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Payment Matters: No. 34

Payment Matters: No. 34


      Payment Accounts Regulations: final linked services list published

      The Payment Accounts Directive (“PAD”) and the Payment Accounts Regulations (“PARs”) introduce a requirement to standardise terms and definitions to describe key services that are linked to payment accounts and subject to a fee. As reported in the last edition of Payment Matters, the Financial Conduct Authority (“FCA”) had three months from the publication of the European standardised terms to finalise the linked services list, integrating the EU standardised terminology, by 30 April 2018.

      The FCA has now published the UK’s final linked services list, in accordance with its obligations under regulation 3 of PARs. The final list (available here) contains the same 15 services as were included on the UK provisional list released to the European Banking Authority and published in the FCA’s Feedback Statement 15/4, including eight services which have been standardised at a European level. The EU standardised terms incorporated on the list include: arranged overdrafts, direct debits, standing orders, account fees, withdrawing pounds in the UK, withdrawing foreign currency outside of the UK, sending money within the UK and sending money outside of the UK.

      For completeness, the final list also includes the following services which were not standardised at an EU level: maintaining the account, refusing a payment due to lack of funds, allowing a payment despite lack of funds, cancelling a cheque, debit card payment in a foreign currency, debit card payment in pounds, receiving money from outside of the UK.

      Providers of payment accounts are now required to begin using the terminology in the final list from 31 October 2018.

      What this means for you?

      All providers of payment accounts will be required to use the standardised terminology in the fee information document, annual statement of fees and the glossary of standardised terms which they are required to publish under the PARs. We note that payment service providers (“PSPs”) will not only need to ensure that they incorporate the terminology in such new documentation (which they are required to issue from 31 October 2018) but they also need to consider the requirement to use the terminology in all “contractual, commercial and marketing information” under regulation 7 of the PARs.

      The FCA has not issued any specific guidance on what exercise PSPs should undertake to update all marketing, contractual and commercial information (particularly for back book customers) but it has reiterated that all providers will be required to use the terminology in this information provided to consumers in relation to payment accounts that fall within the scope of the PARs. We, therefore, recommend that PSPs now take the time to identify all of the relevant information/documents which will need to be updated in line with their new obligations.

      We note that certain providers are now completing a general search on their systems to identify the relevant documentation which will need to be updated for customers. An internal exercise to establish a list of the terms currently used instead of the standardised phrases will be helpful in identifying documents and the changes within them. There is a risk that this method may, of course, mean that certain documents slip through the net but without a composite list of all of the relevant documentation which has been issued to back book customers, PSPs are likely to be required to implement a similar process to undertake the extensive implementation exercise.

      Please do not hesitate to contact Ruth Fairhurst or Sian Cosgrove if you need help updating all of your relevant documentation.

      Corrigendum to PSD2 published in the Official Journal

      On 23 April, a corrigendum to the revised Payment Services Directive (“PSD2”) was published in the Official Journal. The corrigendum sits at a European level and makes 11 corrections to the text of PSD2 in recital 47 and Articles 5, 52, 61, 62, 76, 89, 92, 99, 102 and 107. The majority of the changes are minor corrections to the text but there are a number of important clarifications, some of which may have an impact on PSPs if the changes are transposed into the Payment Services Regulations 2017 (“PSRs”), or other EEA jurisdictions’ equivalent regulations.

      What this means for you?

      It appears that the majority of the key changes relate to the obligations concerning third party payment providers (“TPPs”) under PSD2. This means that the changes will likely have the greatest impact on those PSPs that offer payment accounts which are accessible online. We have summarised some of the key changes below.

      • The corrigendum amends Article 61(1) to include Article 90 in the list of potential corporate opt-outs. This means PSPs may decide to opt-out of their obligations to refund payment service users (which are not consumers, micro-enterprises or small charities) for non-execution, defective or late execution where the transaction was carried out via a payment initiation service provider.
      • Additionally, the corrigendum proposes to amend Article 52(5)(f) to include an additional pre-contractual information requirement relating to the liability of the PSP for the initiation or execution of payment transactions in accordance with Article 90. If transposed, this would mean that PSPs may be required to update their framework contracts (where applicable) to set out the liability position in the case of transactions initiated via payment initiation service providers for non-execution, defective or late execution of payment transactions, although current drafting may be broad enough to cover this.

