Payment Matters: No. 25 - UK

• United Kingdom

• Financial services - Payment services

11-10-2016

• Bank of England proposes code of practice and supervisory statement on governance in recognised payment system operators
• Payments UK updates Code of Conduct for indirect access to UK payment services
• Which? files super-complaint on safeguards for fraudulent bank transfers
• UK implementation of the Payments Accounts Directive
• Bank of England consults on new real time gross settlement service
• Payments UK and Faster Payments respond to Payments Strategy Forum’s draft strategy “Being responsive to user needs” consultation

Bank of England proposes code of practice and supervisory statement on governance in recognised payment system operators

On 29 September 2016, the Bank of England (Bank) published a consultation paper outlining a draft code of practice and supervisory statement for the governance of recognised payment system operators (RPSOs).

The proposals, designed to reduce risk, set out the minimum requirements and standards that will be expected by the Bank and focus (amongst others) on governance arrangements, the composition of the board, conflicts of interest, performance management and records.

The code will be binding on RPSOs to which it applies and the Bank may take enforcement action against any RPSO which fails to comply with the requirements. The supervisory statement sets out how the Bank expects relevant RPSOs to comply with the code. Whilst not binding, it will provide guidance on how the Bank will assess compliance with the code.

What this means for you

The consultation paper will be relevant for operators of all RPSOs, their shareholders, members, users and other stakeholders. The Bank however proposes that the code will not apply to a recognised payment system that is operated by a recognised clearing house or central securities depository as these are or will be subject to other requirements.

The Bank invites comments on Part 1 of the code and associated supervisory statement. The consultation will close on 2 December 2016. The Bank will, in due course, produce a final version of the code and supervisory statement and presently anticipates allowing a twelve month lead in time from the publication date for RPSOs to achieve compliance with the requirements.

The Bank recommends that RPSOs start to consider a transition plan for compliance with the code and to also have regard to the proposed requirements if they are considering changes to their governance arrangements in the interim period.

The Bank also intends to consult on further parts of the code and further supervisory statements which will set out additional requirements and expectations.

Payments UK updates Code of Conduct for indirect access to UK payment services

On 29 September 2016, Payments UK issued an updated code of conduct for indirect access to UK payment systems (Code). 

The Code, which is voluntary, was first introduced in September 2015 to set out the standards of best practice that Indirect Payment Service Providers should expect from an Indirect Access Provider for the supply of Indirect Access Services. 

The updated Code reflects the themes which emerged from Payments UK’s previous consultation feedback in relation to its contents which took place in November 2015 specifically to provide greater clarity, changes to the introduction, the terminology used and on the scope and purpose of the Code.  

What this means for you

Payments UK, in its role as the Code Administrator, will continue to monitor the effectiveness of the Code and will engage with relevant stakeholders as well as establishing a new consultative group as a means to gather further feedback – more information on this group will be published on the Payments UK website shortly.

Which? files super-complaint on safeguards for fraudulent bank transfers

The consumer group Which? filed the first super-complaint to the Payment Systems Regulator (PSR) on 23 September 2016. The consumer group is calling for banks to take greater responsibility in protecting consumers from fraudulent bank transfers. Which? has the power to make this type of complaint as it is a designated representative body under section 68(1) of the Financial Services Banking Reform Act (Designated Representative Bodies) Order 2016. The group also flagged the complaint with the Financial Conduct Authority (FCA).

What this means for you

Consumers currently have no legal right to claim money back from their bank if they are tricked into making a transfer to a fraudulent individual. This is inconsistent with many other payment types where banks reimburse customers who suffer financial losses due to scams via direct debit, credit cards or fraudulent account activity.  The investigations of Which? have revealed that 60% of customers were unaware that they have no protection from their bank in these circumstances.

Which? have called for the regulators to: 

• formally investigate the scale of bank transfer fraud and how much it is costing customers; and
• take action and propose new measures and greater liability for banks to ensure consumers are better protected when they have been tricked into making a bank transfer.

The PSR must respond to the super-complaint within 90 calendar days. In the meantime, the PSR is examining Which’s evidence and gathering/examining its own evidence. It will also be working closely with the FCA and other relevant organisations. Possible outcomes include but are not limited to: 

• regulatory action by the PSR;
• launching investigations into anti-competitive conduct of a participant;
• launching a market study;
• initiating a review of relevant directions, requirements or guidance;
• referring the complaint to another authority; or
• deciding that no action should be taken.

UK implementation of the Payments Accounts Directive

HM Treasury issued a policy statement on 18 September 2016 outlining how the UK has met its responsibilities under the Payment Accounts Directive.

The Payment Accounts Directive was adopted in July 2014 and in accordance with the implementation deadline, the provisions of the Payment Account Regulations 2015 (PARs) on packaged accounts, switching and basic bask accounts came into force on 18 September 2016.

What this means for you

In accordance with the PARs, credit institutions must not discriminate against consumers legally resident in the European Union by reason of their nationality or place of residence or by reason of any other ground referred to in Article 21 of the Charter of Fundamental Rights of the European Union when those consumers apply for or access a payment account.

In addition, all payment service providers are now required to offer customers a switching service between payment accounts that are denominated in the same currency and opened or held with a payment service provider located in the UK. Alternatively, payment service providers may choose to offer the Current Account Switching Service which has been designated by the Payment Systems Regulator as an alternative arrangement under the PARs.

