(Note: the below is a high level review of certain potential issues and is not to be relied upon in any definitive manner nor as legal and/or regulatory advice).
The UK Financial Conduct Authority (FCA) Payment Systems Regulator (PSR) issued a consultation paper (PSR CP14/1) on 14 November 2014 regarding the role of the PSR and a new regulatory framework for payment systems in the UK.
The deadline for responses to the consultation is 5pm on Monday 12 January 2015 and the PSR has provided a suggested response template which respondents may find useful.
The PSR intends on issuing its policy statement in March 2015 before its full operational launch in April 2015.
What is the PSR?
The consultation paper re-iterates the background to the PSR, noting the following:
“The Payment Systems Regulator (PSR) was incorporated in April 2014 and will become fully operational in April 2015. The PSR is a subsidiary of the Financial Conduct Authority (FCA), but it is an independent economic regulator, with its own objectives and governance…
We have three statutory objectives. These are:
- to promote effective competition in the markets for payment systems and for services provided by those systems, including between Operators, PSPs and also Infrastructure Providers, in the interests of service-users
- to promote the development of and innovation in payment systems, in particular the infrastructure used to operate payment systems, in the interests of service-users
- to ensure that payment systems are operated and developed in a way that considers and promotes the interests of service‑users
Our aim is to ensure payment systems and the regulatory framework operate in the best interests of service-users and the wider UK economy − promoting rather than constraining innovation and competition.”
Who does the PSR regulate?
HM Treasury (the Treasury) will designate the systems that the PSR will regulate. These will be the largest and most important payment systems which, if they were to fail or to be disrupted, would cause serious consequences for their users. The Treasury issued its consultation Designation of payment systems for regulation by the Payment Systems Regulator on 14 October 2014. It has proposed designating the main interbank payment systems, namely Bacs, CHAPS, Faster Payments Service (FPS), LINK, Cheque and Credit Clearing (C&CC) and Northern Ireland Cheque Clearing (NICC) and the two largest card payment systems in the UK, MasterCard and Visa. The Treasury is expected to reach its decision well in advance of the PSR’s full operational launch in April 2015.
For each designated system, all the participants in that payment system will fall under the PSR’s remit. Participants in a payment system include the Operator that manages or operates that system, the PSPs using that system, and the Infrastructure Providers to the payment system.
Please note that while the PSR can only use its regulatory powers in relation to designated payment systems, its competition powers are available with respect to all payment systems.
What does the consultation cover?
In this Consultation Paper the PSR sets out:
- its assessment of the key challenges the industry is facing
- its proposed regulatory framework including our policy proposals, regulatory approach, and how the PSR will implement and enforce its requirements.
This consultation is relevant to Operators, banks, building societies and other PSPs, service-users of UK payment systems including businesses, trade bodies, consumer groups and Infrastructure Providers. This consultation will also be relevant to other parties interested in UK payment systems, such as those offering or looking to offer innovative or other services using payment systems in the UK.
Summary of the PSR’s proposals
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Industry strategy
The PSR will take control of the strategy development and setting process to enable the UK to have world class payment systems – the PSR will set up a new Payments Strategy Forum with broad representation of industry and service-users
The PSR will launch a market review into the ownership and competitiveness of infrastructure provision commencing by April 2015
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Ownership, governance and control of payment systems
The PSR will open up governance and control of payment systems by involving additional players in more transparent decision making:
- all Operators will be required to ensure service‑users are appropriately represented in decision-making
- conflicts of interest will need to be addressed so that individuals are not simultaneously a director of an Interbank Operator and of a Central Infrastructure Provider to the same payment system
- all Operators will be required to publish board minutes and votes
Operators will be required to report to the PSR on compliance with the PSR’s service-user direction annually.
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Direct access to payment systems
Operators (of Bacs, C&CC, CHAPS and FPS) must have objective, risk-based, and publicly disclosed Access Requirements, which permit fair and open access.
LINK, MasterCard and Visa, which are already subject to an access rule under Article 28 of the European Payment Services Directive, must publicly disclose their Access Requirements.
All Operators must report to the PSR on compliance with the relevant access rule applicable to them annually.
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Indirect access to interbank systems
Sponsor Banks must publish information on the sponsor services they offer (including access criteria and processes).
Industry will develop a PSR-approved Code of Conduct.
The PSR will launch a market review into Indirect Access, commencing by April 2015.
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Interchange fees
The PSR will engage with relevant authorities on the proposed EU Interchange Regulation. If implementation is delayed we will consider taking action in the UK.
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Regulatory tools
The PSR will introduce Principles on our expectations of industry behaviour. Industry will work with us on a ‘no surprises’ basis, discussing significant developments with the PSR in advance and on an ongoing basis.
The PSR will issue Powers and Processes Guidance setting out its enforcement and complaints procedures, Guidance on our statutory Objectives, Penalties Guidance and its Administrative Priority Framework.