      As the changes currently sit at a European level, we suggest that PSPs hold off amending any of their documentation at this stage. PSPs should monitor whether national legislators publish a consultation to transpose the changes into local law and this is already the case in Italy (where the consultation is due to close on 28 May 2018).

      HMT summarises responses to cheque imaging consultation

      In November 2017, HM Treasury published a consultation to make provision for the following legislative measures to support the introduction of the image cheque clearing cycle:

      • An obligation on UK banks and building societies to provide customers with an image of the cheque, together with additional information, upon receipt of a request. The additional information will include the value of the payment, sort code and account number of the paying customer, any reference number allocated by the banker and confirmation of the decision of the banker that the payment should be made.
      • An obligation on the payee’s bank or building society to compensate customers for any loss incurred in connection with the presentation of a cheque under the image clearing system (except in the event of gross negligence or fraudulent activity on the customer’s behalf).

      The consultation closed on 1 December 2017 and HM Treasury has now published its response following the receipt of feedback from a number of institutions. In particular, the government has made it clear that the right to compensation does not apply where the customer has already been compensated, (for example, under the ICS rules) and that claimants are required to wait 56 days before making a claim to allow other existing compensation schemes to be used in the first instance.

      The consultation response also deleted a number of requirements to provide certain information upon request (e.g. the sort code and account number of the payee, the time that the pay/no pay decision was made and confirmation of the payment by the system operator) as respondents raised data protection concerns and suggested that the information would not be useful and would place a disproportionate burden on institutions.

      The regulations are expected to come into force 21 days after they have been made.

      What this means for you?

      The aim of the proposed legislation is to ensure that the image cheque clearing system, which will clear all cheques by October 2018, has no detrimental impact on the existing position of cheque users. The government has acknowledged that existing cheque rules have worked well to implement similar measures (e.g. Cheque & Credit’s rules stipulate which party must compensate a customer in which scenario) but legislation is necessary as a backstop given the new clearing process represents a significant change to the existing cheque clearing cycle.

      On this basis, while the new measures may not appear to have an immediate impact on UK banks and building societies as existing cheque rules cover similar points, banks and building societies should consider what new operational processes (if any) they will need to implement in order to comply with their new legislative obligations to: (i) provide a copy of the cheque and the relevant additional information upon receipt of request; and (ii) where applicable, compensate customers which have incurred loss as a result of the presentation of a cheque through the new clearing process.

      Industry bodies jointly publish voluntary guidelines and market behaviours during PSD2 transition

      UK Finance, the Financial Data and Technology Association, the Electronic Money Association and techUK have jointly published voluntary guidelines to encourage certain market behaviours under PSD2 during the transitional period. The guidelines aim to build a collaborative and cooperative environment between ASPSPs, AISPs and PISPs and to develop consumer protections around the concept of screen scraping. It is suggested that PSPs comply with the guidelines from now until 14 September 2019 when the European Banking Authority’s Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Communication (“RTS”) will apply.

      For details of the specific recommendations, please review the guidelines on UK Finance’s website here.

      What this means for you?

      It is encouraging to see work being done to build a collaborative environment as the implementation of payment initiation and account information services develops but, as the guidelines are voluntary, it is questionable what impact (if any) they will have on the industry.

      Assuming the industry adopts the guidelines, in practice a number of the recommendations go above and beyond what is required under PSD2/PSRs 2017 during the transitional period (particularly in relation to identification, registration and consent). For example, the guidelines:

      • suggest that AISPs and PISPs identify themselves towards the ASPSP when they are accessing customer accounts
      • suggest that ASPSPs, PISPs and AISPs have dedicated points of contact for engagement
      • encourage AISPs and PISPs to begin to build a relationship in advance of initiating a data request/initiating a payment (where possible)
      • suggest that AISPs and PISPs share information like the range of IP addresses used to initiate a service request (where feasible) to ensure that ASPSPs are aware that they may receive a request to access accounts and don’t mistakenly and unduly block the AISP/PISP
      • strongly encourages firms to apply to become registered/authorised as soon as possible

      In terms of the impact on the industry, some guidelines may not have the desired effect – for example, it is questionable whether the sharing of IP addresses in advance will actually allow ASPSPs to sufficiently identify TPPs and prevent TPPs being blocked by a firewall (particularly where dynamic IP addresses are used).

