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Payment Matters: No. 33

  • United Kingdom
  • Financial services
  • Financial services - Payment services


Focused on: Phase two of the Payment Account Regulations

Payment Services Providers (“PSPs”) who offer payment accounts are currently grappling with the implementation of phase two of the Payment Account Regulations (“PARs”) which includes obligations to provide consumers with a fee information document, an annual statement of fees, a glossary of terms and an obligation to update collateral to use the FCA’s standardised terms and definitions. We have, therefore, set out below the key actions which PSPs offering payment accounts should now take in advance of the fast approaching implementation deadline (currently scheduled for October 2018).

What does this mean for PSPs in practice?

  • Fee Information Document - PSPs will need to develop a process to provide consumers with a Fee Information Document (“FID”) in good time before entering into a contract for a payment account. The FID will include, amongst other information, a list of the services listed in the FCA’s linked services list which are offered (and any associated fees) to enable consumers to compare payment account offers. A separate FID will need to be developed for each individual payment account and PSPs must ensure that the FID is a short and stand-alone document which is clearly distinguishable from other communications. The FID must also comply with the prescriptive requirements within the European Banking Authority’s Implementing Technical Standards. For example, PSPs must use the prescribed template document, comply with the order of information set out therein and include the relevant fees under each of the relevant subheadings. We recommend that PSPs now take the time to review the Implementing Technical Standards to ensure compliance in advance of the implementation deadline.
  • Statement of Fees - PSPs must develop a process to provide consumers with an annual Statement of Fees (“SOF”) setting out all of the fees charged on their payment account in the relevant period. The SOF must include, amongst other information, the total amount of interest, fees and charges, the total amount of interest earned and certain fees associated with packages of services linked to a payment account. PSPs are required to provide the SOF by the method of communication agreed with the consumer, although there is an obligation to provide the SOF on paper if expressly requested. This means PSPs should agree the relevant method of communication prior to the implementation date (e.g. by updating payment account terms to provide that SOFs will be made available by, for example, email). PSPs should also conduct a detailed review of its SOFs to ensure that the documents comply with European Banking Authority’s Implementing Technical Standards.
  • Glossary of Terms - PSPs will also need to create a glossary of the terms set out in the FCA’s linked services list and the related definitions. The linked services list will set out the most representative services linked to a payment account, contain terms and definitions for each of the services features and, where applicable, use the EU standardised terminology developed under the European Banking Authority’s Regulatory Technical Standards on this matter. PSPs must provide the glossary on paper (or another durable medium) upon request by a consumer, in addition to making it available in an easily accessible manner on its website and in its premises. The glossary is intended to serve as a useful tool to encourage a better understanding of the meaning of fees and contributes towards empowering consumers to choose from a wider choice of payment account offers. It is, therefore, important that PSPs use clear, unambiguous and non-technical language.
  • Updating collateral - PSPs will need to make changes to terms and conditions, marketing information and other commercial collateral to incorporate the terms set out in the FCA’s linked services list. This may include updating a wide range of documentation (including brochures, tariffs, account product information and communications made via websites and Apps). We recommend that PSPs take the time to identify whether any of its existing definitions are different (once the FCA publishes the list) as implementing changes will take time, particularly in relation to PSPs’ terms and conditions where it is required to provide advance notice of any changes.

What’s next for PSPs?

A specific impact date for phase two has not been set, however the PARs make it clear that the obligations introduced under phase two will take effect six months after the FCA publishes the linked services list. The FCA has recently announced on its website that it expects to publish the list in April 2018, therefore implying that PSPs now have until sometime in October 2018 to implement operational processes and develop cohesive action plans to ensure that PSPs are compliant in advance of the fast approaching implementation deadline.

We are also aware that the industry is still grappling with a number of the obligations implemented under phase one of PARs, including the obligation to disclose certain costs and fees if products and services not linked to a payment account are available to purchase separately from the relevant PSP. For more information on the legal obligations arising under phase two of PARs, or for assistance with interpretation or your compliance regime in respect of phase one of PARs, please contact Ruth Fairhurst or Sian Cosgrove.

PSPs are also reminded that the FCA is currently gathering the requisite data on basic payment accounts and the switching of payment accounts which it is required to submit to the HM Treasury. This includes confirmation of the number of payment accounts that have been switched or refused and the number of the number of basic bank accounts opened or refused. The FCA has made it clear that PSPs are required to submit this information to the FCA (where applicable) by 30 April 2018.

