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Payment Matters: No. 30

Payment Matters: No. 30
  • United Kingdom
  • Financial services - Payment services


HM Treasury responds to consultation on PSD2 implementation

On 19 July 2017, HM Treasury published its response to its consultation on the implementation of the revised Payment Services Directive (PSD2). This consultation, which was opened in February 2017, sought views on the Government’s proposed approach to transposing the directive into UK law and on the draft legislation. This response collates and summarises the 85+ formal responses to the consultation, which were primarily received from banks, e-money providers and payment institutions, as well as merchants, consultancies and trade bodies.

Among other things, the Government confirmed its intention to provide out-of-court procedures, in the form of the Financial Ombudsman Service (FOS), only to those complainants who would usually be eligible to refer a complaint to the FOS. This will include consumers who use a registered Account Information Service Providers (rAISPs). Payment Service Providers (PSPs) will only need to notify non-eligible complainants (e.g. corporates) of alternative dispute resolution (ADR) mechanisms where the complainant’s dispute concerns an element of Titles III or IV of PSD2 and the PSP uses ADR services.

In addition, after much industry feedback the government has decided to exercise its member state discretion and mandate monthly statements. That will clearly impact on many savings products although it has stated that PSPs will have the ability to include a right in their framework contracts for customers to choose how they receive that monthly statement.

What this means for you

The report sets out the Government’s response to the feedback gathered and highlights areas where the final policy has been adjusted to take account of the feedback. The final Payment Services Regulations 2017, the statutory instrument which transposes PSD2, was also laid before Parliament on 19 July 2017 and published alongside the response. Market participants will need to comply with the majority of the requirements set out in the legislation from 13 January 2018.

HM Treasury and FCA outline expectations for third party access under PSD2

In conjunction with HM Treasury publishing a summary of responses to its consultation on the implementation of the revised Payment Services Directive (PSD2) and the final Regulations implementing PSD2, the Financial Conduct Authority (FCA) and HM Treasury have published a supplementary document setting out their expectations regarding third party access provisions.

Published on 19 July 2017, this supplementary document aims to assist Account Servicing Payment Service Providers (ASPSPs), who provide payment accounts that are accessible online. ASPSPs are required to make payment account data available to Account Information Service Providers (AISPs) and allow Payment Initiation Service Providers (PISPs) to initiate transactions from customers’ accounts.

What this means for you

The supplementary document is intended to support organisations in their PSD2 implementation to meet their obligations by the impending implementation date, 13 January 2018. It also recognises that there is uncertainty as to the second stage of implementation concerning the forthcoming regulatory technical standards (RTS) on Strong Customer Authentication and Common and Secure Communication.

HM Treasury and the FCA recognise that there will be a transitional period between 13 January 2018 and the implementation date of the RTS. Despite this, they set out their firm expectation that firms will adhere to the principles of safety and security from day one. They state that this will mean that firms should, by way of example:

  • transmit credentials and data securely, in ways that safeguard against the risks of interception;
  • be transparent and open about their identities when interacting with one another, in order to limit the potential for criminal actors to operate in this space; and
  • ensure that data are stored in ways that mitigate the risks of illegitimate access, and that credentials are only held if permitted under PSD2.

FCA reiterates stance on use of interbank rate in online currency converter tools

On 19 July 2017, the FCA released a statement expressing concern that some payment institutions and e-money institutions may be using online currency converter tools in relation to their currency transfer services in a misleading way.

Reiterating its previous stance, the FCA reminds firms that online tools which convert currency at the interbank rate may mislead consumers into believing that such a rate would be available to them. Consumers are unlikely to become aware of the less desirable rate that is likely to be made available to them until a much later stage. By which point, it is expected that the majority of customers would not cancel the transaction and look for a more favorable rate as they would generally have already completed a registration process.

