Payments regulation—the shape of things to come

Will a new regulatory framework for payment systems in the UK lead to a world class payments system?

Original news

New Payment Systems Regulator consults on how it intends to regulate.

The new Payment Systems Regulator (PSR) has set out how it proposes to regulate the £75trn payments industry when it becomes operational on 1 April 2015. Its proposals aim to further its three main objectives: to promote competition, to promote innovation and to ensure payment systems are developed and operated in the interests of their users. Those wishing to comment on the proposals should do so by 12 January 2015.

What is the background to the PSR’s consultation?

Payment systems are vital for the economy. They enable funds to be directly transferred between individuals and institutions. According to the consultation paper, last year the UK’s payment systems processed approximately seven billion transactions, worth a reported £75trn. These systems include those which enable the clearing of cheques and credits, and the interconnections underpinning the ATM or cash machine networks in the UK, as well as the BACS and CHAPS systems.

The Financial Services (Banking Reform) Act 2013 (FS(BR)A 2013) was enacted in December 2013. FS(BR)A 2013, s 40 requires the Financial Conduct Authority (FCA) to establish a new regulator for payment systems in the UK.

Following a consultation by the FCA on the landscape of the payments systems in the UK, the PSR was created on 1 April 2014 as a subsidiary of the FCA. The PSR will become fully operational in April 2015 and will regulate operators of payment systems, as well as infrastructure and payment service providers.

The PSR consultation paper published in November 2014 seeks responses to the PSR’s proposed regulatory framework, and provides a summary of its proposed framework and policies.

What issues does the consultation cover?

Historically, payment systems in the UK have been owned and controlled by the banks. The PSR’s view is that this had led to a degree of inertia in these systems, with a lack of effective competition and innovation. The PSR states that its vision is for the UK to have a world class payment system that:

  • is responsive to, and focused on, the changing needs of service-users
  • promotes innovation, both technological and commercial, to meet future challenges
  • enables effective competition between providers of payment services
  • is efficient, provides value, and is easy and cost effective to use and operate, and
  • is reliable, secure, stable and predictable

The consultation will cover the PSR’s package of proposals aimed at bringing about these outcomes and driving change in industry behaviour. The consultation paper sets out the PSR’s proposed regulatory framework, its policy proposals, its regulatory approach, and how it intends to implement and enforce the requirements.

What are the PSR’s policy proposals?

The PSR proposes a new Payments Strategy Forum, with broad representation of industry and service-users. The PSR will also launch a market review into the ownership and competitiveness of infrastructure provision, to commence from April 2015.

In order to establish effective governance and control, the PSR also proposes that operators should publish board minutes and details of votes and also address conflict of interest situations. In particular, the PSR proposes that operators should avoid the situation where an individual is both a director of an interbank operator and a central infrastructure provider to the same payment system.

It is proposed that the issue of access to such systems is regulated by the PSR. Under the PSR proposals, operators are to have publicly-disclosed and risk-based access requirements which will permit fair and open access to systems. Sponsor banks are to publish information on the sponsor services they offer, including access criteria and processes. A further market review by the PSR into the issue of indirect access is also proposed. The industry is also to develop a code of conduct, to be approved by the PSR.

In addition, the PSR proposes to introduce principles covering the PSR’s expectations of industry behaviour, and will expect the industry to work with them on a ‘no surprises’ basis regarding significant developments. It also proposes to issue guidance on powers and processes setting out its enforcement and complaints procedures, as well as guidance on its statutory objectives, penalties guidance and administrative priority framework.

What are the next steps?

The PSR has provided extensive questions, addressed to the industry and interested parties, on the above proposals in its consultation paper, with comments to be received by 12 January 2015. The PSR’s final policies will be published in a policy statement by the end of March 2015, in readiness for their operational launch on 1 April 2015.

 

Questions were answered by Rachael Callister, solicitor in the regulatory team at Pannone part of Slater & Gordon.

Interviewed by Nicola Laver.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

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