Regulatory Technical Standards on Strong Customer Authentication and Common and Secure Open Standards of Communication published in the Official Journal

The Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication (“RTS”) have been published in the Official Journal. The RTS entered into force the day following its publication in the Official Journal on 13 March 2018 and it shall apply from 14 September 2019, except for Articles 30(3) and 30(5) which shall apply from 14 March 2019. The final text can be found here.

What does this mean for you?

As previously reported, we recommend that all payments businesses take time to analyse what changes they will need to make in order to comply with the regulatory standards. A link to our previous summary of the RTS can be found here.

We are aware that a number of payment service providers within the industry are already developing dedicated interfaces to use as a secure method of providing access. Firms should also begin developing solutions to ensure it has effective mechanisms in place to meet the strong customer authentication requirements.

There is of course a significant overlap between the RTS and the UK’s Open Banking regime. A link to our Open Banking flyer can be found here.

HM Treasury consults on the use of cash and digital payments

On 13 March 2018, HM Treasury published a consultation on the future use of cash and the development of digital payments. The paper aims to gather evidence to inform the Government on how it can support the growth and development of digital payments whilst retaining the option for payments by cash.

It is encouraging to see that the Government continues to drive progress for developing digital payments. The paper acknowledges that digital payments have become integrated in our everyday lives but seeks feedback on the factors which still inhibit the adoption of innovative electronic payment methods. For example, the lack of trust in electronic payments across the industry, a lack of understanding of the different innovative products and services available to both consumers and businesses and the excessive cost of some payment instruments in comparison to more traditional methods.

With regards to cash, the paper seeks feedback on cash usage to identify trends in the current cash landscape. For example, how the level of cash handled in businesses has changed in the last five years and what factors influence cash usage, including demographics, geographic or socio-economic status. The paper also touches upon the role of cash in facilitating tax evasion, hidden economy and money laundering and how the Government could reduce this to ensure legitimate cash usage is protected in the future.

What this means for you?

As payment services technology rapidly develops, it will be increasingly important for institutions to continue to develop and adopt digital payment methods to support growing trends and compete within the market. Institutions will also need to anticipate how fraudsters can exploit digital payment technology and to continuously develop measures to protect its customers from payment fraud, or identify illegitimate cash usage. We, therefore, recommend that institutions take the time to review the consultation document and respond to the questions raised by HM Treasury to enable the Government to create initiatives to support the development of digital payments and the protection of cash. The consultation period closes on 5 June 2018.

The European Commission proposes to make cross-border payments in Euro cheaper throughout the Union

On 28 March 2018, the European Commission published a proposal to amend Regulation (EC) 924/2009 in relation to charges on cross-border payments in the Union and currency conversion charges.

The existing rules on cross-border payments in Regulation 924/2009 equalised, across the EU, fees for cross-border payments in Euro within the Union for domestic payments in Euro (i.e. payments in Euro within the same Member State). Non-euro area Member States did not benefit from the Regulations which means domestic payments in Euro are either very expensive or do not exist. The objective of the proposal is, therefore, to extend the benefit to Member States outside the Euro area, putting an end to the high cost of intra-EU cross-border transactions in Euro. This will allow all consumers and businesses to fully reap the benefits of the Single Market when they send money, withdraw cash or pay abroad.

The Commission also proposes to enhance the transparency of costs relating to cross-border transactions by mandating full cost disclosure before a consumer starts a payment transaction involving a currency conversion. The proposal will also establish a temporary cap on currency conversion costs until the European Banking Authority publishes transparency measures.

Please note the proposal does not deal with cross-border transactions in other currencies than Euro. An evaluation of the impact of the new rules should be carried out by 31 October 2022 and presented to the European Parliament, the Council, the European Economic and Social Committee and the European Central Bank and the proposal suggests that this will include assessing the appropriateness of extending the proposal to all currencies of EU Member States.

What this means for you?

The legislative proposal will now be submitted to the European Parliament and Council for adoption. If adopted, the amended regulation will have a significant impact on businesses and institutions operating in the European Union. For example, there will be a temporary ban on all currency conversions costs until the European Banking Authority has implemented cost transparency rules in line with the amended Regulation. This could be, at the latest, 36 months after the entry into force of the amended Regulation. We, therefore, recommend that institutions monitor the adoption of this proposal at a European level. We will of course publish any additional updates in this space to keep you informed of developments.