What this means for you

The FCA highlights the necessity for all firms undertaking currency transfer services to comply with the Consumer Protection from Unfair Trading Regulations 2008. Banks must also comply with the financial promotion rules set out in the Banking Conduct of Business (BCOBS) sourcebook. The FCA has emphasised that it has the power to take supervisory and/or enforcement action, including the imposition of financial penalties, against firms that fail to act in accordance with its expectations.

FCA publishes draft authorisation and reporting forms consultation

On 13 July 2017, the FCA published a new consultation paper (CP17/22) on the implementation of the revised Payment Services Directive (PSD2). It follows on from the FCA’s consultation published in April 2017 (CP17/11), which considered the majority of the changes being brought about by PSD2.

The latest consultation aims to ensure that the FCA will be able to effectively monitor compliance with the new Payment Services Regulations 2017 (PSRs 2017), which are due to be implemented by 13 January 2018. The consultation also looks at how the FCA will assess new applications to ensure that applicants meet the requirements of the PSRs 2017.

What this means for you

The latest consultation will be of interest to payment institutions which will be subject to the PSRs 2017. It will also affect businesses that are not currently authorised or registered with the FCA that carry on (or will carry on) activities relating to payments or payment accounts. The FCA does not consider that the proposals it has suggested will have a significant impact on businesses and it has only opened a short consultation window for any feedback, which will close on 18 August 2017. The FCA plans to make the final authorisation and registration forms available in September before opening for applications in October 2017. Additionally, the FCA is set to produce a policy statement setting out its final reporting and record keeping rules, directions and guidance in the third quarter of 2017.

PSR welcomes merger clearance

On 12 July 2017, the Competition and Markets Authority (CMA) approved the merger of the three payment schemes (Bacs, Faster Payments Service and Cheque & Credit Clearing) which will lead the way to a new payment systems operator (NPSO) by the end of the year.

The CMA is satisfied that the merger does would not raise competition concerns as the payment schemes are materially different from one another and it is commonplace for banks to participate in all three schemes.

Managing Director of the Payment Systems Regulator (PSR), Hannah Nixon, welcomed the decision and commented:

The CMA’s timely decision is a key milestone to ensure delivery of the NPSO by the end of 2017. The consolidation should support one of the PSR’s key requirements to support increased choice of access and to develop common participation models and rules. This should make it easier for banks, fintechs, and other payment service providers to enter the market and compete effectively.

“The consolidation is also an important first step towards a generational change in UK payments. It can help facilitate the safe and secure transition to, and management of, a New Payments Architecture, which we believe could deliver more dynamic competition and innovation in payments. Consumers will also benefit from new entrants coming into the market and offering users of payment services new, innovative products.”

What this means for you

The merger could deliver a number of benefits, including further developing the capability and capacity of the operator, simplifying access and supporting overall resilience and robustness. In the short-term, the services of the current payment systems will continue to be available and offered separately using their current infrastructure. In the longer-term, the NPSO expects to develop a simplified, integrated payments platform.

EBA sets out final PII Guidelines under PSD2

Following its consultation in Autumn 2016, the European Banking Authority (EBA) has published a final report setting out guidelines for the competent authorities which outline the criteria for setting the minimum monetary amount of Professional Indemnity Insurance (PII) (or other comparable guarantee) required by providers of payment initiation services (PIS) and account information services (AIS).

In the preparation of the guidelines, the EBA mapped market practices in the European Union with regard to the provision of PIS and AIS and applicable insurance policies. Using this as a base, the EBA clarified the criteria and indicators set out in the revised Payment Services Directive (PSD2), identified additional indicators, developed a calculation method for the indicators and established a formula for the calculation of the minimum monetary amount of the PII or comparable guarantee.

The guidelines will apply from 13 January 2018. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the guidelines on the EBA website.

What this means for you

Organisations intending to carry out PIS and AIS will need PII cover (or a comparable guarantee) as a prerequisite to authorisation. Accordingly, any organisation which expects to carry out PIS and AIS will need to make appropriate preparations in advance.

