme?  
• Do you have any comments on the PSR’s proposed approach, or the alternatives, under each scenario considered by the PSR in the consultation? 
• Do you have any comments on the alternative option that the PSR considered but rejected?  
• Are there any other options you think the PSR should consider?

FCA feedback statement on call for input on approach to current payment services regime

The FCA published a feedback statement to its call for input on its approach to the current payment services regime on 15 November 2016.  The FCA’s call for input, published in February 2016, sought views from firms, trade bodies and other interested parties on the guidance it provides to firms to help them comply with the current regime.

The FCA will now consider the feedback and suggestions provided by the stakeholders who responded as it updates and develops its existing guidance as part of the process of transposing PSD2.  In particular, the FCA:

• will take into account changes in the market to ensure the updated guidance addresses new technologies and business models for providing payment services;  
• will assess where it can give further practical examples and illustrations in the approach document and chapter 15 of the Perimeter Guidance manual (PERG 15); and 
• intends to combine the two approach documents on payment services and e-money and to update the e-learning module. 

The FCA will, once it has developed its approach to the revised payment services regime, issue a consultation on necessary Handbook changes and updated guidance.  The FCA's aim is to publish final guidance to help payment service providers (PSPs) comply with the revised regime as far as possible in advance of 13 January 2018, when the majority of PSD2 provisions will come into effect.

What this means for you

The feedback identified a number of areas where the FCA’s guidance could be revised to take account of market developments that have affected the way firms provide payment services.  We are expecting, therefore, that the revised approach document and PERG 15 will include further guidance on how the requirements apply to new payment types and related technologies that have emerged since the guidance was first published in 2009.  

The new payment types and related technologies referred to include, for example:

• contactless and mobile payments;  
• online and mobile banking;  
• digital currencies; and  
• cheque imaging.  

Many firms provide the new payment types referred to above so we expect that further guidance on how the regulations apply to them, if at all, will be well received by firms.  The FCA also noted that respondents had suggested that the guidance could be updated to take into account new business models in providing payment services that are not contemplated by the existing approach document.  For example, the FCA acknowledged that it could provide further clarity on merchant acquiring which has seen development in the use of aggregators.

In addition, it is anticipated that the FCA will also provide further guidance and/or clarification on specific matters raised by respondents in their responses, including: 

• the permitted practices for PSPs in relation to value dating;  
• liability for unauthorised direct debit transactions where these are settled through agents;  
• the 13 month cut-off time for customers to notify their PSPs of unauthorised transactions and how this relates to more favourable terms, for example under the UK Direct Debit Scheme;  
• cases where customers give an incorrect unique identifier in light of recent industry work to address the issue;  
• further detail on what constitutes a “payment account” (currently covered in question 16 of PERG 15); and  
• how payment services legislation works with other related legislation such as BCOBS.