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Payment Matters No. 10: UK

    • Financial services
    • Financial services - Payment services


    Proposed changes to the FCA Handbook for current accounts

    On 6 June 2014, the FCA published its fifth quarterly consultation. This invites comments on proposed amendments to several different parts of the FCA Handbook.

    In Chapter 5 of the consultation the FCA describes its new requirements that banks and building societies who offer current accounts will be required to annually attest that they have complied with the provisions of the Immigration Act 2014. The FCA are proposing that this attestation will be included as a question within the FIN-A form (annual report and accounts).

    What this means for you

    The Immigration Act is due to come into force later this year. Section 40 of the Act will prohibit banks and building societies from opening current accounts for persons who do not have leave to remain in the UK, referred to in the Act as “disqualified persons”.

    Banks and building societies will be required to carry out an immigration status check with the specified anti-fraud or data-matching authority before opening a current account for a consumer, micro-enterprise or charity with an annual income under £1 million. The Home Office announced in February this year that it intended to name CIFAS as the specified authority.

    The deadline for sending comments to the FCA on this proposal is 6 August 2014.

    FCA to review credit card market

    On 6 June 2014, the FCA published further information confirming it will formally launch a market study into the credit card market later this year.

    There are no pre-determined terms of reference or outcomes for the study. However, research carried out by the FCA into how the market is working for consumers found that whilst there appeared to be strong competition in the credit card market, this seemed to focus on particular card features that may not represent long-term value or sustainability.

    The market study will help the FCA decide what, if any, actions are needed to make this market work better for consumers.

    What this means for you

    This market study is part of the FCA’s broader work in consumer credit, such as supervisory activities. Firms should expect and should be prepared, from now on, to engage with the FCA as part of this exercise. For more information please contact Julia Woodward-Carlton.

    Payments Council input for CMA study on current account market

    The Payments Council has provided input for the Competition and Market Authority (CMA) study on the personal current account market and small and medium sized enterprise (SME) banking markets. The response focuses on: the development and success of the Current Account Switch Service (CASS); the impact of Paym; and financial institution access to payment systems.

    What this means for you

    The report confirmed that the Payments Council is supportive of initiatives that increase competition for customers and new entrants including challenger banks. The Payments Council believes that recent initiatives, including CASS and Paym, have been designed and implemented to help foster competition in the personal current account and SME banking markets. It welcomes the introduction of a new Payment Systems Regulator (PSR).

    Application of Late Payment of Commercial Debts (Interest) Act 1998 to international contracts

    Martrade Shipping & Transport GmbH v United Enterprises Corp [2014] EWHC 1884 (Comm)

    The High Court has allowed an appeal on a point of law under section 69 of the Arbitration Act 1996 against an award of interest, in which the tribunal had found that the penal rates of interest in the Late Payment of Commercial Debts (Interest) Act 1998 (the Act) applied and awarded interest at a rate of 12.75% per annum.

    The case concerned a charter party between two non-UK parties, which provided for English governing law and arbitration in London. Although the Act applies in certain circumstances to an international contract, it does not apply where the parties have simply agreed an English governing law clause, if there is no "significant connection" between the contract and the United Kingdom and but for that choice, the applicable law would be a foreign law. The tribunal had held that there was a significant connection, because, in the absence of an express choice of English law, the choice of London arbitration was a powerful indication in its favour.

    However, the High Court decided that an English court jurisdiction or arbitration clause does not constitute a connecting factor. The following examples of factors that might give rise to a “significant connection” were given:

    • where the place of performance of contract obligations, particularly the payment obligation, is England;
    • where the nationality of the parties is English;
    • where the parties are carrying on some relevant part of their business in England; and
    • where the economic consequences of a delay in payment of debts may be felt in the UK.

    Given that a choice of English law is not a sufficient reason to engage the Act, there was no reason why a choice of dispute resolution in England should do so.

    What this means for you

    The case confirms that successful parties will not be able to apply the penal rates of interest set out in the Act where the case has no connection to England. The fact that a contract contains an English jurisdiction or arbitration clause is not a relevant factor for this purpose, as choice of forum governs procedural rights and remedies and not substantive obligations.

    For more information regarding the Application of Late Payment of Commercial Debts (Interest) Act 1998 to international contracts please contact Richard Jones.