Financial Stability Board to establish remittance taskforce

On 4 July 2017 The Financial Stability Board (FSB) issued an update report to G20 leaders, together with a data report outlining trends, drivers and the impact of the decline in correspondent banking relationships.

The G20 Presidency has requested that the FSB work closely with the Financial Action Task Force (FATF) and the Global Partnership of Financial Inclusion to identify and address issues relating to remittance providers’ access to banking services.

The FSB has established the Correspondent Banking Coordination Group (CBCG) to further coordinate the implementation of its action plan, launched in November 2015. The plan covers:

  1. Further examining the dimensions and implications of the issue by monitoring trends at a global level;
  2. Clarifying regulatory expectations, including guidance from FATF and Basel Committee on Banking Supervision on the application of standards for anti-money laundering and combatting the financing of terrorism to correspondent banking;
  3. Domestic capacity-building in jurisdictions that are home to affected respondent banks; and
  4. Strengthening tools for due diligence in correspondent banks including information sharing.

The CBCG will set up a task force to review past and current initiatives and consult with the private sector. The aim will be to remove “unwarranted barriers” in providers’ access to banking services.

The FSB will publish its next report in December 2017.

What this means for you

A decline in the number of correspondent banking relationships is a concern because it may hamper the sending and receiving of international payments in affected jurisdictions. The FSB also warns that it may: “drive some payment flows underground, with potential adverse consequences on international trade, growth, financial inclusion, as well as the stability and integrity of the financial system.” The CBCG is tasked with taking forward the FSB’s action plan to consider and address these issues.

UKCA reports on digital payments solutions

The UK Cards Association (UKCA) released a report entitled, Digital Payments Solutions – Industry Considerations, on 29 June 2017. This document has been created to address industry concern at the growing fragmentation of digital wallet solutions available in the UK and the practical difficulties in managing the same.

The report aims to:

provide a clear overview of industry considerations, encompassing good practice, established conventions and behaviours that are now entrenched in the UK digital payments solutions market;

  • provide better consumer protection from poor outcomes to help guard against sub-standard solutions appearing and undermining consumer confidence, but also defending the significant investments in facilitating the use of mobile contactless payments more generally;
  • ensure the integrity and use of card payments is considered and maintained at all times, irrespective of the payment channel chosen; and
  • assist the regulatory community to better appreciate some of the wider trends that are now in situ, particularly as technical developments help to open-up the possibility for card payments to infiltrate into new industry sectors, payment channels and across an array of transaction environments.

What this means for you

The report seeks to tackle the apprehension surrounding the increasing complexity that consumers and merchants face when attempting to differentiate between what competing digital wallets comprise of, and how they operate at a practical level.

The document provides examples of good practices and behaviours which can be used by new market entrants to launch services in the UK, thereby helping to create a consistent landscape across digital wallets. The UKCA hopes that these consideration will help avoid the poor execution of new digital payment solutions being launched, so undermining customer and/or merchant confidence, and damaging the reputation of digital wallet solutions more generally in the UK market.

ECB announces planned new service for the settlement of instant payments

On 22 June 2017, the European Central Bank (ECB) announced the development of a new service for the settlement of instant payments. Planned to be operational from November 2018. the TARGET Instant Payment Settlement (TIPS), as it will be known, will be part of the already developed TARGET2 (the Eurosystem’s Real Time Gross Settlement System). It will enable instant retail payments across Europe by facilitating instant money transfers offered by banks.

What this means for you

By providing TIPS, the ECB will make sure that the demand for instant payments is met at European level and further facilitate the integration of the euro area. Euro payments currently take up to one business day for a payment to reach the beneficiary. TIPS will enable the funds to be available immediately for use by the recipient at any time of day, any day of the year.

Working with industry throughout Europe, the ECB plans to encourage bank uptake by offering the service at a reduced price for at least the first two years of operation.