New Payment Systems Operator updates voluntary code of conduct for indirect access providers

On 5 April 2018, the New Payment Systems Operator published an updated version of the voluntary code of conduct for indirect access providers, taking into account the revised Payment Services Directive (PSD2) and the new powers relating to indirect access to designated payment systems. The code makes it clear that the Payment Services Regulation 2017 contain specific provisions that directly apply to indirect access providers offering access (sponsorship services) to BACS, Faster Payments Scheme and CHAPS and that any new applications for indirect access services, variations or withdrawals must be considered in line with the PSRs 2017.

What this means for you?

The code outlines the standards of best practice that are expected from an indirect access provider for the supply of indirect access services. The Code Administrator will continue to monitor the effectiveness of the Code through regular compliance monitoring and engagement with stakeholders and the PSR. This monitoring will include seeking feedback from interested stakeholders via the Code Consultative Group. We recommend that any indirect access providers review the revised version of the code to ensure that they are compliant. This will include analysing your obligations under the PSRs 2017. Please contact Richard Jones or Ruth Fairhurst if you need any assistance with this analysis.

Payment System Operator replies to Payment Systems Regulator’s open letter

In January 2018, the Payment Systems Regulator (“PSR”) published an open letter to the New Payment System Operator (“NPSO”) setting out its expectations for the outcomes and delivery of the NPSO’s work on several key strategic payments initiatives. The letter recommended that NPSO develops strategies to ensure effective stakeholder engagement, transparent decision making and competitive procurement. The PSR also recommended that the NSPO develops new rules and standards in relation to the New Payments Architecture (“NPA”) to facilitate competition and innovation.

In response, the NPSO has confirmed that it has made significant progress and it aims to take on the role as the designated operator for the BACS and Faster Payments systems by May, with cheques to follow shortly after. In particular, the NSPO confirmed:

  • An End User Advisory Council has been established and the NSPO is in the process of recruiting for a Participant Advisory Council to ensure stakeholders are consulted as part of the Board decision making processes. The Councils and the NSPO will also be supported by a wider stakeholder community.
  • An interim NPA Programme Board is in place to progress the work of the Payments Strategy Forum. The NSPO has confirmed that it has prioritised addressing the outstanding questions identified in the Blueprint, in co-ordinating the procurement work underway within BACS and Faster Payments and in developing a close alignment between the NPA and the Bank of England’s RTGS Renewal Programmes. A permanent NPA Programme Board and stakeholder governance structure, to allow a range of interested parties to participate, is expected to be in place by May 2018.
  • A Standards Framework v1.0 will be available to support the initial development work of the standards and rules for the NPA. The NSPO is hoping the initial delivery will be in May 2018.

What this means for you?

The NSPO is expected to hold a stakeholder event on 9 May to provide an update on its progress and NSPO has confirmed that it will share details at the stakeholder event to confirm how third parties can get involved in the wider programme. We, therefore, recommend that institutions monitor the progress of the NSPO, particularly in relation to the new Framework which will support the development of the NPA and that institutions attend the 9 May event.

The Payment Systems Regulator publishes its Annual Plan and Budget for 2018/9

The Payment Systems Regulator (“PSR”) published its Annual Plan and Budget for the year 2018/19 on 20 March 2018. The Plan outlines the PSR’s aims for the coming year and outlines activities and upcoming costs as well as offering a review of the previous years’ work. A factsheet published in conjunction with the Plan provides a summary.

What this means for you?

The key areas which the PSR will focus on over the coming year include:

  • A new steering group has been established to design a reimbursement model for victims of authorised push payment fraud. The steering group will publish an interim code in September 2018, open a public consultation and aims to then publish the final code in early 2019.
  • A continuing review of the ATM sector and, in conjunction with LINK, taking steps to maintain the free-to-use ATM network in light of the significant changes currently happening in the sector.
  • Monitoring of Faster Payments and BACS as non-bank Payment Service Providers gain direct access for the first time, and identifying and resolving any barriers to direct access.
  • Supporting the New Payment System Operator in the implementation of the New Payment Architecture and transformation of the UK’s interbank systems.
  • Closely monitoring the fast growing contactless payments market to ensure that the sector does not develop in a way which inhibits innovation or competition, or in a way which is not in the interests of consumers.

We will keep you updated on these developments as and when the PSR reports upon them over the coming year.