    UK declaration on MLD4 and WTR

    On 20 June 2014, the Council of the EU published a note enclosing declarations on the Presidency's general approach to the proposed Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (MLD4) and the proposed Regulation to amend and replace Regulation (EC) 1781/2006 on information on the payer accompanying transfers of funds (Wire Transfer Regulation or ‘WTR’).

    What this means for you

    The UK, in pursuit of greater legal certainty, has made one of the declarations and has called for the closer examination of several issues, including: (i) the provisions relating to agents and distributors and whether these constitute establishments for the purposes of MLD4 should be reviewed, not least in light of ongoing negotiations on PSD2; and (ii) the UK would seek to ensure that exemptions from certain customer due diligence measures for electronic money payment instruments being restricted to usage in one member state are consistent with the effective operation of the single market.

    House of Commons European Scrutiny Committee clears revised WTR proposal from scrutiny

    On 20 June 2014, the House of Commons European Scrutiny Committee published its second report of the 2014-15 session. Among other things, section 13 of the report outlines the committee's consideration, at its meeting on 11 June 2014, of the European Commission's proposals for a new Regulation on information accompanying transfers of funds to amend WTR.

    What this means for you

    The committee considered a letter (dated 10 June 2014) from Lord Deighton, Commercial Secretary to the Treasury. Among other things, Lord Deighton reported that negotiations of the revised WTR have progressed well and there is now consensus among member states that the text is acceptable in its present form, including the issue of threshold, which has been maintained at EUR1,000.

    Online current account comparison moves a step closer

    On 24 June 2014, HM Treasury published a speech on banking competition in the UK given by Andrea Leadsom, Financial Secretary to the Treasury. Ms Leadsom made an announcement relating to a commitment made at this year's Budget by the six largest current account providers. They had committed to give their customers portable current account information in an industry-standard format that can be plugged into comparison tools. This initiative is part of the Midata Programme to provide consumers with better access to their personal data so that they can choose better products and services.

    What this means for you

    Ms Leadsom announced that these account providers have now agreed on the way customers' account information will be provided for use in comparison tools and that the new service will be available by the end of the financial year. Customers will soon be able to download a year's worth of their current account data in a single file that can be read by online tools. While the information will be stripped of any details that link it directly to the individual, making it safer, it will include amount spent and where money has been spent. Comparison tool providers are already looking to create online tools that use the information.

    Regulator prioritises account number portability

    Ms Leadsom also advised in her speech (see above) that the FCA, or the Payment Systems Regulator (PSR), will be looking at the issue of account number portability in the next few months. This is in spite of CASS, launched on 16 September 2013, which has simplified the switching process. According to the Payments Council, CASS has lead to an increase in switching by around 14% in the first six months of its operation. More than 800,000 people have switched as of the end of May 2014 - and this is starting to make the banking sector more competitive.

    What this means for you

    This announcement indicates that the Government believes there is more to be done. Full portability may still be on the cards given this has now been flagged as an immediate priority. Andrea Leadsom has been an advocate of the advantages of account portability for some time, believing that this would deliver an increase in customer service and competition in the banking sector. Exactly what action the FCA or the PSR will take remains to be seen, but the industry should be prepared for some form of review.

    For more information please contact Julia Woodward-Carlton.

    BBA publish report on the UK banking industry

    On 24 June, the BBA published a report entitled “Promoting competition in the UK banking industry”. The report sets out the views of both established banks and challengers with a variety of different business models and identifies ways to encourage new players to set up and grow. The study identifies the main problems facing new entrants to the sector and suggests policies to help address these issues.

    What this means for you

    The BBA urges ministers and regulators to make it easier for emerging banks to establish themselves and grow. More competitive markets would give customers a wider choice of products from a wider range of providers. Greater transparency will improve the efficiency of the market and lead to customers making informed decisions about whether to switch provider in order to get the best deal.

    Cheque imaging on the way

    On 25 June 2014, HM Treasury published a summary of responses to its March 2014 consultation on proposed legislation to allow for the introduction of cheque imaging in the UK (including Government feedback on the responses). The summary indicates where its final policy has been adjusted in order to take the views of respondents into account. Cheque imaging helps to speed up cheque clearing times by making it possible to send an electronic image (as opposed to paper version) of the cheque for clearing. It is already established in the USA, France and parts of Asia.