      PSPs should monitor how the industry begins to implement the guidelines and we recommend that firms take the time to review the guidelines and, where applicable, amend their existing processes to reflect the recommendations.

      FCA guidance consultation on fairness of variation terms in financial services consumer contracts

      On 17 May 2018, the FCA published a consultation on the fairness of variation terms in financial services consumer contracts under the Consumer Right Act 2015. The consultation includes draft guidance which it expects firms to take into account when drafting and reviewing variation clauses.

      The draft guidance focuses on unilateral variation since a large proportion of financial services contract terms give firms the right to vary contracts without obtaining consent from consumers. The FCA acknowledges the benefits of these types of variation as it allows contracts to be changed during their lifetime but notes that guidance is necessary to ensure that appropriate drafting is adopted to ensure the unilateral variation clause is fair and prevents causing consumer harm through unfair use.

      In the guidance, the FCA sets out factors relevant to determining whether or not a variation term is fair. It also outlines reasons commonly used by firms to vary terms and suggests whether those reasons are likely to be valid or not. For example, the FCA suggests that relying on making a change “to remain competitive” is unlikely to be valid.

      What this means for you?

      The FCA has made it clear that, once finalised, it expects firms to take account of the guidance when reviewing their existing consumer contracts and drafting new ones. The FCA has, however, clarified that it does not propose to conduct a proactive systemic review assessing the fairness of variation terms in contracts entered into prior to any eventual final guidance being issued (it will instead continue to challenge firms where unfair terms come to its attention). Given the importance of unilateral variation clauses in the majority of financial services contracts, particularly framework contracts, we strongly recommend that firms take the time to digest the proposed guidance and respond to the FCA’s consultation by 7 September 2018. You can find details of how to respond to the consultation on the FCA’s website here.

      The FCA is moving – change of address

      The FCA has published its May 2018 regulation round-up, reminding readers that it will be moving to Stratford (Financial Conduct Authority, 12 Endeavour Square, London E20 1JN) on the 1 July 2018. On first reading, this may seem like an insignificant update but the move will have an impact on all financial institutions which are regulated by the FCA as, where applicable, institutions will need to update all of their documentation to reflect the new address.

      What this means for you?

      The FCA’s round up provides that all institutions include the FCA’s new address in any communications with customers (where applicable). The FCA has also asked institutions to take steps to replace any printed material that refers to the FCA’s current address at Canary Wharf to include the new address as soon as reasonably practicable. We, therefore, recommend that institutions put a plan in place to update documentation with the new address.

      New Payment System Operator now responsible for the BACS and Faster Payments systems

      The New Payment System Operator (NPSO), has now taken over the responsibility for two of the UK’s retail payment systems: BACS and Faster Payments, with the responsibility of cheques to follow over the next few months.

      What this means for you?

      The NPSO has made it clear that users of the different payment systems (BACS and Faster Payments) will not have to do anything as a result of this development; all payments will continue to be processed as usual. However, the consolidation of the various payment systems for the first time should improve the capability and capacity of the operators and reduce the complexity and costs of having three separate retail payment system operators. The NPSO also hopes that this change will provide a platform for future competition and innovation as the payments architecture develops.

      Open Banking managed roll-out complete

      The Open Banking Implementation Entity, set up by the UK’s biggest personal and small business account providers, has completed its managed roll out programme, enabling the UK’s largest account providers and regulated third parties to go live and fully test the system using selected testing accounts. In response, the Open Banking Entity has announced that the roll out programme has successfully proven the account data access functionality of the Open Banking system and, as a result, personal and business customers can now access relevant products by FCA authorised and registered third parties.

      What this means for you?

      Following the managed roll out, customers can now begin to share their data with registered third parties. The Open Banking Implementation Entity has also created a new service for companies coming into the Open Banking ecosystem. The new service is called ‘Launch Support’ and it will provide end-to-end guidance for third parties which are entering the Open Banking space from helping them to go live, to obtaining the appropriate regulation to connecting to accounts.

      If you are considering using the Open Banking model to provide TPPs access to your accounts or you are a TPP wanting to gain access via the Open Banking model, please contact us and we would be happy to discuss the key issues that we are seeing, including alignment to PSD2, the consent model and the different methods of authentication.