Power to the PSR

What are the most important aspects of the guidance recently published by the Payment Systems Regulator (PSR)? Noel Beale, director of Burges Salmon’s competition and regulation department, explores the guidance and explains that the PSR is now in a position to use its competition powers.

Original news

PSR publishes final competition and market guidance LNB News 13/08/2015 142

The PSR has published guidance for consumers and businesses who use, or are likely to use, the services provided by payment systems explaining how it will use its competition powers effectively and efficiently. The PSR has also published responses to an earlier consultation on its concurrent competition powers in parallel with the Financial Conduct Authority (FCA).

What is the background to the PSR’s policy paper?

The immediate background to the PSR’s policy paper is that since 1 April 2014, the PSR has had the power to make market investigation references to the Competition and Markets Authority (CMA) and since 1 April 2015, it has been a concurrent regulator under the Competition Act 1998 (CA 1998) as regards competition investigations.

These, and the setting up of the PSR itself, can be seen against the background context of the issues that EU and UK competition authorities have had with payment systems over the last 15 years or so—where there have been significant investigations in to the operations of Visa and MasterCard, in particular, around the levels of multilateral interchange fees. This is now subject to EU legislation under the Regulation on interchange fees for card-based payment transactions (EU) 2015/751.

These powers were therefore given to the PSR to enable a specialist regulator to stay on top of the issues to do with payment systems and to be able to investigate with the benefit of detailed sector knowledge should an investigation be required.

The policy paper sets out the processes and procedures that the PSR will apply when using its competition powers.

What are the main provisions of the policy paper?

One of the key points to note about the policy paper and the PSR’s approach to its use of competition powers is the explicit approach of making the PSR’s similar to those of the FCA where possible. These in turn are mostly aligned closely with the standard approach of the CMA.

It is important to note that the PSR’s CA 1998 powers relate to agreements and conduct in relation to the participation in payment systems in general terms. Investigations may therefore include not just regulated payment systems operators, but also other entities such as:

• banks
• building societies
• infrastructure providers, and
• businesses using the services

There are a couple of controversial elements within the guidance. The first is that the PSR will not require parties that wish to settle competition cases to waive their rights to appeal the Competition Appeal Tribunal.

The second, which may be considered more controversial, is that PSR General Condition 1—which applies to participants in regulated payment systems—requires those participants to bring contraventions of competition law to the PSR’s attention. Some respondents to the PSR’s consultation argued that this disclosure obligation might breach the privilege against self-incrimination under the European Convention on Human Rights (ECHR) given the ‘quasi-criminal’ nature of competition law infringements. However, the PSR has stuck to its approach regarding this disclosure requirement. It remains to be seen whether this will survive any challenge in any competition cases brought by the PSR.

What should affected firms do as a result of the paper?

The paper signals the PSR’s readiness to use its competition powers. Companies that operate in these markets need to be prepared for this and to expect it to happen. We would expect the PSR to want to be seen using these powers (and reporting their use to the CMA) given that under the Enterprise and Regulatory Reform Act 2013 there is a ‘use it or lose it’ attitude to concurrent competition powers. Therefore, if they have not done so recently, companies should carry out competition risk audits of those aspects of their businesses that are most at risk should an investigation take place.

What advice should lawyers give to their clients?

The paper shows that the PSR should now be in a position to use its competition powers. Therefore, clients should be advised of the need to be prepared for the PSR to be launching competition investigations and should ideally have carried out their own internal audits before this happens so that they are not caught out.

Interviewed by Lucy Karsten.

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