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HM Treasury’s Payments Landscape Review: Call for Evidence

  • United Kingdom
  • Financial services and markets regulation
  • Patent services
  • Financial services - Payment services

27-08-2020

On 28 July 2020, the HM Treasury (‘HMT’) published a Call for Evidence to kickstart a review of the UK payments landscape. From our perspective, this review is likely to bring about changes to the current regulatory regime governing payment services in the UK and potentially  in other jurisdictions based on the UK/EU model.

The current payments landscape

The past decade saw the UK adopting a dynamic approach to ensure that the UK payments landscape remains fit for purpose and develops in line with market innovations for the benefit of end users.

In 2015 there was the launch of the economic regulator, the Payment Systems Regulator  to promote innovation, as well effective competition in payment systems markets whilst ensuring they were being operated with the interests of service users in mind. Later in 2018 the separate operators managing the Faster Payments Scheme (‘FPS’), the Bacs Scheme (‘Bacs’), Paym and the Cheque & Credit Clearing Company consolidated into one, Pay.UK.  Perhaps, the most notable achievement following these two developments is the current project to build a modernised New Payments Architecture (‘NPA’) to replace the UK’s retail interbank clearing and settlement systems and create a simplified body of rules, standards and processes to use overlay services such as CHAPS.

The HM Treasury’s Review

As the payments landscape continues to evolve to match a rapidly-changing technological environment and growing user demands for greater speed, choice and convenience, HMT notes new opportunities and risks in the landscape, which it is keen to evaluate to feed into its longer-term legislative work.

Crucially, HMT’s primary aim behind this review is to ensure that the UK maintains its status as a world leading policy maker in payments and to ensure that the UK’s payments landscape continues to develop in line with the high-level aims outlined by the government, namely that:

  • UK payments networks operate for the benefit of end users, including consumers;
  • the UK payments industry promotes and develops new and existing payments networks;
  • UK payments networks facilitate competition by permitting open access to participants or potential participants on reasonable commercial terms; and
  • UK payment systems are stable, reliable and efficient.

As such, HMT has identified several key drivers of change in the payments landscape:

Faster Payments

The HMT believes that the use of Faster Payments for person-to-business transactions could be made more attractive if the FPS had an embedded dispute resolution and assignment of liability framework to compete with the more popular major card schemes for these type of transactions. It raises the potential for the FPS to have processes similar to the card schemes’ chargeback process, the direct debit guarantee in Bacs and/or PayPal’s Buyer Protection.

Open Banking

The HMT plans to enhance the current legislative framework to promote more open banking transactions safely and securely in the UK. This fits in with the government’s goal to see more account-to-account payments and support for Payment Initiation Services Providers to break through UK payments market barriers without jeopardising consumer protection.

The emergence of new payment services and chains

The HMT recognises that payments firms are increasingly becoming specialists in key parts of payment transactions chains. It will therefore assess whether the regulatory perimeter needs to be expanded to mitigate the risks associated with the lack of regulation of specialist technical providers, such as payment gateways or the current lower regulatory requirements on other firms such as e-money institutions in contrast with credit institutions.

Cross-border Payments

The HMT notes the benefits of faster, cheaper, more transparent and inclusive cross-border payment services and the various global initiatives seeking to enhance cross-border payments including SWIFT’s gpi services, Visa Direct, Mastercard Send and Project 27 in the Nordic countries. The HMT is keen to obtain the industry’s views on how it sees the cross-border payments evolving in the next 10 years and how the UK government can support innovation in this market. 

The New Payments Architecture

The HMT recognises the critical importance of the NPA and plans to build on the PSR’s regulatory approach and the Bank of England recommendation on the NPA to inform its legislative initiative around the governance of the NPA.

Cryptoassets, Stablecoins and Central bank digital currencies

HMT views the use of crypto-assets as currently not being widely used or accepted in the UK but  having the potential to develop as a means of exchange. Noting existing initiatives to promote the development of cryptocurrencies in the UK, HMT is not seeking evidence on this key driver through the Call for Evidence. Similarly, HMT recognises the potential for having a Central Bank issued digital currency, but intends to engage with the Bank of England on progress on this key driver.

Next steps

HMT is now seeking the industry’s view on the first four key drivers mentioned above. Specific questions raised by the HMT are listed in Annex A to the Call for Evidence and responses are to be submitted to Paymentslandscapereview@HMTreasury.gsi.gov.uk by 20 October 2020. Following the Call for Evidence, the government will provide a summary of responses and will set out next steps for the review.

It will be interesting to see what direction the government plans for the UK Payments landscape. In particular, with the end of the Brexit transition period fast-approaching with no real likelihood of an extension, it remains to be seen how much the government intends to keep the UK payments regulatory regime aligned with the pan-European regime, and how it plans to maintain the UK’s status as a world leading policy maker in the sector.

As an aside, the European Commission (‘EC’) has recently closed a Consultation on a retail payments strategy for the EU through which stakeholders were invited to comment on the harmonisation of payment solutions across the EU and “same as domestic” customer experience; adequacy of the current EU legal framework for retail payments; interoperability of domestic retail payments systems, support infrastructures and licensing regimes; and how cross-border payments could be improved. Based on published responses to this consultation, we note that several PSPs regard the UK regime as a standard, especially around open banking and for the promotion of innovation. 

If you need any assistance in formulating your responses to HMT or have any queries concerning the key drivers mentioned above please contact either Tony Anderson or Richard Jones.