    The report shows that:

    • there was widespread support for the proposal to legislate for cheque imaging
    • in view of the consumer benefits of consistency and certainty, respondents prefer the option of the industry moving as one to a new cheque imaging infrastructure
    • the government has considered the views put forward on the subject of liability and the legislation will enable HM Treasury to make regulations in due course, placing liability on the payee's bank for designated types of fraud and error
    • the government aims to ensure that UK payment services meet the current and future needs of consumers, business and other users. A related HM Treasury press release advises that customers will continue to be able to deposit cheques at branches, cash machines, Post Offices or by post, but banks will also be able to offer the option of paying in cheques by smartphone, tablets or other technology.

    The Payments Council also commented on the outcome of HM Treasury’s consultation, stating, “the results from the government’s consultation today clearly show the demand for the additional convenience of paying in cheques by image and quicker processing of cheques.”

    Steven Roberts, Director for Transformation at Barclays Bank - the first UK bank to pilot cheque imaging - commented: “We welcome today’s response by HM Treasury to legislate for image-based cheque processing. This is an opportunity to move cheques into the 21st century, to reduce costs and make banking easier and more convenient for customers. We look forward to working closely with other banks, industry groups and the Treasury to make this a universal nationwide service as quickly as possible, so that all customers with a cheque to deposit can do so through their phone, tablet, branch or self-service device, regardless of who they bank with.”

    What this means for you

    The government will support the introduction of cheque imaging in the UK by legislating a suitable framework in the Small Business, Enterprise and Employment Bill 2014-15, which received its first reading in the House of Commons on 25 June 2014. In Chapter 5 of the document, HM Treasury advises that the timings for industry implementation of the measures are currently being finalised. The government is working with the industry to identify the most appropriate date for implementation, and will bring the new legislation into force to meet the agreed timetable. We will continue to monitor this.

    FCA updated webpage: Payment Systems

    On 26 June 2014 the FCA published an updated webpage relating to Payment Systems called “Engaging with you”.

    As the FCA develops the PSR’s policies in preparation for the commencement of regulation in 2015, it wants to hear stakeholders’ views on the topics and issues that affect them. The webpage sets out news of the FCA’s events and consultations and how stakeholders can get involved.

    Upcoming events include:

    • Governance workshop - Friday 11th July
    • Innovation workshop - Friday 18th July

    What this means for you

    The PSR published an initial Call for Inputs on 5 March 2014, seeking views on the current state of the UK payment systems landscape. The closing date for responses was 15 April and the PSR will be exploring and consulting on the topics and issues from the Call for Inputs in its stakeholder workshops and roundtable events.

    Since the government’s decision to focus on competition in the sector, and indeed to establish the PSR, our competition lawyers have been working closely with the FCA and the new PSR. Crucially, we seconded a competition lawyer to the FCA’s new competition department and, in addition, have a competition lawyer on secondment to the PSR, assisting in the development of the new regulatory framework and the establishment of the organisation. Our competition lawyers will be able to advise on the FCA’s and the PSR’s enforcement powers under the Competition Act 1998, market studies and market investigation as well as the application of a new regulatory regime relating to payment systems.

    For more information please contact Julia Woodward-Carlton.

    Tougher rules for payday lenders take effect

    Additional rules for payday lenders and other firms offering high-cost short-term credit took effect from 1 July 2014. Firms offering high-cost short-term credit must now follow additional rules on rollovers, continuous payment authorities and risk warnings.

    What this means for you

    These rules apply to agreements in place on 1 July 2014 and entered into after this date.

    CMA and FCA to work together to ensure a co-ordinated approach under PSRs

    On 1 July 2014, the CMA published the memorandum of understanding (MoU) it has entered into with the FCA.

    The MoU, which is dated 12 June 2014, establishes a framework for co-operation between the CMA and the FCA and sets out their respective roles and explains how they work together. The MoU replaces the MoU between the OFT, one of the CMA's predecessor organisations, and the FCA, dated 2 April 2013.

    What this means for you

    The MoU explains that it builds on the OFT's experience in working closely with the FCA (and the FCA's predecessor - the FSA) across a range of mutual interests, notably competition, in respect of which the FCA has a stronger remit than the FSA. The CMA and FCA will work together to ensure a consistent and co-ordinated approach is taken under the Payment Services Regulations and to agree which authority is best placed to lead in each case. For more information on the MoU please contact Julia Woodward-Carlton.

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