The European Banking Authority consults on extending Joint Committee complaints-handling guidelines to new institutions under the revised Payment Services Directive and the Mortgage Credit Directive

The European Banking Authority (“EBA”) has launched a consultation on extending the scope of the Joint Committee (“JC”) Guidelines on complaints-handling. The Guidelines currently apply to authorities competent for supervising complaints-handling by firms in their jurisdictions, which include credit institutions, payment institutions and electronic money institutions. The EBA has recommended that this is extended to cover payment initiation service providers (“PISPs”) and account information service providers (“AISPs”) under the revised Payment Services Directive (“PSD2”), and credit intermediaries and non-credit institution creditors under the Mortgage Credit Directive (“MCD”).

In relation to AISPs, the EBA proposes that the Guidelines will only apply to security-related complaints (but not to other types of complaints) where the AISP offers account information services only. The EBA also recommends that competent authorities should apply the guidelines in a proportionate manner, taking into account the nature, scale and complexity of AISPs, non-credit institution creditors and credit intermediaries as some of these businesses can be very small and may not have the capacity to incorporate the requirements of the Guidelines into their internal policies.

What this means for you?

The extension of scope will provide consumers with the same level of protection, irrespective of which regulated product or service they are purchasing and which regulated institution they are purchasing it from. For AISPs, PISPs, credit intermediaries and non-credit institution creditors under the MCD this will require changes to internal policies to ensure that operational processes are in line with the JC Guidelines. We, therefore, recommend that those affected comment on the proposals put forward to ensure the measures proposed are appropriate. The closing date for responses is 27 May 2018 and the final report will be published shortly after this deadline. You can submit your responses by clicking on the ‘send your comments’ button on the consultation page.

The European Central Bank finalises guides on bank and FinTech bank licensing

The European Central Bank (“ECB”) has published final guidance in relation to general licencing applications for credit institution status and more specifically guidance on licence applications for FinTechs to become credit institutions. The general guidance outlines the application process together with assessment requirements covering governance, risk management and capital. The specific FinTech guide is to be read in conjunction with the general guide and is geared specifically towards FinTechs. It focuses on those entities with a FinTech business model that are interested in applying for a banking licence.

What this means for you?

It is encouraging to see that the ECB recognises that FinTechs are interested in applying for credit institution status and has developed guidance to support this. As a result of technological innovation in the banking sector, a growing number of entities with Fintech business models are entering the financial market and the ECB has seen an increasing number of credit institution licence applications submitted for authorisation by such entities. For any entities interested in applying for a licence, we highly recommend that you review the guidance to ensure a smooth and effective application. The ECB plans to update the guide regularly to reflect new industry developments. If you require support with an application, please contact Richard Jones.

The European Banking Authority launches its FinTech Roadmap

The European Banking Authority (“EBA”) launched its FinTech Roadmap on 15 March 2018. The Roadmap sets out the EBA’s key priorities for 2018/9 as well as the creation of a FinTech Knowledge Hub to promote knowledge sharing and improve technological neutrality in regulatory and supervisory approaches.

The outlined priorities, complete with delivery timescales, include:

  • Monitoring the regulatory perimeter, including assessing current authorisation and licencing approaches to Fintech firms, and analysing regulatory sandboxes and innovation hubs in order to identify a set of best practices to enhance consistency and facilitate supervisory coordination
  • Monitoring emerging trends and analysing the impact on incumbent institutions' business models and the prudential risks and opportunities arising from the use of Fintech
  • Promoting best supervisory practices on assessing cybersecurity and promoting a common cyber threat testing framework
  • Addressing consumer issues arising from Fintech, in particular in the areas of unclear regulatory status of Fintech firms and related disclosure to consumers, potential national barriers preventing Fintfech firms from scaling up services to consumers across the single market, and the appropriateness of the current regulatory framework for virtual currencies
  • Identifying and assessing money laundering/terrorist financing risks associated with regulated Fintech firms, technology providers and Fintech solutions

What this means for you?

The Action Plan combines both supportive measures to help introduce Fintech solutions and proactive measures to foster and stimulate new solutions and address in a determined way the emerging risks and challenges. The EBA’s Fintech priority topics will leverage knowledge and expertise from participants in the EBA’s new ‘Fintech Knowledge Hub’ and contribute to the monitoring of the impact of Fintech, including on business models and interconnectedness in the financial system.