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Digital payments ripe for closer cooperation between UK and US

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    Greater regulatory and supervisory innovation and cooperation between the UK and the US would boost the scale and technological sophistication of their respective financial services sectors and help drive global regulatory alignment, according to a new paper from TheCityUK and Eversheds Sutherland.

    It makes clear that this alignment would have the potential to significantly reduce cross-border barriers to entry for financial services providers, and allow businesses and consumers to make efficient and data-rich cross-border payments.

    The paper, ‘UK-US financial innovation: digital payments,’ – the first in a series of six focused on financial innovation between the two markets – argues that although challenges prevail, removing regulatory obstacles to establish a deep and successful digital payments market would be one key area of focus and offer substantial mutual  benefits to both markets.

    Nicola Watkinson, Managing Director, International Trade and Investment, TheCityUK, said, “There is an opportunity for the UK and the US to build a bold and collective vision for financial innovation and regulatory cooperation and digital payments is a critical area for focus. As the two largest financial markets in the world, UK-US leadership here would serve as a model for global cooperation in financial services regulation and drive greater global alignment.”

    Matthew Allen, Global Head Financial Services Sector, Eversheds Sutherland, said: “The end of the UK’s Brexit transition period presents a unique opportunity to establish a new gold standard in UK-US cross-border regulatory cooperation. Financial innovation sits at the heart of that vision and we are delighted to be working with TheCityUK and its members to catalyse an outcomes based regulatory dialogue on the financial innovation issues which are most ripe for US/UK alignment.”

    To overcome the regulatory barriers and drive closer UK-US collaboration in digital payments, the paper makes recommendations in five key areas:

    Open banking:
    Open banking has the potential to act as a catalyst for innovation and competition in payments services. This will depend on clear regulatory rules, industry cooperation, and the development of guidelines and standards that provide for safe access to consumer information, give consumers control and flexibility over how their data is used and by whom, and remain flexible enough to allow for further innovation.

    US regulation must balance fostering industry-driven innovation with ensuring technical interoperability. The best way to achieve this would be through the development of a principles-based framework and a common technical standard. The US Consumer Financial Protection Bureau (CFPB) should work with other federal regulators to coordinate its rules across agencies.

    Privacy and international data transfer:
    Clear and manageable rules regarding privacy, data use, and transfers of consumer data between the UK and US will be critical to driving innovation and collaboration between the US and UK in financial services, including in digital payments. The introduction of a federal law in the US could ease compliance uncertainty as it relates to data use and privacy for payments and other financial services companies.

    Cooperative rules and guidelines should be put in place to make clear what is required for cross-border transfers of consumer data between the UK and the US. A bilateral arrangement between the UK and US governments/regulators should address the uncertainty resulting from the Schrems II decision, which invalidated Privacy Shield and casted doubt on the efficacy of Standard Contractual Clauses.

    Licensing regimes:
    How the regulators in the UK, the US federal regulators and the regulatory bodies of the US states approach these existing complexities will be crucial. An approach like the one taken by the US CSBS, in which member jurisdictions agree to accept findings by other members with respect to key licensing, reporting, and examination requirements, would lower compliance costs, inefficiencies and enable greater access for UK companies.

    Cross-border payments:
    Both countries should establish multi-national payment councils with industry participation to explore the most feasible approach to achieving interoperability. The goal would be to explore interoperability between UK-US payment systems, to create a cross-Atlantic, always-on real time (or near real time) payment solution.

    Financial inclusion:
    As countries continue to accelerate the use of cashless payments, regulators and industry in the US and UK should work together to ensure that future innovation in payments addresses the needs of the underbanked segments of our communities. This can be achieved through existing business and government forums such as the British American Finance Alliance (BAFA)

    TheCityUK will be working closely with HMT and industry to progress these issues in the coming months as we look for new opportunities to strengthen our strong business linkages.

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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