Barclays, Clydesdale and Yorkshire Bank, Co-operative Bank, HSBC, Lloyds Banking Group (including Halifax and Bank of Scotland brands), Nationwide, Royal Bank of Scotland (including NatWest and Ulster Bank brands), Santander and TSB are designated credit institutions under the PARs and as such must now offer a payment account with basic features to any consumer who meets the relevant eligibility criteria who applies for a payment account with basic features on or after 18 September 2016.

The remaining provisions of the PARs which relate to transparency and comparability of fee information for payment accounts used for everyday transactions will not come into force until the European Commission has adopted the draft regulatory technical standards submitted by the European Banking Authority.

The Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) are appointed as competent authorities under the PARs. The FCA is responsible for monitoring and enforcing the requirements of the PARs whilst the PSR is responsible for designating and monitoring alternative switching schemes.

The Money Advice Service (MAS) has a duty to raise awareness about basic bank accounts. Once the European Commission has concluded its work relating to transparency of fee information, MAS will also be required to provide consumers with free of charge access to a website enabling them to compare fees charged by payment service providers for services most commonly associated with payment accounts.

Bank of England consults on new real time gross settlement service

The Bank of England opened a consultation on its real time gross settlement service (RTGS) on 16 September 2016. RTGS is a payment system providing a platform for sterling central bank reserves (the electronic counterpart to banknotes). As such, the RTGS provides a safe and final settlement for thousands of transactions a day in the UK economy between banks taking part in the seven systemically important sterling payment systems.

An outreach programme launched in January 2016 by the Deputy Governor for Markets and Banking has helped feed into the content of the consultation paper. Current and potential future users, as well as relevant authorities, payment system operators, experts and broader public interest groups have highlighted five key developments for the new RTGS system. Those being that the system must: 

• Be capable of responding to the changing structure of the financial system;
• Recognise that payment system users want simpler and more resilient pathways for their payments;
• Be capable of interfacing with a range of new technologies being used in the private sector, including distributed ledgers, if/when they achieve critical mass;
• Remain highly resilient to the increasingly diverse range of threats to continuity of service; and
• Have the capacity to support the future evolution of regulatory and monetary policy tools.

The Bank of England is working with the Financial Conduct Authority to enable direct access to the RTGS. To enable this and tighten the supervisory regime, there will be a need for legislative changes.  These planned developments include: 

• Payment institutions, as regulated by the FCA, will be added to the list of entities covered by the Settlement Finality Regulations;
• Payment Services and E-Money Regulations will be amended to allow safeguarded funds held by payment and e-money institutions to be posted with the Bank of England; and
• The Banking Act being amended so the Bank of England will be authorised to supervise any payment system that grows large enough to pose a systemic threat.

What this means for you

To help assist the implementation of the above changes and enhance the stability and safety of the service, the current RTGS will have an extensive rebuild to its technology platform. Future users can therefore expect to see a temporary increase in the RTGS tariff over time to help fund the development.

There is no immediate change to the way the current RTGS works. It is hoped that the developments, when implemented, will provide greater stability and a better platform to enable financial innovation. The update should provide for broader access, increased resilience and promote an easier interface with a wider range of user functions.

The Bank of England aims to have the “next generation” system in place in 2020 with further details on the development timetable to be announced in 2017.

The consultation can be found on the Bank of England’s website and feedback is requested by 7 November 2016.

Payments UK and Faster Payments respond to Payments Strategy Forum’s draft strategy “Being responsive to user needs” consultation

In July 2016, Payments Strategy Forum (Forum) released its draft strategy and consultation paper – “Being responsive to user needs”.  The intention of the consultation was to capture the views of end-users of payment services so to create simpler access to the UK payment systems, enhance its innovation and adaptability and produce a stronger sense of security for the end-user.

On 14 September 2016 Payments UK issued its response to the consultation. Representing a collective view of its membership, as well as experts within the trade association in the UK payments industry, its main comments were: 

• To support the Forum’s objective in enhancing innovation and competition in order to produce better outcomes for end-users, as well as to agree to its proposal to consolidate the interbank system;
• To recognise that the Simplified Payments Platform does have potential to deliver benefits to end-users but that further research needs to be carried out to assess the benefits and costs. In addition, whilst a common international message standard for the UK may be beneficial, namely ISO 20022, it must be supported by a robust benefits case; and
• To emphasise it is in agreement to put end-users (such as consumers, SMEs, large corporates, charities, government) at the foundation of future development but that the proposals and benefits need to be assessed side by side in order to determine the importance and pass on the benefits to the consumer quicker.

On 15 September 2016 Faster Payments published its response to the Forum’s consultation by letter format and questionnaire. The former provides a high level view of the overall strategy along with commentary on the proposed solutions. The questionnaire provides feedback on the specific questions posed within the consultation.

What this means for you

The Forum’s consultation is now closed. The Forum intends to issue its Final Strategy in November 2016 where it is likely to outline the steps and impacts on payment server providers in more detail.

Hannah Nixon, Managing Director of Payment Systems Regulator (who created the Forum) has commented that there will be a focus on:

“looking at which elements of the strategy implementation could be led by existing organisations and exploring the need for a multi-stakeholder body like the Forum to work alongside the regulator to link all the different aspects of the implementation work.”